Post on 15-Nov-2014
Varun ChughSunil Saini
Shobhit SrivastavaSimranjeet Singh Kahlon
Vikas
Multi Fiber Agreement
ContentsMFA: BackgroundFrom MFA to ATCTextile & Clothing Industry StatisticsIndian PerspectiveIndian Exports GrowthExports: Before and After MFA
Multi Fiber AgreementBetween 1974 and the end of 2004, apparel and
textile trade worldwide was governed by the Multi-Fiber Agreement (MFA).
Individual quotas were negotiated which set precise limits on the quantity of textiles and apparel which could be exported from one country to another
The MFA provided a framework under which developed countries such as United States, the European Union and Canada imposed quotas on exports of yarn textiles and apparel from developing countries.
It was designed to be a short-term measure primarily to give industrialized countries time to adjust to competition from imports from developing countries.
From MFA to ATC
In 1995, the MFA was replaced by the 1995 Agreement on Textiles and Clothing (ATC), with the advent of the World Trade Organization (WTO).
Negotiators agreed that the MFA would be eliminated and full liberalization would be implemented on 1 January 2005.
The ATC was meant to be a transitory phase between the MFA and the full integration of the textile and clothing industry
Stepped quota phase-outs were scheduled for 1995, 1998, 2002, and 2005
The importing countries are free to unilaterally choose which products that they want to integrate at each stage
MFA: Example
PredictionsA decrease in prices and an increase in imports of textile
and apparel products in the formerly restricted, developed-country markets.
Transfers of income from domestic producers to consumers in developed countries
Loss of quota rents for governments of exporting countries, which constitutes a transfer from governments in the developing world to consumers in the developed world
The elimination of quotas should reduce trade inefficiencies on both the producer and consumer side.
MFA expiration will enlarge world trade of textile and apparel products, and developing countries will further gain market share.
Sources: Central Intelligence Agency. World Factbook 2005
The Indian PerspectiveThe popular and trade press largely support the
predictions that India will be better off with the expiration of the MFA
The Textile industry contributes 4 percent to gross domestic product and 14 percent to total industrial production.
Furthermore, the industry employs 30 million workers and earns 35 percent of India’s foreign exchange
The Indian textile industry is well placed with its diversified production base, abundant availability of domestic raw materials, well developed network of R&D, design and testing institutes and a growing pool of skilled workers.
Reasons for OptimismIndia has a cost advantage in cotton production
and is self-sufficient in backward linkages in the production process.
India ranks third in the world in the production of raw cotton, with approximately 14 percent of total world production.
The textile industry does not have to depend on other countries to supply necessary inputs.
Raw material production, spinning, weaving, and fabric production, are all carried out in India
Textile ministry giving economical incentives (Ex. Technological Up gradation Fund)
The key areas where the Indian textile industry has laid stress in the recent years in its preparation for the post quota regime include technological upgradation, benchmarking costs and improving product quality standards, reducing lead-time in supplying orders and capacity and workforce augmentation.
Factors that go Against India Fragmentation of the Industry
Fragmentation is a major concern for the Indian textile industry. The textile industry can be broadly divided into the mill sector and the non-mill or decentralized sector. There is great variation in production levels between them. The decentralized sector accounts for 95 percent of production and is the main source of employment and export earnings. The smaller sector might just get dethroned.
Weak Technological Progress
textile products vary significantly in quality because production processes are not uniform. Upgrading existing technology is therefore a prerequisite for access to international markets
Labour Laws
Labour policy in India favours organized labour and has a great deal of support from the political left. Retrenching is not permitted; for an export-oriented industry, this can be quite burdensome.
Indian Textile Export Growth
Structure of Indian Textile Industry
Source of Imports of Textile and Clothing to The USA
Source: FICCI report
Source of Imports of Textile and Clothing to The EU
Source: FICCI report
Estimates
Source: FiCCI report
Post MFA ScenarioMarkets % of Textile
Exports
2002-2003 2005-2006
Textiles and Clothing
Textiles and Clothing
EU 4.9 % 8.1 %
US 3.8 % 5.78 %
Source: Ministry of Textiles