Implications for South Asian Countries of Abolishing the Multifibre Arrangement

24 Pages Posted: 20 Apr 2016

See all articles by Will J. Martin

Will J. Martin

International Food Policy Research Institute (IFPRI)

Sanjay Kathuria

World Bank- South Asia region

Anjali Bhardwaj

Consultant

Date Written: November 2001

Abstract

Modeling results suggest that South Asia as a whole will gain from the abolition of the quotas under the Multifibre Arrangement. Unambiguously, however, the gains from domestic reform will increase after the abolition of the Arrangement as export demand becomes more price responsive.

Kathuria, Martin, and Bhardwaj provide a simple introduction to the economics of the Multifibre Arrangement (MFA) and use available empirical evidence to examine its impact on exports of garments and textiles, focusing on India. Their review of the basic economics of the MFA shows the discriminatory character of the Arrangement. While exporting countries can gain from quota rents, much of this gain is likely to be offset by losses in exports to unrestricted markets, through waste resulting from domestic rent-seeking behavior, or shared with industrial country importers. Moreover, the restrictions curtail the ability of countries to generate sorely needed employment in the labor-intensive garment and textile sectors. Recent estimates for India of the export tax equivalents of the quotas suggest that they increased in 1999, after a couple of years around lower levels.

The authors also examine the domestic policy distortions affecting the industry in India. While the abolition of quotas on international trade in textiles in 2005 will create opportunities for developing countries, it will also expose them to additional competition from other, formerly restrained exporters. The outcome for any country will depend on its policy response. Countries that use the opportunity to streamline their policies and improve their competitiveness are likely to increase their gains from quota abolition. Modeling results suggest that South Asia as a whole will gain from quota abolition, although different countries may experience different results. Unambiguously, however, the gains from domestic reform will increase after the abolition of the quota arrangement.

This paper - a product of Trade, Development Research Group and the South Asia Region - is part of a larger effort in the Bank to understand the impact of trade distortions and analyze domestic policy responses. The authors may be contacted at wmartin1@worldbank.org, skathuria@worldbank. org, or anjali@winrock.ernet.in.

Suggested Citation

Martin, William J. and Kathuria, Sanjay and Bhardwaj, Anjali, Implications for South Asian Countries of Abolishing the Multifibre Arrangement (November 2001). Available at SSRN: https://ssrn.com/abstract=634432

William J. Martin (Contact Author)

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

Sanjay Kathuria

World Bank- South Asia region ( email )

1818 H Street NW
Washington, DC 20433
United States

Anjali Bhardwaj

Consultant ( email )

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