Adjusting to the MFA Phase-Out: Policy Priorities

Debapriya Bhattacharya and Kimberly Elliott

04/28/2005

In the years since developing countries succeeded in negotiating an end to rich-country quotas on textiles and apparel, excited anticipation has gradually turned to anxiety. Ending the Multi-Fiber Arrangement (MFA) was a major objective of developing countries in the international trade talks that ended in 1994. But that was before China joined the World Trade Organization (WTO) and before structural changes in the industry and in U.S. trade policy altered the competitive landscape. Now, it is not just workers and firms in high-wage countries that fear increased competition, lost jobs, and downward pressure on wages with the end of the MFA. Many poor countries now realize that a freer market also means more competition for them, with potential losses in market share and large adjustment costs for the low-wage, primarily female workers that dominate apparel assembly.

This brief reviews the Agreement on Textiles and Clothing (ATC) and the potential implications for the rest of the world of having to compete with China in a quota-free market. It examines the expected winners and losers among developing-country exporters as a result of phasing out the MFA trade restrictions and recommends steps that both rich and poor countries should take to ease the adjustment. We recognize that workers in the United States and other importing countries—again, mostly low-wage and female— will also suffer losses. Addressing these dislocations is an important policy issue, and we do not mean to slight this aspect of the adjustment process.

For purposes of this brief, however, we focus on potential disruptions in poor countries and the policy priorities for coping with them. In particular, we recommend that the United States, which is the only rich country that does not grant tariff-free access for imports from all least-developed countries, provide this access as quickly as possible. In addition, to take advantage of any resulting opportunities, beneficiary countries must adopt domestic reforms to encourage greater productivity.

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