vinkumar
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MULTI FIBRE ARRANGEMENT
The Origins and History of the MFA
From 1963 to 1976, imports of textiles and clothing by developed countries from the less-developed world increased by 14.1%, and by 1986 the developing world's share of world exports in this industry reached 33.4% (Trela and Whalley, 1990). Since production of these goods was in line with the comparative advantage of the developing countries, they were able to supply at a lower unit labour cost than the companies in the developed countries (World Bank, 1995). As a result, import-competing firms feared that this rise in imports from the cost-competitive developing world would threaten their jobs and the viability of their textile and clothing industry. These producers thus lobbied for protectionist measures against imports of textile and clothing products.
MFA is an agreement through which a particular country is restricted to export its textile products beyond a certain level to European and US markets. So, a particular quota is fixed for each country (in terms of quantity, say 1-m shirts etc.), and no country can exceed the quantity assigned. Thus, the motive behind this agreement can be either to provide a window of opportunity for the under developed and developing economies or it can be to save the interest of the domestic textile industry of European Union (EU) and the US.
Under such intense pressure government policy makers in the developed countries (e.g. UK, US and France), conceded to the demands. Trade in textiles and apparel was not subject to the normal GATT free trade rules, until the Uruguay Round in 1991 (Grimwade, 1996).
Thus the first Multi-Fibre Arrangement was devised in 1974. It was an extension of a previous arrangement known as the Long-Term Agreement (LTA), which originated from the "Short Term Arrangement Regarding International Trade in Cotton Textiles" (STA). The MFA is made up of a series of bilaterally negotiated quota restrictions on trade in textiles and clothing between individual developed country importers and developing country exporters. Under the quota, the exporter is allowed to supply a certain volume of textile and clothing products up to a specified ceiling, and it is up to the exporter to allocate the quota allowance among its domestic producers.
Since 1974, the MFA has been renegotiated four times and each modification has brought with it increasingly restrictive measures - covering a broader range of products, and reducing any flexibility provisions in the system. In 1986, when MFA IV was negotiated, coverage was extended to additional fibres, silk, ramie, linen and jute. By 1994, MFA IV involved eight importers and 31 developing, Central and Eastern Europe countries. During the Uruguay Round, the decision was taken to phase out the MFA over a ten year period, in order to bring trade in textiles and clothing gradually into line with the rest of industrial trade under formal GATT rules and procedures (Hoekman and Kostecki, 1995).
GOVERNMENTS REACTIONS:
The Indian government has set an ambitious textile export target of US$ 50 bn by 2010 as compared to US$ 11 bn currently. However, the government is putting in efforts at lending a helping hand to the textiles industry, which has been in doldrums for quite a few years now. In order to achieve the growth target, a few important initiatives have been taken by the government. The government has already set up a textile reconstruction fund to help reduce the effective interest burden on viable textile companies. This fund targets reduction in interest rate for all borrowers in range of 8%-9%. Banks and financial institutions have burnt fingers in the past by lending to this sector. Hence, advances have been costly. This move by the government will benefit the sector a long way
CHALLENGES AND OPPRTUNITY :
We would like to say hat there is a huge opportunity lying ahead for Indian textile manufacturers in post MFA era, as the markets will no longer be restricted. But there will be competition from countries like China, Sri Lanka, Bangladesh, in terms of cheap availability of products. But when it comes to fashion trends, we believe Indian companies will have an advantage. As far as cost competitiveness is concerned, the larger players in the Indian textile sector are well placed to compete.
The Origins and History of the MFA
From 1963 to 1976, imports of textiles and clothing by developed countries from the less-developed world increased by 14.1%, and by 1986 the developing world's share of world exports in this industry reached 33.4% (Trela and Whalley, 1990). Since production of these goods was in line with the comparative advantage of the developing countries, they were able to supply at a lower unit labour cost than the companies in the developed countries (World Bank, 1995). As a result, import-competing firms feared that this rise in imports from the cost-competitive developing world would threaten their jobs and the viability of their textile and clothing industry. These producers thus lobbied for protectionist measures against imports of textile and clothing products.
MFA is an agreement through which a particular country is restricted to export its textile products beyond a certain level to European and US markets. So, a particular quota is fixed for each country (in terms of quantity, say 1-m shirts etc.), and no country can exceed the quantity assigned. Thus, the motive behind this agreement can be either to provide a window of opportunity for the under developed and developing economies or it can be to save the interest of the domestic textile industry of European Union (EU) and the US.
Under such intense pressure government policy makers in the developed countries (e.g. UK, US and France), conceded to the demands. Trade in textiles and apparel was not subject to the normal GATT free trade rules, until the Uruguay Round in 1991 (Grimwade, 1996).
Thus the first Multi-Fibre Arrangement was devised in 1974. It was an extension of a previous arrangement known as the Long-Term Agreement (LTA), which originated from the "Short Term Arrangement Regarding International Trade in Cotton Textiles" (STA). The MFA is made up of a series of bilaterally negotiated quota restrictions on trade in textiles and clothing between individual developed country importers and developing country exporters. Under the quota, the exporter is allowed to supply a certain volume of textile and clothing products up to a specified ceiling, and it is up to the exporter to allocate the quota allowance among its domestic producers.
Since 1974, the MFA has been renegotiated four times and each modification has brought with it increasingly restrictive measures - covering a broader range of products, and reducing any flexibility provisions in the system. In 1986, when MFA IV was negotiated, coverage was extended to additional fibres, silk, ramie, linen and jute. By 1994, MFA IV involved eight importers and 31 developing, Central and Eastern Europe countries. During the Uruguay Round, the decision was taken to phase out the MFA over a ten year period, in order to bring trade in textiles and clothing gradually into line with the rest of industrial trade under formal GATT rules and procedures (Hoekman and Kostecki, 1995).
GOVERNMENTS REACTIONS:
The Indian government has set an ambitious textile export target of US$ 50 bn by 2010 as compared to US$ 11 bn currently. However, the government is putting in efforts at lending a helping hand to the textiles industry, which has been in doldrums for quite a few years now. In order to achieve the growth target, a few important initiatives have been taken by the government. The government has already set up a textile reconstruction fund to help reduce the effective interest burden on viable textile companies. This fund targets reduction in interest rate for all borrowers in range of 8%-9%. Banks and financial institutions have burnt fingers in the past by lending to this sector. Hence, advances have been costly. This move by the government will benefit the sector a long way
CHALLENGES AND OPPRTUNITY :
We would like to say hat there is a huge opportunity lying ahead for Indian textile manufacturers in post MFA era, as the markets will no longer be restricted. But there will be competition from countries like China, Sri Lanka, Bangladesh, in terms of cheap availability of products. But when it comes to fashion trends, we believe Indian companies will have an advantage. As far as cost competitiveness is concerned, the larger players in the Indian textile sector are well placed to compete.