Multi Fiber Agreement

Varun Chugh
Sunil Saini
Shobhit Srivastava
Simranjeet Singh Kahlon
Vikas
Contents
MFA: Background
From MFA to ATC
Textile & Clothing Industry Statistics
Indian Perspective
Indian Exports Growth
Exports: Before and After MFA
Multi Fiber Agreement
 Between 1974 and the end of 2004, apparel
and textile trade worldwide was governed by
the Multi-Fiber Agreement (MFA).
 Individual quotas were negotiated which set
precise limits on the quantity of textiles and
apparel which could be exported from one
country to another
 The MFA provided a framework under which
developed countries such as United States, the
European Union and Canada imposed quotas
on exports of yarn textiles and apparel from
developing countries.
 It was designed to be a short-term measure
primarily to give industrialized countries time
to adjust to competition from imports from
From MFA to ATC
 In 1995, the MFA was replaced by the 1995
Agreement on Textiles and Clothing (ATC), with
the advent of the World Trade Organization
(WTO).
 Negotiators agreed that the MFA would be
eliminated and full liberalization would be
implemented on 1 January 2005.
 The ATC was meant to be a transitory phase
between the MFA and the full integration of the
textile and clothing industry
 Stepped quota phase-outs were scheduled for
1995, 1998, 2002, and 2005
 The importing countries are free to unilaterally
choose which products that they want to
MFA: Example
Predictions
 A decrease in prices and an increase in imports
of textile and apparel products in the formerly
restricted, developed-country markets.
 Transfers of income from domestic producers
to consumers in developed countries
 Loss of quota rents for governments of
exporting countries, which constitutes a
transfer from governments in the developing
world to consumers in the developed world
 The elimination of quotas should reduce trade
inefficiencies on both the producer and
consumer side.
 MFA expiration will enlarge world trade of
textile and apparel products, and developing
Sources: Central Intelligence Agency. World Factbook 2005
The Indian Perspective
 The popular and trade press largely support
the predictions that India will be better off with
the expiration of the MFA
 The Textile industry contributes 4 percent to
gross domestic product and 14 percent to total
industrial production.
 Furthermore, the industry employs 30 million
workers and earns 35 percent of India’s foreign
exchange
 The Indian textile industry is well placed with
its diversified production base, abundant
availability of domestic raw materials, well
developed network of R&D, design and testing
institutes and a growing pool of skilled workers.
Reasons for Optimism
 India has a cost advantage in cotton production
and is self-sufficient in backward linkages in
the production process.
 India ranks third in the world in the production
of raw cotton, with approximately 14 percent of
total world production.
 The textile industry does not have to depend
on other countries to supply necessary inputs.
 Raw material production, spinning, weaving,
and fabric production, are all carried out in
India
 Textile ministry giving economical incentives
(Ex. Technological Up gradation Fund)
 The key areas where the Indian textile industry has laid
stress in the recent years in its preparation for the post
quota regime include technological upgradation,
benchmarking costs and improving product quality
standards, reducing lead-time in supplying orders and
capacity and workforce augmentation.
 Factors that go Against India
 Fragmentation of the Industry
Fragmentation is a major concern for the Indian textile
industry. The textile industry can be broadly divided into the
mill sector and the non-mill or decentralized sector. There is
great variation in production levels between them. The
decentralized sector accounts for 95 percent of production
and is the main source of employment and export earnings.
The smaller sector might just get dethroned.
 Weak Technological Progress
textile products vary significantly in quality because
production processes are not uniform. Upgrading existing
technology is therefore a prerequisite for access to
international markets
 Labour Laws
Labour policy in India favours organized labour and has a
great deal of support from the political left. Retrenching is
Indian Textile Export Growth
Structure of Indian Textile
Industry
Source of Imports of Textile and
Clothing to The USA

Source: FICCI report

 Source of Imports of Textile and
Clothing to The EU

Source: FICCI report

 Estimates

Source: FiCCI report

 Post MFA Scenario
Markets % of Textile
2002-2003 Exports
2005-2006
Textiles and Textiles and
EU Clothing
4.9 % Clothing
8.1 %
US 3.8 % 5.78 %

Source: Ministry of Textiles