10 - Evaluating the benefits of abolishing the MFA in the Uruguay Round package

Summary

Introduction and overview

The use of quantitative restrictions on textile imports from developing countries dates back to the 1930s (Keesing and Wolf 1980). At that time, the restrictions were mainly directed against the increasingly competitive Japanese cotton textile industry. After the Second World War, Japan's textile exports to the industrial countries spearheaded its export-led industrialization. However, the pressure for protection in industrial countries came not only from competition overseas, but perhaps more important, from the stagnant or even declining output and employment as a result of sluggish domestic demand (Keesing and Wolf 1980). Despite Japan's “voluntary” export restraints, a Short-Term Arrangement (STA) in cotton textile trade was reached in 1961 at the initiative of the US and under the auspices of the General Agreement on Tariffs and Trade (GATT). The conclusion of a Long-Term Arrangement (LTA) in 1962 established a system of quantitative protection against textile exports from developing countries (GATT 1984).

Despite the LTA, developing countries were able to expand their exports of textiles to industrial countries in the 1960s. Technological change strengthened the competitiveness of developing countries in textiles throughout this period. The emergence of synthetic fibers also enabled developing countries to find holes in industrial country restrictions, thereby increasing their market penetration. In addition, restrictions on Japanese products led to rapid growth of exports from other Asian countries, namely, Hong Kong, Taiwan, and Korea (Keesing and Wolf 1980).