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Trade Tariffs and barriers

  1. The General Agreement on Tariffs and Trade (GATT)
  2. The Multi Fibre Arrangement (MFA)
  3. Tariff barriers for poor countries
  4. Phasing out the MFA
  5. GATT and the World Trade Organisation

‘In the globalised world of the 21st Century, trade is one of the most powerful forces linking our lives. It is also a source of unprecedented wealth…’ Watkins, K, Oxfam, (2002) Rigged Rules and Double Standards

Restrictions on global trade have been in place since colonial times. Tariffs (a tax on imported or exported goods that increases the cost of the goods and therefore increases the selling price in the importing country) and bans protected industries, such as the British textile industry, from countries that posed a serious competitive threat.

Trade tariffs and barriers can discriminate against poor countries. Government subsidies for US cotton make it difficult for other countries to compete on sales of raw cotton.

In the wake of the phase out of the Multi Fibre Arrangement, which gave least developed countries beneficial trade terms, China has gained an increasing share of fashion manufacturing outputs. Garment industries in less developed countries all over the world and particularly in Africa have lost market share to China and other more developed centres of fashion production.

1. The General Agreement on Tariffs and Trade (GATT)

GATT provided an international framework that established ground rules for worldwide trade among its members. GATT’s primary purpose was to reduce trade barriers, particularly tariffs and quotas, among its members. (Going Global: The Textile and Apparel Industry 2007)

GATT was launched in 1947 and by 1970 approximately 80 countries had signed the GATT agreements.

One of GATT’s greatest achievements were its ‘trade rounds’ or multilateral negotiations. The final GATT trade round, the Uruguay Round, created a new trade management system: The World Trade Organisation.

2. The Multi Fibre Arrangement (MFA)

Developed countries began to feel the pressure of developing countries becoming GATT members, such as Japan in 1955, and the Multi Fibre Arrangement (MFA) was formed. The MFA implemented exceptions to the GATT and was contrary to GATT’s purpose of reducing trade barriers (Going Global: The Textile and Apparel Industry 2007).

The Multi Fibre Arrangement (MFA), started in 1974, was originally intended as a temporary agreement, however it lasted until 2005. The MFA allowed industrialised countries to apply for quotas to restrict the amount of textiles and clothing exported from developing countries to the EU and US. (Quotas restrict quantities of goods that can be imported or exported but are most often applied to imports).

Developing countries have a competitive advantage in the garment sector, with significantly lower labour costs. The MFA was introduced to allow developed countries to adjust to the competition of imports from developing countries.

You can read more about the MultiFibre Arrangement and other global textiles agreements at http://www.wto.org/english/tratop_e/texti_e/texintro_e.htm

READ MORE ABOUT THE MULTI FIBRE ARRANGEMENT AND OTHER GLOBAL TEXTILES AGREEMENTS

The MFA Forum is a not-for-profit, participation-based open network established in early 2004 to address key concerns that were predicted with the end of the Multi-Fiber Arrangement.

VISIT THE MFA FORUM WEBSITE

3. Tariff barriers for poor countries

“When developing countries export to rich country markets, they face tariff barriers that are four times higher than those encountered by rich countries. Those barriers cost the $100bn a year- twice as much as they receive in aid” (Oxfam (2002) Rigged rules and double standards)

The quotas were complimented by high tariffs and other non-tariff barriers. These restrictions severely affected exports from developing countries of textiles and clothing. For many of these countries, the garment sector offered key development opportunities-providing a high percentage of income, employment, foreign exchange and competitive strength on the world market.

As countries could choose which products to restrict from which countries, the MFA resulted in preferential treatment for certain countries; in the case of the UK, these included ‘least developed countries’ such as Bangladesh and Sri Lanka.

World Bank studies have suggested that 19 million jobs have been lost in developing countries due to quota restrictions imposed by the MFA, plus 8 million due to high tariffs.

“As production in developed countries is more capital intensive, some estimates assess the effect of protecting a single job in industrialised countries to be the loss of 35 jobs in developing countries” Appelbaum, R.P. (2005) ‘TNCs and the removal of textiles and clothing quotas’. UNCTAD 2005

4. Phasing out the MFA

Due to 10 years of lobbying, a phasing out of MFA quotas was set to take place between 1995 and 2005 through the Agreement on Textiles and Clothing (ATC).

The end of the MFA brought about a shift in the market share of exported products. China under the MFA regime faced quotas of 33% on clothing from the USA/Canada and 15% from the EU (based on an export tax equivalent of quotas base year, GTAP database).

China’s predicted market share for clothing before and after quota elimination. (WTO figures)

USA
China’s predicted market share before quota elimination:
16%, and after: 50%

EU
China’s predicted market share before quota elimination:
18%, and after: 29%

With the end of MFA quota restrictions, countries which previously faced high quotas suddenly have much more power to take the market by storm and consequently countries that had been protected by the quotas such as Bangladesh, Indonesia and the Philippines will see their US market share for clothing cut by half by the quota elimination.

5. GATT and the World Trade Organisation

Following the seven years of the GATT Uruguay Round, The World Trade Organisation absorbed GATT and set about to operate the same fundamental goals of GATT.

The WTO put in place ‘safeguarding measures’ to end in 2008. These were designed to limit the impact of the phase out of the quotas on industrialised countries and least-developed countries.

More information

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