Introduction:
Over the periods of time different agreements was established on international textile sector to make the sector more strong, independent and self reliant. Today we can see that the textile is one of the most influencing sectors on international business and economy. There are many country in the world that’s economy is mostly dependent on textile. The objects of different agreement were also different. MFA was one of the agreements which were introduced by USA and EU for developing countries.History of Approving:
Exports of textiles and clothing from developing countries have long faced restrictive blocks to their exports called quotas. Brought in force as a temporary relief measure in favour of the domestic textile manufacturers in the developed countries, it has been in force for 40 years now. In 1962, a Long Term Agreement (LTA) regarding international trade in cotton textiles was signed. It replaced the one-year Short Term Agreement that existed at the time. LTA underwent several renewals and was subsequently replaced by the Multi Fibre Agreement (MFA) in 1974.The Multi-Fiber Agreement was set up in 1974 as a set of formal quota agreements and restrictions, governing textiles and the clothing trade between developing countries and the developed world. The MFA replaced the 1964 Agreement in International Trade in Cotton Textiles.
Under the MFA, the United States and the European Union restricted imports from developing countries in an effort to protect their own domestic industries. Under the agreement, each developed country was assigned a quota or quantities of a specific item which could be exported to the U.S. and EU.
What is Multi-Fiber Arrangement - MFA?
The Multi Fiber Arrangement (MFA, also known as the Agreement on Textile and Clothing (ATC)) governed the world trade in textile and garments from 1974 through 2004, imposing quotas on the amount developing countries could export to developed countries. It expired on 1 January 2005.The MFA was introduced in 1974 as a short-term measure intended to allow developed countries to adjust to imports from the developing world. Developing countries have a natural advantage in textile production because it is labor intensive and they have low labor costs. According to a World Bank/International Monetary Fund (IMF) study, the system has cost the developing world 27 million jobs and $40 billion a year in lost exports.
So in a word an international trade agreement on textile and clothing that was active from 1974 till 2004. The agreement imposed quotas on the amount that developing countries could export in the form of yarn, fabric and clothing to developed countries.
MFA came into force to allocate export quotas to the low cost developing countries, limiting the amount of imports to countries whose domestic industries were facing serious challenge from rapidly increasing imports. It sought to expand trade, reduce barriers to trade and progressively liberalize world trade.
Objects of MFA:
There are a number of reasons cited for the introduction of the MFA, although the most widely accepted is that of the developed world using it as a form of protectionism to secure their own textile industries against the threat posed by low-cost competition from less developed countries.However, by giving quotas to individual nations, it also gave them a guaranteed share of the rich countries.’ (BBC News, 2004) This is in contrast to some other justifications for the MFA, for example ‘a major aim of the multi-fibre agreement has been to provide greatest scope for newly industrialized countries to increase their share of world trade in textile products whilst at the same time maintaining some stability for textile production in the developed economies.’
Bangladesh and MFA:
The Arrangement was not negative for all developing countries. For example the European Union (EU) imposed no restrictions or duties on imports from the very poorest countries, such as Bangladesh, leading to a massive expansion of the industry here.We can see the following points of the recent position of Bangladesh textile sector which were mainly influenced by MFA. These developments are not occurred only for the MFA but MFA has strong influence.
In 1978, there were only 9 export-oriented garments manufacturing units, which generated export earning of hardly one million dollar.
Till the end of 1982, there were only 47 garments manufacturing units .the breakthrough occurred in 1984-1985 when the number of garments factories increased to 587.
The number of RMG factories shot up to around 2900 in 1999.
By 1985 Bangladesh emerged as a strong apparel supplier and became a powerful competitor for traditional supplier in the USA and European markets.
Now Bangladesh exports 3% of total apparel exports.
At present Bangladesh is the 6th largest apparel supplier to the USA and 4th to the EU countries.
Effects after removing MFA:
In 1994, as part of the Uruguay Round of multilateral trade negotiations, it was decided that the MFA should be phased-out by January 1st 2005, as part of the Agreement on Textiles and Clothing. This was to ensure that the clothing and textile industry become better aligned with the principles of WTO, and the promotion of free trade. However, large tariffs remain in place on many textile products.Bangladesh was expected to suffer the most from the ending of the MFA, as it was expected to face more competition, particularly from China. However, this was not the case. It turns out that even in the face of other economic giants; Bangladesh’s labor is “cheaper than anywhere else in the world.” While some smaller factories were documented making pay cuts and layoffs, most downsizing was essentially speculative – the orders for goods kept coming even after the MFA expired. In fact, Bangladesh's exports increased in value by about $500 million in 2006.
After effects on other countries:
There will be a number of beneficiaries from the removal of the MFA. China is going to be by far the largest gainer from removal of quotas, the level of Chinese clothing exports raised from 11 million units in 1995 to 213 million units in 2004.During early 2005, textile and clothing exports from China to the West grew by 100% or more in many items, leading the US and EU to cite China's WTO accession agreement allowing them to restrict the rate of growth to 7.5% per year until 2008. In June, China agreed with the EU to limit the rate to 10% for 3 years. No such agreement was reached with the US, which imposed its own import growth quotas of 7.5% instead.
When the EU announced their new quotas to replace the lapsed MFA, Chinese manufacturers accelerated their shipping of the goods intended for the European market. This used up a full year's quota almost immediately. As a result, 75 million items of imported Chinese garments were held in European ports in August 2005. A diplomatic resolution was reached at the beginning of September 2005 during Tony Blair's visit to China, putting an end to a situation the UK press had dubbed "Bra Wars".
‘The end of a global quota system means that Cambodia will have to compete with larger and cheaper rivals, like China and Vietnam. The garment industry provides jobs for 270,000 people in Cambodia and is the country’s biggest industry by some distance.
The removal of quotas is likely to have political, consumer and efficiency implications for the countries involved. Politically, this is likely to test the ability of the WTO to influence multinational trading agreements. The knock-on effect of removing quotas should also be an overall increase in efficiency as greater competition is introduced into the market, and removes the distortions to world market prices.
The removal of the MFA is unlikely to benefit everyone, and smaller producers, and those with higher costs, such as South Africa, may lose out from its removal. Competition levels are also likely to increase following the removal of quotas, with those countries which depend on clothing and textiles exports likely to suffer the most, such as Mauritius, Bangladesh, and Lesotho. (BBC News, 2004)
Conclusion:
There is an argument that developing countries actually benefit through the MFA, because they receive ‘quota rents’, meaning they receive higher prices than they would be guaranteed in a free market. However, this is not likely to be a valid argument given that a study by Balassa and Michalopoulos (1985) showed that the value of lost output, as highlighted by the diagrams, exceeds the quota rent by 9 times to the US, and by 7 times to the EU. In addition, ‘quotas on imports of textiles in the US have restricted the supply of certain apparel products and increased their price by as much as 70%’ (Tanzea, 2000 cited in Hill).It is therefore argued that ‘the bilateral quotas that make up the MFA arbitrarily divide up markets and prevent trade flows from efficiently allocating production and efficiently distributing goods among consumers in different countries.
