ATC: A short history
Goods: Market Access
Section: Textiles and Clothing
Unit: ATC: Background
Slide n? 19
Efforts under the GATT to liberalize trade have always met with particular
difficulties in textiles and clothing. For more than thirty years, this sector was governed by special regimes: the Short Term Cotton Arrangement
in 1961, the Long Term Cotton Arrangement from 1962 to 1973, and the
Multifibre Arrangement from 1974 to 1994. It was of considerable
significance, therefore, that after more than three decades of
increasingly complicated systems, Ministers decided to include this
sector within the scope of the Uruguay Round multilateral trade
negotiations in 1986. Seven years of complex and difficult negotiations
resulted in the Uruguay Round Agreement on Textiles and Clothing which
forms part of the global, single undertaking making up the whole package
of results from the Uruguay Round. This section presents a brief
historical background on the evolution of textiles and clothing trade policies, and describes the principal effects of these regimes on trade
in this sector.
In the period following immediately after World War II, a major part of international trade was governed by complex national trade regimes.
Post-war balance-of-payments difficulties in a number of developed
countries were cited to justify high tariffs, complicated customs
administration, complex import licensing procedures and a wide range of quantitative restrictions. During the 1950s, however, trade restrictions
were reduced in the wake of general liberalization efforts pursued in the
GATT and the IMF.
The gradual removal of quantitative restrictions following the easing of balance-of-payments difficulties in the developed countries coincided
with the reestablishment of Japan in world trade in textiles and the
emergence of a number of developing countries as exporters of textiles
and, to a lesser extent at that time, clothing. The developing countries,
in particular, benefitting from access to raw materials and relatively
low production costs, particularly wages, began to rapidly increase the
volume of exports of cotton textiles and clothing to the developed country
markets. The sharp increase in low value imports of cotton textiles
adversely affected investment and employment in the developed countries
which faced the prospect of rapid closure of production facilities in the
sector leading to serious social problems. To alleviate the difficulties,
some developed countries negotiated with individual governments
agreements to limit the quantities of exports of cotton textiles or
"voluntary export restraint" agreements, as they came to be known later.
In 1959 a study was proposed in GATT to find a multilateral solution to
the problem of "sharp increases in imports, over a brief period of time
and in a narrow range of commodities which can have serious economic,
political and social repercussions in the importing countries". In 1960, the CONTRACTING PARTIES recognized the phenomenon of "market disruption"
which contained the following elements in combination:
"(i) a sharp and substantial increase or potential increase of imports
of particular products from particular sources;
(ii) these products are offered at prices which are substantially below
those prevailing for similar goods of comparable quality in the market
of the importing country;
(iii) there is serious damage to domestic producers or threat thereof;
(iv) the price differentials referred to in paragraph (ii) above do not
arise from governmental intervention in fixing or formation of prices or
from dumping practices."
The most significant aspect of this decision was the emphasis on
particular sources of supply and on substantial price advantage of these
sources without recourse to government intervention or dumping practices.
The possibility of selective safeguard action that the concept of "market
disruption" created constituted a fundamental departure from the
requirement of Article XIX of GATT.
The Multifibre Arrangement (MFA), more formally the Arrangement Regarding
International Trade in Textiles, entered into force in 1974. It extended the coverage of the restrictions on textiles and clothing from cotton
products to wool and man-made fibre products (and from 1986, certain
vegetable fibre products). The stated objective of the MFA was "to achieve
the expansion of trade, the reduction of barriers to such trade and the
progressive liberalization of world trade in textile products, while at
the same time ensuring the orderly and equitable development of this trade
and avoidance of disruptive effects in individual markets and on individual lines of production in both importing and exporting
countries". A further aim was "to further the economic and social
development of developing countries and secure a substantial increase in
their export earnings from textile products and to provide for a greater share for them in world trade in these products".
Operationally, the MFA (like the cotton arrangements) provided rules for
the imposition of quotas, either through bilateral agreements or
unilateral actions, when surges of imports caused market disruption or
threat thereof in importing countries. In imposing quotas, importing
countries were obliged to observe consultation provisions and specific
rules and standards both in determining a situation of market disruption
and when introducing and maintaining restrictions on exporting members.
As a norm they were required to allow for an annual growth rate of six
per cent in the quotas. A statutory body, the Textiles Surveillance Body,
carried out a monitoring and reporting function and also handled cases
of disputes. The MFA terminated on 31 December 1994 upon the entry into
force of the WTO and its Agreement on Textiles and Clothing on 1 January
During its 21 years, from 1974 to 1994, there were changes and adaptations
in the operation of the Arrangement. Extensions of the MFA were negotiated
a number of times, in the course of which new provisions were added and
new products included. Furthermore, the growth rate of six per cent in quotas envisaged in the MFA was in many cases sharply reduced in practice
in bilateral agreements. The complex network of bilateral quotas under
the MFA were also negotiated at short intervals, often every year or so.
In its last years of operation, six MFA participants
(Austria/Canada/EEC/Finland/Norway/United States) applied quotas under
the Arrangement, to varying degrees in terms of products covered and
countries affected. However, apart from restrictions on former state
trading countries, the MFA was used almost exclusively to protect against
imports from developing countries. Switzerland and Japan, which were
members of the MFA, had no restraint agreements. Sweden dropped all of
its restraints and withdrew from the MFA in 1991. (Quotas for imports into Sweden were, however, reintroduced when it joined the European Community
in 1995.) In 1994, its last year of operation, the MFA had 44 Members which
was, of course, less than half of the GATT membership but accounted for
most members with an interest in textiles and clothing trade, including
China, which was not a GATT contracting party.