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Implications for South Asian countries for abolishing the Multifibre Arrangement

  • Kathuria, Sanjay
  • Martin, Will
  • Bhardwaj, Anjali

The authors 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.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2721.

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Date of creation: 30 Nov 2001
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Handle: RePEc:wbk:wbrwps:2721
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  1. Martin, W. & Winters, L.A., 1995. "The Uruguay Round and the Developing Countries," World Bank - Discussion Papers 307, World Bank.
  2. Harrison, Glenn W & Rutherford, Thomas F & Tarr, David G, 1997. "Quantifying the Uruguay Round," Economic Journal, Royal Economic Society, vol. 107(444), pages 1405-30, September.
  3. Aziz Elbehri & Thomas Hertel & Will Martin, 2003. "Estimating the Impact of WTO and Domestic Reforms on the Indian Cotton and Textile Sectors: a General-Equilibrium Approach," Review of Development Economics, Wiley Blackwell, vol. 7(3), pages 343-359, 08.
  4. Emiko Fukase & Will Martin, 2000. "The effects of the United States granting MFN status to Vietnam," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 136(3), pages 539-559, 09.
  5. Mattoo, Aaditya & Subramanian, Arvind, 2000. "India and the multilateral trading system after Seattle - toward a proactive role," Policy Research Working Paper Series 2379, The World Bank.
  6. Andrew B. Bernard & J. Bradford Jensen, 1999. "Exporting and Productivity," NBER Working Papers 7135, National Bureau of Economic Research, Inc.
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