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Implications for South Asian countries for abolishing the Multifibre Arrangement (English)

The authors provide a simple introduction to the economics of the Multifibre Arrangement (MFA) and use available empirical evidence to examine its impact on exports of garments and textiles, focusing on India. Their review of the basic economics of the MFA shows the discriminatory character of the Arrangement. While exporting countries can gain from quota rents, much of this gain is likely to be offset by losses in exports to unrestricted markets, through waste resulting from domestic rent-seeking behavior, or shared with industrial country importers. Moreover, the restrictions curtail the ability of countries to generate sorely needed employment in the labor-intensive garment and textile sectors. Recent estimates for India of the export tax equivalents of the quotas suggest that they increased in 1999, after a couple of years around lower levels. The authors also examine the domestic policy distortions affecting the industry in India. While the abolition of quotas on international trade in textiles in 2005 will create opportunities for developing countries, it will also expose them to additional competition from other, formerly restrained exporters. The outcome for any country will depend on its policy response. Countries that use the opportunity to streamline their policies and improve their competitiveness are likely to increase their gains from quota abolition. Modeling results suggest that South Asia as a whole will gain from quota abolition, although different countries may experience different results. Unambiguously, however, the gains from domestic reform will increase after the abolition of the quota arrangement.

Details

  • Author

    Kathuria, Sanjay Martin, Will Bhardwaj, Anjali

  • Document Date

    2001/11/30

  • Document Type

    Policy Research Working Paper

  • Report Number

    WPS2721

  • Volume No

    1

  • Total Volume(s)

    1

  • Country

    India,

  • Region

    South Asia,

  • Disclosure Date

    2010/07/01

  • Doc Name

    Implications for South Asian countries for abolishing the Multifibre Arrangement

  • Keywords

    terms of trade effect;terms of trade loss;terms of trade gain;restricted markets;computable general equilibrium model;domestic policy constraints;impact of trade reforms;international trade in textiles;development research group;export tax equivalents;multilateral trading system;share of export;polyester filament yarn;global trade analysis;synthetic fiber;quota rent;choice of technology;domestic policy reform;regional income disparity;regional development policy;inequality in health;elasticity of substitution;boost to productivity;general equilibrium approach;quality of outputs;labor intensive production;lack of investment;flexibility of production;high import duties;increased market access;import demand curve;domestic policy response;quantity of exports;product life cycle;lack of transparency;value of exports;imports of textiles;learning by doing;clothing export industry;high tariff barriers;implicit export taxes;elasticity of export;clothing sector;domestic reform;weighted average;welfare gains;textile industry;export quota;supply curve;transaction cost;garment industry;domestic industry;clothing industry;allocative efficiency;increase productivity;production system;export demand;export price;basic economics;empirical evidence;cotton export;trade regime;clothing exports;excise duty;market equilibrium;cotton yarn;marginal price;welfare impact;domestic production;simple average;domestic policies;sewing machine;previous paragraph;productivity gain;increased competition;productivity growth;textile sectors;labor productivity;garment production;quota allocations;potential output;working condition;factor endowment;sales tax;market power;administrative apparatus;export business;rent sharing;employment growth;import duty;export production;administrative machinery;hidden cost;factor price;average price;individual products;policy restrictions;dynamic perspective;high share;domestic sourcing;upward shift;export revenue;small-scale industry;export share;quota levels;enforcement measures;regional preferences;export growth;Labor Policies;trade diversion;social security;incentive effect;export schemes;trade constraints;customs tariff;export tariff;bilateral agreement;bond market;credit spread;productivity increase;collective farm;public fund;political institution;anti-dumping practice;increased demand;breeding ground;international buyers;labor policy;comparative static;competitive environment;positive impact;inelastic demand;price effect;global competition;behavioral parameters;world economy;textile trade;import price;improving productivity;industrialized country;Industrialized countries;home market;competitive world;price discrimination;industrial market;countervailing duty;lack of consistency;high duties;implicit subsidy;cotton fabric;duty drawback;apparel export;world exports;gradual decline;risk strategy;import good;apparel manufacturers;labor legislation;risk perception;price sensitive;cotton producer;imported inputs;indirect taxation;domestic cost;plant size;scale economy;licensing policy;garment factories;export orientation;labor issue;labor problem;output growth;fiber production;increased imports;import restriction;Industrial Policies;industry policy;tax policy;present evidence;mass market;small-scale sector;cheap labor;tax payment;small-scale producer;small scale producer;decentralized system;apparel industry;competitive segment;clothing products;indirect employment;fundamental principles;comparative advantage;labor-intensive industry;export base;issue date;legal obligation;world demand;textile goods;domestic price;handloom industry;budget speech;textile articles;supply situation;largest markets;export performance;price range;policy regime;global demand;quota restrictions;domestic distortions;export supply;uniform price;world price;export market;effective tax;real resource;exporting country;industrial country;commodity trade;man-made fibers;

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Citation

Kathuria, Sanjay Martin, Will Bhardwaj, Anjali

Implications for South Asian countries for abolishing the Multifibre Arrangement (English). Policy, Research working paper series ; no. WPS 2721 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/792041468771600265/Implications-for-South-Asian-countries-for-abolishing-the-Multifibre-Arrangement