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The unraveling of the Multi-Fiber Arrangement, 1981: an examination of international regime change

Published online by Cambridge University Press:  22 May 2009

Vinod K. Aggarwal
Vinod K. Aggarwal
Affiliation:
Assistant Professor of Political Science at theUniversity of California, Berkeley.
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Abstract

As competition between newly industrializing and advanced industrialized countries has increased, trade protection has become a key issue. In textile and apparel trade, international regimes to regulate trade intervention have existed since the early 1960s. The 1981 renewal of the Multi-Fiber Arrangement poses two puzzles. First, why did countries choose to continue to manage conflict through an international regime rather than through some other arrangement? Second, why did the regime become weaker and more protectionist than in the past? An international structure approach suggests that regimes are wanted to prevent arrangements in larger systems from being undermined, to control the behavior of other countries, and to reduce information costs. Variation in regime strength can be explained by asymmetry in the distribution of capabilities in various systems. The nature of the regime is influenced by changes in international competition and by nesting. A domestic structure approach, on the other hand, focuses on the relationships between state and societal groups (the Commission and member states in the case of the EEC). The relative strength of groups affects national policies and the development and characteristics of regimes. A “processtracing” examination of international textile negotiations, emphasizing the response of decision makers to structural constraints and incentives, allows us to ascertain the relative influence of international and domestic structures on the negotiations and outcomes.

Type
Organizing International Trade in Textiles
Information
International Organization , Volume 37 , Issue 4 , Autumn 1983 , pp. 617 - 645
Copyright
Copyright © The IO Foundation 1983

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References

I would like to thank Robert Keohane for his guidance and encouragement. Pierre Allan, Darline Alvarez, Michael Barzelay, Alexander George, Stephan Haggard, Peter Katzenstein, Stephen Krasner, Marilyn Skiles, Lucia Skwarek, Kenneth Waltz, and three anonymous referees also offered valuable comments and suggestions. David Hudnut and Eddie Kim provided research assistance. An SSRC-Fulbright grant partially supported my research. A number of officials who wish to remain anonymous provided valuable information on the negotiations.

1. See Aggarwal, V. and Cahn, L., “The Political Foundations and Implications of Trade Controls: A Conceptual Framework,” presented at the Peace Science Society International Conference, Stanford University, Stanford, Calif., 02 1978, p. 7Google Scholar.

2. Krasner, S., in the introduction to a special issue on international regimes (International Organization 36 [Spring 1982])Google Scholar, defines regimes as “sets of explicit principles, norms, rules, and decision-making procedures around which actors' expectations converge in a given area of international relations.” As I argue elsewhere (Aggarwal, V., “Hanging by a Thread: International Regime Change in the Textile/Apparel System, 1950–1979” [Ph.D. diss., Stanford University, 1981]Google Scholar), this unnecessarily complicates the definition of regimes and makes cognitive and structural analyses of regimes appear to be competitive when they are in fact complementary. In this article I focus on regimes rather than on metaregimes.

3. See for example, Gilpin, R., U.S. Power and the Multinational Corporation: The Political Economy of Foreign Direct Investment (New York: Basic Books, 1975)CrossRefGoogle Scholar; Krasner, S., “State Power and the Structure of International Trade,” World Politics 28 (1976), pp. 317–47CrossRefGoogle Scholar; Waltz, K., Theory of International Politics (Reading, Mass.: Addison Wesley, 1979)Google Scholar; Keohane, R., “The Theory of Hegemonic Stability and Changes in International Economic Regime, 1967–1977,” in Holsti, O., Siverson, R., and George, A., eds., Change in the International System (Boulder: Westview Press, 1980)Google Scholar.

4. See for example the articles in Katzenstein, P., ed., Between Power and Plenty (Madison: University of Wisconsin Press, 1978)Google Scholar.

5. See George, A., “The Causal Nexus between Cognitive Beliefs and Decision-Making Behavior: The Operational Code Belief System,” in Falkowski, L., ed., Psychological Models in International Politics (Boulder: Westview Press, 1980)Google Scholar. While the technique requires detailed information about the decision-making process, which is often difficult to obtain, appropriately structured interviews and historical and documentary sources can provide the needed detail.

6. I start with the assumption that laissez-faire is not proving “successful” and that countrieshave decided to intervene in the market.

7. J. Finlayson and M. Zacher identify GATT norms as nondiscrimination, liberalization, reciprocity, development, safeguards, multilateralism, and negotiations led by major suppliers; see their “The GATT and the Regulation of Trade Barriers: Regime Dynamics and Functions,” International Organization 35 (Autumn 1981)Google Scholar.

8. My analysis in this subsection draws heavily on Keohane, R., “The Demand for International Regimes,” International Organization 36 (Spring 1982)CrossRefGoogle Scholar.

9. Ibid.

10. Hegemonic stability arguments have also associated concentration of capabilities with an open regime. As I argue below, however, it is important to distinguish between the strength and the nature of regimes. It is quite possible to have a strong protectionist regime as well as a strong open one. On hegemonic stability theory see Kindleberger, C., The World In Depression (Berkeley: University of California Press, 1973)Google Scholar; Gilpin, U.S. Power, Krasner, “State Power”; Keohane, “Theory of Hegemonic Stability.”

11. Organski, A., World Politics (New York: Knopf, 1968)Google Scholar.

12. The terms “balancing” and “bandwagoning” are taken from Waltz, Theory.

13. EEC figures from 1960–70 include U.K. and Denmark imports (Eire not available but insignificant) to provide comparability with post-1973 figures. The sources are: for 1960–70, GATT document L/3797 (1972); for 1973–77, GATT document Com.Tex./W/63 (9 October 1979); for 1980, GATT document Com.Tex./W/83. The percentages are calculated from import data.

14. See Kindleberger, C., “Group Behavior and International Trade,” Journal of Political Economy 59, 1 (1951), pp. 30–46CrossRefGoogle Scholar.

15. See McKeown, Timothy, “Tariffs and Hegemonic Stability Theory,” International Organization 37 (Winter 1983)CrossRefGoogle Scholar, for a discussion.

16. Hughes, H., ed., Prospects for Partnership: Industrialization and Trade Policies in the 1980s (Baltimore: John Hopkins Press, 1973)Google Scholar, makes a similar argument about the differences faced by developed countries in adjusting to exports from LDCs as compared to exports from other developed countries. While intraindustry or intrafirm trade might ameliorate protectionist impulses, as G. K. Helleiner argues based on evidence from the United States, intrafirm trade is mainly significant in industries with high research and development expenditures. He finds that of total imports from the Third World into the United States in 1977, related party imports accounted for 7.8% in textiles, 11.5% in clothing, 4.4% in footwear, 63.5% in nonelectrical machinery, and 75.2% in electrical machinery (2-digit SITC categories for industry definitions): Helleiner, , Intra-Firm Trade and the Developing Countries (New York: St. Martin's Press, 1981), p. 70CrossRefGoogle Scholar. Lipson, C., “The Transformation of Trade: The Sources and Effects of Regime Change,” International Organization 36 (Spring 1982)CrossRefGoogle Scholar, makes a similar argument for intraindustry trade. The future may not be as bleak as cross-cutting pressures on firms seeking protection increases. Some evidence can be found in the MNC involvement in African and Latin American countries' textile and apparel industries. While these countries are currently not very important in textile trade, this may change. I am indebted to an anonymous referee for this last point.

17. Data are computed from GATT document CT/W/78, 29 September 1980, tables 1A and 1C for the EEC and tables 2A and 2C for the United States (U.S. dollars). Data for U.S. and EEC are not strictly comparable because all figures for exports and imports are f.o.b. with the exception of EEC imports, which are c.i.f.

18. See Katzenstein, Between Power and Plenty, and Krasner, S., Defending the National Interest: Raw Materials Investments and U.S. Foreign Policy (Princeton: Princeton University Press, 1978)Google Scholar, for a discussion of weak and strong states.

19. I only discuss the domestic structure of key actors in the 1981 negotiations. Japan, other developed countries, East Bloc countries, and a number of LDCs only played minor roles in the negotiations. A more detailed discussion of domestic structure in the textile/apparel issue can be found in Aggarwal, V. with Haggard, S., “The Politics of Protection in the U.S. Textile and Apparel Industries,” in Zysman, J. and Tyson, L., eds., American Industry in International Competition, (Ithaca: Cornell University Press, 1983)Google Scholar, for the United States, and de la Torre, J., “Public Intervention Strategies in the European Clothing Industries,” Journal of World Trade Law 15 (03–04 1981)Google Scholar, for Europe.

20. See Haggard, Stephan, “Pathways from the Periphery: The Newly Industrializing Countries in the International System” (Ph.D. diss., University of California, Berkeley, 1983)Google Scholar, for a discussion of the political basis of NIC policies. Although Hong Kong is not known as a strong state, its peak business organizations play a key role in policy making.

21. See Aggarwal with Haggard, “The Politics of Protection,” for a detailed discussion of the development of protectionist coalitions in the U.S. textile and apparel industries.

22. The Big Three countries are Hong Kong, South Korea, and Taiwan. Together they accounted for 62% of all U.S. apparel imports in 1980.

23. U.S. Position Paper for the GATT Textile Committee Meeting, 14 July 1981, by Peter Murphy (Office of the U.S. Trade Representative).

24. Ibid., p. 3.

25. Interview with U.S. government officials, December 1981, Washington, D.C.

26. Interview with U.S. government official, December 1981, Washington, D.C.

27. U.S. Position Paper, 14 July 1981 (emphasis added).

28. Ibid.

29. As reported by a U.S. government official in an interview, December 1981, Washington, D.C.

30. Daily News Record (New York), 4 05 1981Google Scholar.

31. This Section allowed the United States to restrict imports unilaterally from countries not willing to agree to restraints. The U.S. government could only do this, however, if a multilateral accord was in existence.

32. U.S. Position Paper, 14 July 1981.

33. Aggarwal with Haggard, “Politics of Protection.”

34. U.S. Position Paper, 14 July 1981, emphasis added.

35. Interview with U.S. government official, December 1981, Washington, D.C.

36. Statement of George Vargish on behalf of the U.S. Apparel Council before U.S. House, Committee on Ways and Means, Oversight Hearings of the Trade Subcommittee, 21 July 1980.

37. Daily News Record, 6 April 1981.

38. Letter from Ronald Reagan to Strom Thurmond, 3 September 1980. Keying the import growth rate to the domestic market's growth would freeze the importers' proportion of the American domestic market.

39. The White Paper called for renegotiation of bilateral agreements with the Big Three exporters–Hong Kong, South Korea, and Taiwan–to decrease the swing and flexibility available to them. “Swing” provisions allow countries to use quotas in one category to increase the quota in a restrained category: this is important for exporters to meet changing market conditions. “Flexibility” in terms of “carry over” and “carry forward” similarly permits responses to the market. Carry over allows exporters to use unfilled quotas from the previous year; carry forward allows them to borrow against quotas for subsequent years. Eliminating these provisions makes it more difficult for exporters to sell in the U.S. market.

40. Letter from Senator Ernest Hollings to William E. Brock III, 15 May 1981.

41. Letter from Congressional Textile Caucus, U.S. House of Representatives, to Ambassador William E. Brock III, United States Trade Representative, 22 May 1981.

42. Daily News Record, 2 October 1981.

43. Of course, the MFA violated in part the norm of nondiscrimination, by allowing restraints against LDCs without similar restraints on developed countries. But no discrimination was allowed against particular LDCs. Bilateral accords unregulated by the MFA would, however, allow for this possibility.

44. U.S. Position Paper, 14 July 1981.

45. EUROPE (Brussels), 8 05 and 16 July 1981Google Scholar.

46. Financial Times, 14 July 1981.

47. Textile Asia (Hong Kong), 01 1981Google Scholar.

48. Financial Times, 14 July 1981.

49. Textile Month (Sutton, U.K.), 07 1981Google Scholar.

50. Daily News Record, 25 June and 6 July 1981.

51. Interview with Pakistani official, September 1978, Geneva, Switzerland.

52. Textile Asia, August 1981.

53. Wall Street Journal, 10 July 1981.

54. Interview with GATT official, July 1981, Geneva, Switzerland.

55. “Aide Memoire of the Bogota Meeting of the Textile Exporting Countries,” held 3–6 November 1980 (confidential document made available by a negotiator).

56. Ibid.

57. Ibid. Later in the negotiations, however, an adviser to the ASEAN countries would argue in favor of ambiguity to prevent a highly protectionist accord.

58. Interview with U.S. government official, December 1981, Washington, D.C.

59. Daily News Record, 3 November 1981.

60. GATT document Com. Tex/W/85, 9 December 1980.

61. GATT document Com. Tex/20, 13 February 1981.

62. Ibid.

63. Ibid., 8 May 1981.

64. The Scandinavians had inserted the MVP clause in the original MFA arguing that there was a limit to which their textile and apparel industries could be reduced in light of “strategic” considerations–hence the notion of a “minimum viable production.”

65. See GATT document Com.Tex/24, 8 September 1981, for a discussion.

66. Textile Asia, June 1981.

67. EUROPE, 16 July 1981.

68. Ibid.

69. See U.S. Position Paper, 14 July 1981.

70. Daily News Record, 14 July 1981.

71. Interview with U.S. government official, December 1981, Washington, D.C.

72. Daily News Record, 10 September 1981.

73. Interview with U.S. government official, December 1981, Washington, D.C.

74. Daily News Record, 22 September 1981. Emphasis added.

75. Ibid., 25 September 1981.

76. Confidential memo made available by a consultant to ASEAN, 9 October 1981.

77. EUROPE, 11 November 1981.

78. An internal ceiling differs from an external ceiling in that exporting countries would have to agree to the latter. Under the MFA, this would probably be illegal. When the British tried to justify their global ceiling in 1966 under the predecessor to the MFA, the LTA, the Textiles Committee ruled this was not permitted under the regime's rules.

79. EUROPE, 12 December 1981.

80. As many of the LDCs saw it, “If the M-FA isn't renewed the only course left would be to regulate trade on a country by country basis. Because of its enormous size as a buyer, the EEC would carry much greater bargaining power in negotiations for such separate accords than it does in an international forum, where it is one group among nearly 100 participating countries” (Daily News Record, 3 November 1981). This paragraph is based on interviews with U.S. government officials, December 1981, Washington, D.C.

81. Daily News Record, 14 December 1981.

82. Interviews with U.S. government officials, December 1981, Washington, D.C.

83. MFA Protocol, GATT document, 23 December 1981.

84. Ibid.

85. See Aggarwal, “Hanging by a Thread,” for a discussion of the difference in the conduct of negotiations under different structural conditions.

86. While further work on this question is needed, Tun-jen Cheng has made an interesting effort to examine differences in regime formation in different areas. See his “Trade Controls in Surplus Industries-Is the Textile Regime Setting up a Precedent or Merely an Exception?” mimeo (University of California, Berkeley, 08 1981)Google Scholar.