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Unravelling the textiles trade: How accurate were GTAP models in predicting the impact of the end of the MFA?

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  • Curran, Louise

Abstract

World textiles trade has long been distorted by a series of quota limitations on market access institutionalised in the Multi Fibres Agreement (MFA). One of the key achievements of the Uruguay Round was the liberalisation of the sector through the Agreement on Textiles and Clothing (ATC). This liberalisation process was a key source of the welfare gains which most models forecast to result from the Round. However, it was never evident that the impact of this liberalisation would be positive for all clothing suppliers. The quotas that had existed in the large industrialised country markets had multiple effects. In particular, they both limited the exports of the most competitive suppliers and encouraged importers in restricted markets to source their goods in a wide range of countries which were not subject to extensive quota restraints. In 2005 the sector was finally fully liberalised. This paper will look at the impacts of that liberalisation on the basis of actual trade figures. It will then compare these flows with the changes forecast by various researchers. These forecasts, mostly based on GTAP analysis, generally indicated gains for many developing country suppliers and losses for preferential suppliers and the EU. In reality, gains have been quite heavily concentrated in a few key suppliers, while many have seen limited increases in trade and a few key exporters have experienced significant losses. This effect is particularly striking in Taiwan and Korea, which were not universally forecast by the models to lose out from the liberalisation. This analysis indicates that, although the GTAP-based models forecast several outcomes accurately – in particular the gains experienced by China and India – for other sources they were less accurate. This paper will explore the reasons behind the difficulties in modelling the sector and its trade policy context and draw some conclusions for future GTAP modelling of quantitative limits on trade.

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  • Curran, Louise, 2008. "Unravelling the textiles trade: How accurate were GTAP models in predicting the impact of the end of the MFA?," Conference papers 331796, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:331796
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