A New World in Textile and Clothing Trade Will Begin on January 1, 2005


Under the Uruguay Round Agreement on Agriculture (URAA) completed in 1994, a ten-year phase out of the Multi-Fiber Agreement (MFA) for textiles and clothing is to be completed on December 31, 2004. Some U.S. and developing country textile and clothing producers are encouraging the Bush Administration to take action to delay the opening of markets. As major exporters of raw cotton, U.S. cotton farmers could get caught in the middle.

The MFA of 1974 and its predecessor agreements were designed to provide some protection for textile producers in developed countries offering modafinil for sale, while allowing opportunities for textile producers in developing countries to increase production. The result has been a highly fragmented supplier market for clothing as buyers sought countries that had quota access to developed countries. The URAA included an Agreement on Textiles and Clothing (ATC) that provided for elimination of bilateral agreements on import restrictions, increased quota growth rates for products still under restrictions and removal of non-MFA restraints on trade.

The economics behind the agreement were pretty simple. Developing countries were increasingly capable of providing lower cost textiles and clothing than the developed countries. As more developing countries became part of what was then GATT (General Agreement on Tariff and Trade) and now the World Trade Organization (WTO), they sought changes in the MFA. There was little dispute about the benefits of trade for consumers in developed countries or producers in developing countries. The issue was how to make an orderly transition that allowed textile and clothing manufacturers in developed countries to at least partially recover outlays in fixed investments while developing countries geared up for increased production. The ten-year phase out was a means to an end and not an end in itself.

U.S. cotton producers have already seen the impact of the ATC. Total U.S. domestic mill use of cotton averaged 10.7 million bales for 1995-99. Domestic use declined to 8.9 million bales in 2000, 7.7 million bales in 2001, 7.3 million bales in 2002, and 6.3 million bales in 2003, with a forecast of 6.1 million bales in 2004. This has been offset by an increase in exports from an average of 6.6 million bales for 1995-99, to 6.7 million bales in 2000, 11.0 million in 2001, 11.9 million in 2002, and 13.8 million in 2003, with a forecast of 12.3 million bales in 2004.

Two major economic forces are causing angst in this country and some developing countries. First, supply chains are consolidating much more rapidly than most analysts had expected. As noted earlier, the MFA kept the industry spread out across developing countries. According to a ¬Wall Street Journal article, Liz Claiborne Inc., a major provider of both men’s and women’s clothes, has 250 suppliers in 35 countries spread from Mexico to Cambodia. Their goal within five years is to reduce the number of suppliers by half and have them in just a few countries. This would allow for fewer relationships to manage, reduced costs and shorter times from design creation to in-store sales.

The second economic force is China, just as it is in so many areas of trade. China was not part of the Uruguay Round of negotiations in the late 1980s and early 1990s. Upon joining the WTO in 2001, China agreed to accept import restraints on items that were freed from quotas under the ATC. Those provisions were used last year by the Bush Administration to limit imports of bras, dressing gowns and knitted fabric. Apparel firms have been flocking to China seeking streamlined supply chains. A WTO report projects that China will have a 50 percent market share in the United States after the quotas end compared to 16 percent in 2002.

To a large extent, the ten-year transition has unfolded as expected. Suppliers all over the world are gearing up for a more open trading system in textiles and clothing. Supply chains are being streamlined to take advantage of the ability to choose sources based on economics, not on the availability of quotas or bilateral agreements. Established suppliers in countries like Guatemala and the Dominican Republic have invested heavily to be competitive after January 1, 2005. New players have entered the business, such as suppliers in Vietnam. And, consumers are benefiting from lower prices and increased quality.

Some current suppliers will clearly be left behind next year. Those that have not invested in new technology and linked themselves to other parts of the supply chain will be at a competitive disadvantage. Freer trade exposes weaknesses in any industry. Using continued trade restrictions will only prolong the lack of competitiveness for suppliers who have not adjustment to the new supply change opportunities.

U.S. cotton producers have a huge stake in this transition in trade. While China is harvesting a larger crop this year and will likely import less U.S. cotton, they will remain a major buyer for the foreseeable future. China is expected to account for roughly one third of total world cotton use this year, while the United State will account for almost 40 percent of total world raw cotton exports. Rather than have the U.S. government antagonize the Chinese government and governments of other countries that will gain under freer trade in textile and clothing, U.S. cotton producers need support in developing relations with participants in the new supply chains. Given the recent rise in petroleum and synthetic fabric prices and a large U.S. crop of cotton this year, now is the perfect time to begin building the close relationships that supply chains are now seeking.

Ross Korves

Ross Korves

Ross Korves served Truth about Trade & Technology, before it became Global Farmer Network, from 2004 – 2015 as the Economic and Trade Policy Analyst.

Researching and analyzing economic issues important to agricultural producers, Ross provided an intimate understanding regarding the interface of economic policy analysis and the political process.

Mr. Korves served the American Farm Bureau Federation as an Economist from 1980-2004. He served as Chief Economist from April 2001 through September 2003 and held the title of Senior Economist from September 2003 through August 2004.

Born and raised on a southern Illinois hog farm and educated at Southern Illinois University, Ross holds a Masters Degree in Agribusiness Economics. His studies and research expanded internationally through his work in Germany as a 1984 McCloy Agricultural Fellow and study travel to Japan in 1982, Zambia and Kenya in 1985 and Germany in 1987.

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