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A few countries, particularly Japan, became proficient cotton product exporters in the 1950s and 1960s. Japanese cotton goods became a concern for a number of U.S and West European industry leaders who feared the Japanese shipments would take away sales in U.S. and European markets. U.S. and European textile and apparel leaders applied political pressure and were successful in getting a variety of trade agreements approved by GATT that limited Japanese cotton imports.
Until the 1970s, however, the dollar volume of textile and apparel in imports coming into the U.S. market was relatively insignificant and therefore created little or no real disruption of domestic textile and apparel industries. As imports began to swell U.S. industry leaders (and their counterparts in Western Europe) became alarmed believing the domestic industry could not survive if imports continued at that pace. Consequently, domestic industry leaders were able to persuade policy makers to secure trade agreements that would protect them from imports from low wage countries. European and U.S. leaders pressed for, and obtained, a new policy under GATT designed to control the flow of textile and apparel imports.
By the early 1970s, manufactured fibers had been developed, and limiting only cotton imports was no longer enough. Producers in other countries had cleverly avoided the restrictions on their cotton exports by switching to those manufactured fibers. Thus, in 1974, the Multifiber Arrangement (multi-fiber to go beyond just cotton products), commonly known as the MFA, was implemented under the auspices of GATT.
The MFA established general rules for the kinds of actions countries might take to protect their industries from disruption by rising imports. Under its provisions, the United States (or other importing nation) might control "disruptive imports by entering into bilateral (two-country) agreements that establish import quotas for that country. For example, the United States could negotiate an agreement that set a limit (quota) on the textile and apparel products from India, another agreement with Hong Kong, another with South Korea, and so on. Quotas established under those bilateral agreements governed the volume of products each country could ship to the U.S. market. In Western Europe and Canada, the other major markets for products from low-wage countries, the systems worked very much the same (Dickerson, 1991, 1995).
Restrictions were applied almost entirely to the products from less developed countries because of the dramatic differences in wages. That is, U.S. manufacturers who paid their workers the minimum U.S. wage felt their products could not compete fairly with those made by workers in less developed countries who earned, in many cases, only a few cents per hour.
As a growing number of less developed countries around the world began producing more and more textile and apparel products, shipments into the United States, Europe, and Canada mushroomed. Each time the MFA was renewed, the restrictions on imports from low-wage countries became tighter and tighter. A trade tug of war resulted. Basically, the less developed countries wanted to send increasing volumes of products to the more developed countries. These exporting countries were most interested in shipping to the same countries where textile leaders tried hardest to restrain those imported products from coming in.
In short, almost no countries liked the MFA. The less developed countries felt their exports met with too many harsh barriers under the MFA quota system. These countries became very impatient. After all, the MFA existed under the sponsorship of the GATT- an international body formed to eliminate trade restrictions. These exporting nations believed their products were being unfairly "choked off" by the quota system.
At the same time, industry leaders in the wealthier importing countries thought the agreement had not done an adequate job of keeping imports out of their markets. Imports grew phenomenally under the MFA quota system, at a faster rate than the growth of the domestic industry, thus taking a disproportionate share of the market.
Textile* Labor Cost** Comparisons among select countries
(Textile industry wages, 1994, in U.S dollars)
| Japan
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$25.62
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| Switzerland
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25.46
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| Italy
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15.65
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| Canada
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13.60
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| United States
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11.89
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| United Kingdom
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10.74
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| Taiwan
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5.98
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| Hong Kong
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4.40
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| South Korea
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4.00
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| Mexico
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3.22
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| Turkey
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2.31
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| Colombia
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1.88
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| Philippines
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0.95
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| Egypt
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0.64
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| India
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0.58
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| People's Republic of China
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0.48
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| Pakistan
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0.45
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| Sri Lanka
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0.42
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| Vietnam
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0.39
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| Bangladesh
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0.26
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*Comparable data are not available for the apparel industry; however, apparel wages are generally somewhat lower than those of textiles.
** Includes wages and other costs paid by the employer
Additionally, the quota system sets limits on the quantity of imports brought into the United States rather than the value (cost) of the merchandise. This meant producers in other countries shifted to higher priced items (known as upgrading) to maximize the value of what is shipped under the quota limits. Imports had once been limit lower priced product lines; however, upgrading meant imports became a threat at per price points, too (Dickerson, 1991, 1995).
The MFA has been a highly controversial trade agreement. Although it was sponsored by the GATT, it contradicted many of the basic free trade goals of GATT. The less developed exporting countries fought hard to have this peculiar trade policy phased out. After all, no other industry had this kind of special protection provided by GAIT.
Eventually, MFA opponents prevailed. In 1995, when GATT officially became the WTO, the clock started ticking toward an eventual phase-out of the MFA and the quota system. Over a 10-year period, quotas on textile and apparel products will be phased out in three stages. By 2005, all products are expected to be traded freely with no remains of the quota system in place.
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Participants