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 BangladeshSri

LankaNepal

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 countriesLoss of quota rentsReduction of trade inefficiencies

For developed countriesDecrease in prices Increase in importsTransfer of income from producers to consumers

Expert Opinion and Predictions

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

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

BangladeshAsian 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

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

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.

Restructuring of U.S. retailers Loss of U.S. production and employment Benefit to U.S. consumers

Conclusions

Winners: India and Pakistan Loser: Nepal Unclear: Sri Lanka and Bangladesh U.S. benefits overall with some job loss Geo-political considerations?