Download Multi-Fiber Arrangement Expiration: an Analysis of the

Multi-Fiber
Arrangement
Expiration: Implications
for South Asia
Ashe Hate
Shisir Khanal
John Larsen
Paul Smart
Romina Soria
David Zanni
Background





Effective 1974–2005
Set limits on textile imports
Limits applied to 47 developing countries
Agreement on Textiles and Clothing, 1994
U.S. also reduces tariffs
Importance of Textile and Apparel
Industry
India
Pakistan Bangladesh
Sri
Lanka
Nepal
GDP
(PPP)
2003
$3 trillion
$311 billion
$259 billion
$74 billion
$38 billion
Industry/
GDP
4%
9%
N/A
7%
N/A
Industry/
Exports
30%
72%
75%
44%
40%
Industry/
Labor
Force
6%
3%
3%
8%
1%
Predictions from Economic Theory

For exporting countries
 Loss
of quota rents
 Reduction of trade inefficiencies

For developed countries
 Decrease
in prices
 Increase in imports
 Transfer of income from producers to consumers
Expert Opinion and Predictions
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

India, Pakistan,
Bangladesh, and Sri
Lanka held back by
quotas
Nepal benefited from
high quotas
Some benefit from
preferential access to
U.S. and EU markets

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Loss of output and
employment in
Bangladesh
Significant job loss in Sri
Lanka
36 percent export
increase for South and
Southeast Asia
87 percent export
increase for China
Predictions from the Press

Gains for India and Pakistan

Mixed predictions for Sri Lanka and
Bangladesh
 Asian

press more optimistic than European press
Significant losses for Nepal
Summary of Predictions
COUNTRY
THEORY
EXPERTS
PRESS
India
Win
Win
Win
Pakistan
Win
Win
Win
Sri Lanka
Win
Mixed
Ambiguous
Bangladesh
Win
Mixed
Mixed
Nepal
Lose
Lose
Lose
Winner: India
Leading cotton producer
 Backward linkages
 Substantial FDI
 Outsourcing opportunities
 Government under reform pressure
 Lower labor costs than China

Winner: Pakistan
Leading cotton producer
 Backward linkages
 Substantial FDI
 Low labor costs
 Government involvement
 Product specialization
 Access to U.S. and EU markets

Loser: Nepal
Political instability
 Small firms
 Low labor productivity
 Low product diversity
 High transportation costs
 High dependence on U.S. market
 Lack of government support

Unclear: Bangladesh

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Advantages
Niche market
Low labor costs
Proactive
government and
trade associations
Recent growth trends




Challenges
Falling prices
Dependence on raw
material imports
Dependence on FDI
Limited access to
U.S. market
Unclear: Sri Lanka


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Advantages
Niche market
Potential trade
arrangements



 Regional
 U.S. and EU

Tsunami relief

Challenges
High wages
Low productivity
Dependence on raw
material imports
Small firms
Lack of peak
organizations
Implications for U.S.


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Restructuring of U.S. retailers
Loss of U.S. production and employment
Benefit to U.S. consumers
Conclusions
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Winners: India and Pakistan
Loser: Nepal
Unclear: Sri Lanka and Bangladesh
U.S. benefits overall with some job loss
Geo-political considerations?