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West continues to insist on limiting trade in clothing.

West Continues to Insist on Limiting Trade in Clothings

According to a new World Bank study, the West is holding up the development of the Third World by limiting imports of textiles and clothing. The report further states textiles tariffs and quota restrictions on textiles cost developing countries annually $8 billion.

Western Europe and North America have been imposing restrictions on imports of textiles and clothing since decades. It was the United States which two centuries ago in one of its first acts of its kind established tariffs on July 4, 1789 on imports of raw cotton, yarn, ready-made clothing, shoes etc. Since then, Western countries have continued to impose restrictions on Textiles and Clothing.

The United States has been in the forefront passing various Acts over the years. The most famous was the Smooth-Hawey Act of 1930 under which the tariff on cotton goods was raised to 46 per cent and on woolen goods to 60 per cent.

The history of international trade in textiles portrays a retrogressive tendency for discriminatory restrictions. In 1936, pursuant to a "gentlemans" agreement, Japan voluntarily limited its exports to US market. Again in 1955 USA made Japan to "voluntarily" agree to limit exports of certain cotton products.

In 1956 (under section 204 of the Agricultural Act 1956) US Congress gave the President the authority to negotiate limits with exporting countries as well as provided some emergency powers to the US President to textile imports unilaterally. By the late 1950's several bilateral agreements were signed between industrialised countries and major cotton exporting countries; notably those negotiated by UK with Hong Kong, Pakistan, India and Japan and by USA with Hong Kong and Japan.

History of Restraints

A Short Term Arrangement (STA); on Cotton Textiles was drawn up in 1961, which was the first of forerunners to the MFA. In 1962 the second of the forerunners to the MFA was negotiated: "The Long Term Agreements regarding international trade in cotton (LTA)".

These two arrangements established the right of importing countries to negotiate restrictions on low cost textiles imports and to ensure avoidance of so-called market disruption in textile sector. The LTA not only enabled the selective and discriminatory application of restraint but also laid grounds for bilateral restraint agreements.

In the late 1960's manmade fibre products became a major component in textile trade. 1971 the UK Government signed bilateral restraint agreement covering trade in wool and man-made fibre textiles and apparel products with Japan, Hong Kong, Taiwan and South Korea as well as Malaysia which was relatively a smaller supplier.

After two more years the Multifibre Arrangement (MFA-I) was signed by roughly 50 countries on 1st January, 1974. On the surface of it the MFA appeared more promising for protecting the interests of developing exporting countries and providing a balance between the rights and obligations of both developed and developing countries. Ostensibly the basic objective of the MFA were to achieve progressive liberalisation of world trade in textile, while at the same time avoiding disruption in individual markets or products. One of the principal stated aims of the MFA was to encourage textile and clothing industries of the developing countries.

The MFA was originally envisioned to be a temporary measure and was intended to give the industries of developed countries time to restructure to make themselves more competitive in the face of low cost imports from developing countries, the MFA was set up under the auspices of the General Agreement on Trade and Tariffs (GATT) and is a recognised derogation of GATT Rules. GATT Rules stipulate that trade may be restricted by tariffs alone. Otherwise they embody the principle of open multilateral trade.

Despite the fact that the MFA was originally considered to be temporary, it has been extended three times; in 1977, 1981 and 1986, each time with more tightening of restrictions on imports from developing countries. It was with the signing of MFA-II (in 1977) that the negotiating countries began to vary their bilateral agreements away from the provisions of the original MFA. This in fact became a derogation from derogation.

The current arrangement (MFA-IV) was signed on 31st July, 1986. In this protocol the United States imposed restrictions to include virtually all known and conceivable fibres that might ever be used to manufacture textile or apparel products. With MFA IV expiring on 31st July, 1991 this is considered to be the opportunity to subject the textile and clothing sector back to normal market forces i.e. GATT Rules. Previously seven rounds of Multilateral Trade Negotiations (MTNs) have taken place with the objective of liberalisation of international trade through reduction in tariff and non-tariff barriers with the view of expansion of world trade. The last round of MTNs was the Tokyo Round (1973-79). However, the Tokyo Round, like previous ones failed to cover a number of key areas towards creating a free trade system.

Uruguay Round

It was in September 1986 that the Uruguay Round negotiations (named after the country where they were launched). These negotiations are scheduled to be completed by the end of 1990, and cover 15 areas including textiles and clothing. The outlook of these negotiations are of vital importance to all countries including Pakistan as they are aimed at developing international trading partners and relations for the 21st century.

The Uruguay Round negotiations are being held under the auspices of the Geneva-based General Agreements on Tariffs and Trade (GATT) and are due to end in Brussels in December 1990. This round is of particular interest to Pakistan as the textile and clothing sector has been for the first time included on the agenda as a specific item.

A mid-term review of Ministers was held in Montreal in December 1986 and agreement was reached 11 out of the 15 Uruguay Round negotiating areas. However, no agreements could be reached in textiles and clothing, agriculture, safeguards and trade related aspects of intellectual property rights.

While the United States has been so much a proponent of free trade and unregulated economies but its track own record has been that of grossly over-protectionist for well over two centuries. Even during the MTNs under the Uruguay Round the attitude of the US delegates has contrasted sharply with other participants and a near consensus on liberalisation appears to be thwarted.

The hardline strategy of the United States has shocked other delegates, even those of the European Community, as the United States delegation is said to be intent on obtaining concessions without giving any. The United States has been citing protectionist barriers only in other countries, ignoring those in its own. Admittedly Japan has been resorting to barriers on a very large scale and the merger of the European Community (E.C.) although will lead to liberalisation of trade inside the E.C. but the E.C. fortress is bound to discriminate against those outside.

However, this same accusation cannot be held valid for the Third World countries. All the present day industrial giants, specially the largest one, the United States, have resorted to protectionism over a number of years to help develop their own economies. It is only but natural to expect the undeveloped countries to defend their weak economies against unfair competition, so that they may build vital industries.

There are prospects of a trade war and retaliation if the United States persists in opposing the progress at the MTNs. True to its traditions, the United States has made new proposals to the negotiating group on textiles and clothing in the Uruguay Round held in February 1990 which have been termed ludicrous by most of the developing countries. The United States has been ostensibly affirming that its objectives are to help bring about the eventual integration of textiles and clothing into GATT and contributing to the further liberalisation of trade under a transitional mechanism. However, the US alternative proposals of global type quota system as well as tariff quotas has taken the delegates by surprise.

Global Quota

Under the global or so-called non-selective quota system it is envisioned to have a comprehensive quantitative limit, by product categories which would be divided amongst various country allocations with whom the United States has already bilateral agreements. Selective "Global Basket" which would be increased by a growth factor every year, over a ten-year time-frame.

The global basket would be opened for competition to all countries, including those with bilateral or country quotas, each year the country allocations would be reduced by one-tenth of the original ceilings, and the global basket would increase by ten per cent (plus some growth), taken away from each country's allocations. To make an illustration, for each product category and basket of say 50 units would be created for all the countries. Under the proposed system two divisions would be created and the global basket would, over a period of ten years, take over the (selective) country shares of the quota and in the tenth year the overall quota would be replaced entirely by the global basket as illustrated in the accompanying charts.

The Tariff Solution

The alternative proposal being booted by the USA is the transformation of existing quota restrictions into tariff quotas. This again would feature a two-tier system with country allocations and a global basket for the lower tier (with lower tariffs) which again would move over a transitional period towards the global basket. Under this tariff rate quota system imports upto the ceiling of the lower tier would enter at the applicable duty rates. However, additional would be permitted on a penalty tariff system.

The European Community is, on the face of it adopting a more liberalised but cautious stand in the Geneva talks. The EC wants progressive dismantling of MFA restraints. Brussels also wants to replace the MFA with a more flexible and transitional pact. The EC along with most of the developing countries find the US proposals `unacceptable'.

The World Bank has recommended a transitional period of seven to eight years during which category quotas would be raised, some imports fully liberalised and new quota restraints would be severely restricted. With world merchandise trade standing at US $3.1 trillion in 1989 with over US $1 trillion of trade going undisciplined by GATT Rules, all eyes are turned towards Geneva for the final round of talks. As the deadline of 31st December 1990 is approaching fast the prospects appear to be dim for an early agreement for reducing trade barriers and specially replacing the 30-year-old Multifibre Arrangement which expires in July 1991.

The ending or phasing out of the MFA is not without hope as there is also a strong importers lobby in the EC as well as in USA which has been advocating the ending of the MFA in the interest of consumers within their own countries where it is being advocated that there would be around 5 per cent fall in price levels of both imported and local textile products as quotas would be abolished and importers would not have to pay more for quota premiums and rentals.

Estimates have been made of around $25 billion savings for the US economy and in the United Kingdom alone of Sterling Pound one billion within significant job losses. With international trade in textiles and clothing standing at over $200 billion in 1989, Pakistan as well as other developing countries keenly await the outcome of the Uruguay Round of Multilateral Trade Negotiations as these will determine the pattern of international economic relations for the 1990's and beyond.
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Publication:Economic Review
Date:Sep 1, 1990
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