Mismanaged trade.

MISMANAGED TRADE

TEXTILES are America's oldest infant industry. In 1791, Alexander Hamilton cited the clothing industry as deserving a few years of government protection to get on its feet. In 1816, the cotton textile lobby helped engineer the first highly protective U.S. tariff law, with an effective tariff of 83 per cent on coarse cottons. The wool lobby was the driving force behind tariff hikes in 1824 and 1828. The 1828 tariff, which raised some wool tariffs to 150 per cent, became known as the "tariff of abominations"; it helped split the nation and plant the seeds of the Civil War. In 1936, the U.S. imposed a quota on Japanese cotton-textile imports, helping to poison U.S.-Japanese relations before World War II.

In 1957, the U.S. imposed new textile export quotas on Japan. In 1961, U.S. negotiators engineered the international Short-Term Agreement to provide temporary protection from cotton-textile imports of six nations. The Short-Term Agreement was followed in 1962 by the Long-Term Agreement, which curbed even more imports. In 1971, President Nixon threatened to penalize Japan under the World War I "Trading with the Enemy Act" if Japan did not agree to further curbs on its textile exports.

Then, in 1973-74, these tariffs were put on an agreed international basis. Leading textile exporters and importers gathered in Geneva to hammer out the Multifiber Arrangement (MFA). The preamble announced that the MFA sought "the reduction of [textile] trade barriers and the liberalization of world trade." Developing nations were enticed to sign the MFA by a clause promising them that their exports to developed countries would be allowed to increase "at least 6 per cent per year for those imports subject to specified limits" (italics added).

The MFA is the clearest example of a managed trade regime. Robert Kuttner, a Business Week columnist, declares, "The Multifiber Arrangement provides a good illustration of a reasonably successful managed trade region." So, just how good is it in practice?

Uncompetitive

CLOTHING production requires little skill or capital; its main requirement is people who need to work. Low-wage Third World nations have a natural advantage when it comes to labor-intensive activities. The MFA was supposed to be a transitional arrangement to help richer countries phase out of an industry in which they were uncompetitive.

Instead, the MFA provided a blank check for wealthy importing nations to shackle poorer exporting nations. The MFA was extended in 1978, in 1981, and again in 1986, and each extension further emaciated the 6 per cent pledge. In 1986, under heavy U.S. pressure, Taiwan agreed to a 7 per cent reduction in its textile exports and Hong Kong to a 5 per cent reduction. In 1990, the U.S. forced Japan to reduce its textile exports to the U.S. by 25 per cent. (Japan is the only advanced nation covered by MFA quotas, and the U.S. is the only nation that imposes textile quotas on Japan.)

The MFA protects Americans only from low-priced clothing. The U.S. imposes no textile import quotas on Canada, Western Europe, or Australia. U.S. textile regulations shackle imports of cotton socks from Peru while permitting unlimited imports of Parisian designer dresses.

The U.S. is vigilant against even trace elements of imported textiles. The government decreed on April 8, 1988, that Sri Lanka could ship only one dozen men's and boy's cotton coats to the U.S. in the following seven months. Trinidad and Tobago is forced to restrict its exports even though it provides less than 0.05 per cent of the U.S. clothing supply. Mexico was allowed to ship the U.S. only 35,292 bras in 1990 - not even enough to support the neighboring city of El Paso.

Any clothing or textile import from a Third World nation that amounts to 1 per cent of the U.S. market for that product is almost automatically considered threatening. Once the trip wire has been hit, members of the federal Committee for the Implementation of Textile Agreements (CITA) decide whether to issue a call to the foreign nation. CITA dresses up its ultimatums to foreign countries in diplomatic language - e.g., "The U.S. remains committed to finding a solution concerning [Costa Rican mittens]." But "finding a solution" to the mitten problem will always mean throttling the foreign supply.

Robert Kuttner observes, "It would be hard to argue that the MFA has seriously impeded enterprise, since Third World textile and apparel production are hotbeds of entrepreneurship." But this brings to mind the old adage about doctors: The sun shines on their successes, while the earth hides their failures. Many Third World companies have been bankrupted by the MFA - and just because companies that survived are profitable does not prove that the system has done no harm.

For instance, Bangladesh is one of the world's poorest nations and has received over $7 billion in foreign aid since 1980. Much of the aid was given to help Bangladesh build up its economy so that it could become self-sufficient. In the 1980s, clothing exports became that country's largest dollar earner. At this point, Western governments went into action. The U.S., Britain, France, and Canada slapped quotas on Bangladeshi exports. As the economist Dean Spinager notes, "The immediate impact on production in Bangladesh was . . . to close down operations that had just started up." Commerce Department official Diane Solkoff shrugged off criticism, noting that the danger of being hit with quotas was "something Bangladeshis could have ascertained before they began exporting to this country." In other words, Bangladesh should not even have attempted its treacherous scheme of earning dollars by helping clothe the American people.

Thailand has been hurt repeatedly by the MFA. In the early 1980s, the Thai government signed a textile agreement with the U.S. that included group quotas. Group quotas, which restrict all a nation's exports of cotton, wool, or man-made fiber products, were rarely used in agreements at that time. Thai negotiators apparently failed to understand the concept, in part because group quotas appeared to violate MFA guidelines that authorized trade restrictions only to protect specific products, not classes of products. Thai factories exported more products in categories that were not specifically restricted than was allowed under the new group quotas. The U.S. responded by embargoing almost all Thai clothing exports, shutting down scores of clothing factories and throwing thousands of Thais out of work. This devastated the Thai economy, and the resulting discontent helped spark a violent coup attempt and bloody street fighting in Bangkok.

Our government would apparently rather provide foreign aid to a country than let it sell us clothing. In 1989, the U.S. provided $479 million in aid to the Philippines, yet allowed Philippine businesses to ship only 49,644 wool suits to the United States. The U.S. has provided over $300 million to the new Polish government, yet allowed Poland to ship only 816,327 pounds of infants' wear. The U.S. provided $40 million in aid to Haiti, yet allowed Haiti to ship only 87,600 women's wool coats. In total, these restrictions are a devastating blow to poor Third World producers.

Hitting Home

AMERICAN consumers are also skewered by these trade restrictions. William Cline of the Institute for International Economics estimates the combined consumer costs of tariffs and MFA quotas to be as much as $40 billion at the retail level. Cline's estimate works out to a hidden tax of almost $500 a year for every American family.

The MFA hits poor families far harder than rich families. According to a Consumer Expenditure Survey by the Bureau of Labor Statistics, households with the lowest 20 per cent of incomes spend almost four times the percentage of their income on clothing that households in the highest 20 per cent do (15.1 per cent versus 3.8 per cent). The United States Association of Importers of Textiles estimates that textile and apparel protection costs the poor 8.8 per cent of their disposable income.

Yet these quotas have not turned American textile and clothing workers into millionaires. According to a study by the London-based Trade Policy Research Centre, quotas could be costing American consumers over a hundred dollars for each dollar of extra income provided to textile and clothing workers. In a 1990 study of quotas published in the Federal Reserve Bank of Dallas Economic Review, the economist Linda Hunter concluded, "For each job created in textiles and apparel, a job was lost in some other sector." Most textile and apparel workers are relatively unskilled, and Thomas Grennes, a professor at North Carolina State University, notes, "Employees in textile and apparel have been among the lowest paid U.S. workers, and earnings have fallen over time relative to all manufacturing employees."

However, that still makes U.S. wages in this filed routinely five, ten, or fifteen times higher than foreign wages. Since textile and clothing manufacturing tends to be labor intensive, the huge wage differential means that foreign companies will almost always have a cost advantage, even though American workers might produce more per hour than foreign workers. (Some American clothing makers have established a niche for themselves in the U.S. market, but they could probably compete even without import quotas.)

American politicians routinely sanctify MFA restrictions with the name of fair trade. But, in reality, the MFA has nothing to do with fair trade. In a 1988 textile-bill debate, Senator Phil Gramm proposed an amendment to exempt from quotas countries that are less protectionist than the United States. Hong Kong, the United States's leading supplier of clothing, is widely recognized as the world's most open market, and Hong Kong provides no subsidies to any industry. Gramm's amendment would have rewarded Hong Kong for its fair play. Not surprisingly, it was overwhelmingly defeated.

Losers All Around

IN May 1990, Deputy Assistant Secretary of Commerce Auggie Tantillo, discussing U.S. proposals for reforming the MFA, told a group of Carolina textile producers, "We would inject some market liberalizing features into the new arrangement such as . . . dropping categories that no longer warrant protection, i.e., those that are no longer made in this country." So the Commerce Department's idea of trade liberalization is to stop protecting a product after it is no longer produced in the United States.

The Federal Government cannot manage trade without hurting American consumers, bushwhacking foreign nations, and making a mockery of economic common sense. Contrary to politicians' warnings, we have no compelling national interest to achieve self-sufficiency in cotton mittens.

Mr. Bovard is the author of the Fair Trade Fraud, due out in October from St. Martin's Press.

PHOTO : "GNP is down 8 per cent this year - I am so ashamed of you people!"