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Multi-Fiber Arrangement Expiration: Implications for South Asia

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

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Multi-Fiber Arrangement Expiration: Implications for South Asia

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  1. Multi-Fiber Arrangement Expiration: Implications for South Asia Ashe Hate Shisir Khanal John Larsen Paul Smart Romina Soria David Zanni

  2. 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

  3. Importance of Textile and Apparel Industry

  4. Predictions from Economic Theory • For exporting countries • Loss of quota rents • Reduction of trade inefficiencies • For developed countries • Decrease in prices • Increase in imports • Transfer of income from producers to consumers

  5. 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 Expert Opinion and Predictions

  6. Predictions from the Press • Gains for India and Pakistan • Mixed predictions for Sri Lanka and Bangladesh • Asian press more optimistic than European press • Significant losses for Nepal

  7. Summary of Predictions

  8. Winner: India • Leading cotton producer • Backward linkages • Substantial FDI • Outsourcing opportunities • Government under reform pressure • Lower labor costs than China

  9. Winner: Pakistan • Leading cotton producer • Backward linkages • Substantial FDI • Low labor costs • Government involvement • Product specialization • Access to U.S. and EU markets

  10. 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

  11. 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: Bangladesh

  12. 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 Unclear: Sri Lanka

  13. Implications for U.S. • Restructuring of U.S. retailers • Loss of U.S. production and employment • Benefit to U.S. consumers

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

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