General Management @ Knowledge Zone



Textile Industry Post MFA

by Siddharth Patnaik & R. Janaki *

Previous

Part - III

Overview of the Agreement on Textiles and Clothing (ATC)

Just to brush upon the history briefly, trade in textiles and clothing was governed by the Multi-fiber Arrangement (MFA) prior to 1995. MFA was an instrument under the garb of which, developed nations protected their domestic textile industry by imposing quotas on imports from other countries. The Multi Fiber Agreement governed the quota system in the textile industry including both manufacturing and exporting aspects. On 1 January, 1995, the Agreement on Textiles and Clothing (ATC) of the World Trade Organization (WTO) replaced the then existing 21-year-old Multi-fiber Arrangement (MFA) of the General Agreement on Tariffs and Trade (GATT).

This was aimed at phasing out the MFA over a decade. ATC calls for the gradual elimination of quotas over a 10- year period, divided into four stages: -

  • Stage 1: 1 January 1995 to 31 December 1997

  • Stage 2: 1 January 1998 to 31 December 2000

  • Stage 3: 1 January 2002 to 31 December 2004

  • Stage 4: Full integration by 1 January 2005

Problem Definition

The existing multi fiber agreement will get dismantled by 2004 and this will open way for free trade in textile products. Thus, in effect, on December 31, 2004, the quota regime would die a silent death, and countries would be free to trade. This is of particular benefit to developing nations like India, who can then have free access to the developed world. However, many competing countries are gearing up themselves to meet the post-MFA situation by modernizing their facilities.

The global textile industry is about to undergo a significant transformation. As the Agreement on Textiles and Clothing (ATC) will expire, and with it the quota system for international trade in textiles and clothing will no longer be used to govern international trade. By 2005, all quotas on clothing and textiles will have disappeared. As a result, the textile industry in India is going to face greatly increasing competition after 2005. Much of this competition will come from China, whose high capacity to produce textiles is held back today only by the ATC quota system.

Next

* Contributed by -
Siddharth Mohan Patnaik, B.Tech. (Electronics),
Ravulpathi Janaki, B.Tech. (Mechanical),
II Year, IIM Lucknow.