Problems In The Textile Trade

Problems in the Textile Trade

Quotas on textile imports had to be phased out by Jan. 1 under a global trade agreement. The Agreement on Textiles and Clothing (ATC) was implemented to eliminate the Multi Fiber Arrangement in stages by the year 2005. The Multi Fiber Arrangement has been governing the world trade in textiles and garments for the past thirty years. The MFA provided the industrialized countries the ability to limit imports from developing countries. These restrictions provided protection to domestic textile producers but allowed them to give preference to particular partner countries. The ATC favors the developing countries allowing them access to markets of industrialized countries that were previously protected. The elimination of the MFA will cause a more open market and the industry is likely to be located in smaller number of locations providing lower costs. This will likely cause enormous changes throughout most aspects of the industry. To be successful there needs to be a fair and balanced implementation of the ATC with provisions for compensation for job displacement and for the affected producers in the poor countries.

The execution of the ATC will affect countries in different ways. This agreement benefits some of the developing countries but can also hurt others. By opening up the market, now in order to be competitive, a country must have advantages such as being within a close proximity to the markets, low wage costs, an easy supply of fabrics and other materials, and communications for transport and marketing. Countries such as Bangladesh will be negatively affected due to their development of a textile industry as a direct result of trade agreement like the MFA. After the removal of the quotas, Bangladesh will be hurt due to the absence of an industry and poorly developed means for transport. On the other hand, the biggest winner from this would be China. This country is already emerging as a dominant supplier having the highest predicted growth in spite of high quota restrictions. China benefits from having a large low cost labor force along with its own textile industry. China will also benefit from a well recognized financial and marketing knowledge.

Given the dominance of the Chinese textile industry, countries around the world have experienced a flood of Chinese exports. In the United States during the first six months of the year, China's textile exports increased 97 percent to $7.4 billion. Due to this surge 19 U.S. plants were forced to close and 26,000 people in the U.S. lost their jobs. Due to the enormous amount of Chinese textile exports, China is allowing countries to put safeguard quotas to defend themselves if they became overwhelmed by Chinese textile exports. The use of these safeguard quotas does not solve the problems these countries face caused by China. The U.S. textile industry must reapply every year for the safeguards in every product area. This process creates doubts for the industry, U.S. importers, and Chinese exporters as to at what point will the quotas be applied and to which areas. The United States has the right to use safeguards until the end of 2008 but after that, the U.S. will be forced to deal with the whole burden of Chinese