Trade in textiles and clothing

One of the most far-reaching results of the Uruguay Round is the Agreement on Textiles and Clothing. This returns the textile and clothing trade to the GATT/WTO framework, after thirty-odd years.

Background to the negotiations

World trade in textiles and clothing has been subject to an array of bilateral quota arrangements since the early 1960s.

Initially, import quotas were imposed on cotton textiles under the Short-Term and Long-Term Arrangements of the 1960s and early 1970s. The product range under quota was progressively expanded until the Multi-Fibre Arrangement (MFA) covered most natural and man-made fibres.

By 1988 the MFA covered about 50 per cent of global exports of textiles and clothing, accounting for some 9 per cent of world trade in manufactured goods (around $177 billion).

The MFA was terminated by the Uruguay Round Agreement on Textiles and Clothing which will last for a period of ten years - to 2005. During this time, the rules and provisions governing textiles and fibre trade will be made GATT-consistent, principally by eliminating quota restrictions.

Tariffs will remain, but they will be progressively reduced.

By 1994, when liberalization commenced, there were 145 arrangements imposing bilaterally-agreed or unilaterally applied restraints on developing country and transition economy exporters of textile and clothing products. The main notifiers of such restraints were Austria, Canada, the European Union, Finland, Norway and the United States.

The MFA had only 44 signatories - one third of the GATT membership. They were however the most important players in the world textile and clothing trade.

Effects of the MFA

The effects of MFA quota restrictions are difficult to quantify because

• not all textile and clothing products were covered;
• some quotas were not fully used;
• not all sources of product were restricted.

For example, the International Textile and Clothing Bureau estimates that about one third of EU and USA imports of textiles and clothing were not restrained by the MFA.

It is apparent that the restrictions had four effects on developing countries as exporters of these products

1. The quantitative restrictions, on top of generally high levels of tariff protection, reduced import demand in developed country markets
2. Where developing country governments charged a fee for export quota entitlements, this acted as an export tax on developing country producers
3. The pattern of quota restrictions fostered a tendency for export industries to relocate to countries not subject to quotas without regard to competitiveness of production.
4. Although quota entitlements do not guarantee sales in the restricted markets, they offer protection against third country competitors in markets where prices are high due to the level of protection, thus providing 'rents' for the exporting country

Coverage

The products covered by the ATC are listed in an Annex to the Agreement.

The ATC provides wider coverage than the MFA and includes all textile and clothing products

• regardless of whether they are subject to MFA restrictions
• that are of vegetable, man-made or animal origin.

For example, trade in pure silk products and vegetable fibre products not subject to the MFA will be liberalized under the ATC.

This Agreement also covers certain products with textile components including luggage, footwear uppers, umbrellas, watch straps and parachutes.

Programme of integration

The aim of the ATC is to integrate the textiles and clothing trade into the WTO framework. Members maintaining restrictions on this trade must phase them out over a 10 year period, which expires on 31 December 2004.

From 1 January 2005, WTO members will not be permitted to maintain quantitative restrictions on imports of textiles and clothing. The only exceptions are those justifiable under the Agreement on Safeguards.

The Council on Trade in Goods will oversee the implementation of the ATC, conducting periodic reviews (Article 8.11 of the ATC) and taking decisions deemed appropriate to ensuring the rights and obligations under the ATC are not impaired (Article 8.12). To do this, the Council set up a Textiles Monitoring Body.

The first stage of the integration programme covered the period January 1995 to December 1997. In July 1997, the Textiles Monitoring Body reviewed all operational provisions of the ATC, as required by Article 8.11. The main outcomes covered the

• process of integration
• application of the growth rate factors
• application of the transitional safeguard mechanism
• application of GATT 1994 rules as defined in articles 2, 3, 6 and 7 of the ATC.

Methodology for integration

The integration process will comprise four stages. At each stage, a minimum per cent of a country’s import volume in the agreed base year (1990) will be included. These per cent ages are:

• 16 per cent of the products on the list, on commencement of the Agreement (1 January 1995):
• 17 per cent at the end of the third year (1 January 1998):
• 18 per cent at the end of seven years (1 January 2002); and
• 49 per cent at the end of the tenth year (1 January 2005).

At each stage of the integration process, countries must include products from each of four segments, namely,

• tops and yarn,
• fabrics,
• made-up textile products, and
• clothing.

For the United States and the European Union, in 1990 the per cent of unrestricted imports of ATC products was around 34 per cent and 37 per cent respectively. For other import-restricting countries, the per cent age was much higher.

Given the difference in product coverage between the ATC and the MFA, it appears likely that many MFA restrictions will be removed in Stage 3 beginning in 2002. The bulk of other quota restrictions may not be eliminated until the last day of the transitional period.

Offsetting this delay, the Agreement attempts to provide improved and enlarged access for textile products that may continue to be restricted during the transitional period.

During the transition period, members must increase the quota growth rate, fixed under MFA agreements, for each textile product category of textile products by:

• 16 per cent per year in the first three years;
• 25 per cent per year in the next four years; and
• 27 per cent in the next three years.

A 'median' growth rate of three per cent under the MFA will thus become a growth rate of 6.22 per cent in the tenth year of the ATC.

The quota growth rate for small suppliers, whose restrictions represented 1.2 per cent of total restrictions in 1991 will advance by one phase: to a rate of 25 per cent in the first three years and 27 per cent in the second and third stages.

Transitional safeguard measures

The ATC provides a new, discriminatory - that is 'selective' - safeguard mechanism, which will operate during the transition phase for most products that are still subject to quota (Article 6).

The safeguard may be applied when

1. an increase in total imports is found to be causing or threatening 'serious damage or actual threat thereof' to the domestic industry, and
2. a sharp and substantial increase in imports from a source or sources are found to be causing the injury or its threat


Safeguard determinations must take account of a number of relevant economic factors such as domestic industry output, productivity, capacity utilization, employment and market share.

Safeguard restrictions may ordinarily be imposed only after consultations and agreement with the exporting countries on the level of imports.

The Agreement does permit countries to impose restrictions in the absence of an agreement, provided the matter is referred to the Textiles Monitoring Body for a binding decision.

In some respects, the ATC safeguard provisions are more restrictive than those of the MFA.

• The criterion of 'serious damage' is considered a higher threshold of damage that the MFA's 'real risk' of market disruption.
• The requirement to consider the total level of imports, and the abandonment of the 'low prices' factor, in determining damage to domestic industry is expected to allow more-competitive imports to avoid safeguard action.