Quotas on Textiles and Clothing - A Review

Term Paper, 2006

29 Pages, Grade: 1,3


Table of Contents



2.1 Structure
2.2 Characteristics
2.3 International Trade

3.1 Implementation Reasons
3.2 Form
3.2.1 Early Agreements (1950s - 1973)
3.2.2 The Multi Fibre Agreement (1974-1994)
3.2.3 The Agreement on Textiles and Clothing (1995-2004)
3.3 Effects of Quota Regulations and Further Discussion

4.1 Effects
4.1.1 China’s Advantage
4.1.2 Effects on The European and US-American Markets
4.1.3 Effects on Developing Countries
4.2 Conflict of Interests amongst Importing Countries
4.2.1 Retailers versus Producers
4.2.2 Inner European Conflict
4.3 New Safeguard Measures
4.3.1 European Union
4.3.2 United States of America

5.1 American and European Producers
5.2 Developing Countries




List of Tables

FIGURE 1.: The Supply Chain in the Textiles and Clothing Industry

FIGURE 2.: Exports in Textiles and Clothing 2004, Regional Shares

FIGURE 3.: The Leading Exporters of Textiles and Clothing 2004, by Country

FIGURE 4.: The ATC Integration Schedule

FIGURE 5.: Shares of Textiles and Clothing of Total Industrial Goods Exported in 2002

1 Introduction

Textile and clothing manufacture and trade have been crucial elements to international economic activity and growth for about two centuries. This labour intensive industry requires relatively low skilled workers and little fixed capital to establish production facilities. In consequence, the textile and clothing industry was one of the main sectors of economic growth at the beginning of the Industrial Revolution in developed countries and is of particular significance for developing countries at present.1

Because of their importance to both industrialised and developing country economies, textiles and clothing have been a major issue in international trade relations. For decades, this indus- try has arguably been one of the most protected, being, to all intents and purposes, excluded from the General Agreement on Tariffs and Trade (GATT). Instead, it has been governed by separate arrangements imposing quotas on mainly developing exporting countries since as early as the 1950s. The Agreement on Textiles and Clothing (ATC) which was intended to be the last one in a row of import restrictions protecting the European and US-American market expired on January 1st, 2005. The phase-out of the ATC enabled developing countries, notably China, to significantly increase their textile and clothing exports. The resulting surge of im- ports into the EU and USA lead to vehement protests of local textile producers and labour unions who found themselves unable to cope with the intensified competition. In conse- quence, it did not even take a year until a number of safeguard measures have been re- introduced by the EU and the USA. Hence, the final step towards including the sector into the GATT and thus liberalising the trade of textiles and clothing has once again been postponed. Quotas on textiles and clothing in general as well as the newly imposed safeguard measures have raised controversial discussions.

The objective of this paper is to outline the case of quotas on the import of textiles and cloth- ing and to contribute to the ongoing debate by assessing the issue from different perspectives. An overview about the textile and clothing sector in the 2nd chapter will clarify its structure, characteristics and recent patterns in international trade. On this background, chapter 3 will identify reasons for the implementation of the quotas and outline their historic emergence from the 1950s to the ATC, followed by a critical evaluation of their impacts. The 4th chapter will assess anticipated and actual post ATC-effects on both developed and developing coun- tries. Special attention will be paid to the particular case of China. Furthermore, chapter 4 will describe the respective reactions of various interest groups, and outline the recently reinstalled safeguard measures of both the EU and the USA. Chapter 5 will come forward with some observations and suggestions as regards possibilities to cope with the intense competition for producers of textiles and clothing in both industrialised and developing countries. Chapter 6 will close this paper with a final conclusion.

2 The Textile and Clothing Industry - Overview

2.1 Structure

The textile and clothing sector are part of one demand-pull driven supply chain (refer figure 1.), in which textiles form the base for the production of clothing. The flow of goods starts with the sourcing of raw materials such as cotton or wool which are then run through proc- esses of spinning, weaving, dying and printing in the textile plants. In the clothing plants, the fabrics are cut into shape and sewn together as garments. The distribution centres store and allocate the clothing to retail stores where they are sold to the customers. The flow of infor- mation works in the reverse order and starts with the monitoring of consumers’ preferences and sales data by the retailers. Based on this data, orders are placed to the distribution centres on a regular basis to replenish their stock. Likewise, orders flow from the distribution centres to clothing plants, from there to the textile plants and finally to the suppliers of raw materials.2

illustration not visible in this excerpt

Figure 1.: The Supply Chain in the Textiles and Clothing Industry

Source: Own illustration according to data provided by the World Trade Organisation3

2.2 Characteristics

The sourcing decisions of leading firms in the supply chain depend on such factors as cost of production, quality of products, lead time, business climate, and cost for transport and ad- ministration. The relative importance of each of those factors varies between the different market segments.4

The clothing sector consists of two major segments: the high-quality fashion market and the mass production of lower quality and standard products.

The first segment is highly innovative, dynamic and typically characterised by high flexibility, modern technologies and relatively well-paid labour. Firms operating in this market segment have to spot and serve, or even shape the tastes and preferences of customers and deliver quickly. Thus, their core functions are usually located close to the target market in industrialised countries. Nevertheless, as regards the production process the segment undergoes an increasing shift towards relocation and outsourcing to low cost producers.5

The mass production segment can largely be found in developing countries. Standard clothing such as trousers, t-shirts and uniforms are not so much subject to short term trends in cus- tomer preference. Consequently, high flexibility and proximity to the market are not as crucial as for high quality fashion. Especially in poor countries, the sector has created job opportuni- ties, notably for unskilled female workers who previously did not have access to employment other than in the household or the informal sector. Thus, the major comparative advantage in the mass production segment derives from the lower wage level in the exporting countries.6

In comparison to the clothing sector, the textile sector is more capital intensive and highly automated, especially in developed countries.7 Generally, it is still the case that lead times in this sector are relatively long and that its capital intensity results in large minimum orders.8 As a consequence, the textile industry is less flexible in terms of adjusting to customers’ preferences than the clothing sector.

2.3 International Trade

According to figures provided by the World Trade Organisation (WTO) the total volume of textiles and clothing exported worldwide amounted to US$ 453 billion in 2004, with a 57% share of clothing (US$ 258 billion) and a 43% share of textiles (US$ 195 billion).9 In a regional comparison Asia has shown to be the major exporter of both textiles and cloth- ing in the same year. Other key exporting regions are the European Union (EU) and, with some distance, North America. The roles of Africa, South and Central America and the Middle East are comparably minor (refer figure 2).

illustration not visible in this excerpt

Figure 2.: Exports in Textiles and Clothing 2004, Regional Shares

Source: Own illustration, according to data provided by the WTO, 200510

The chart also shows that the generally most developed regions, specifically the 25 members of the European Union and North America, have a higher share on the export of textiles than on clothing. The opposite case accounts for the less developed regions, Africa and Central and South America. For Asia and the Middle East, the difference is not as prominent. These regions comprise of both developed and developing countries. This pattern reflects the different characteristics of the two sectors; with the textile industry being relatively capital intensive while the clothing industry is more labour intensive.

The same pattern occurs if one takes a look from the regions to the main exporting countries (refer figure 3.). In the clothing sector, Mexico, Romania and Turkey benefit from their rela- tive proximity to the markets for the fashion segment. It is also worth acknowledging that in the EU, southern countries such as Italy, Greece and Portugal and, to a lesser extent, Spain and France contribute more to the production of clothing. Northern countries such as the UK, Germany, Belgium, the Netherlands, Austria and Sweden add a higher share to textile produc- tion.11

illustration not visible in this excerpt

Figure 3.: The Leading Exporters of Textiles and Clothing 2004, by Country Source: Own illustration, according to data provided by the WTO, 200512

However, most importantly the data in Figure 3 reveal the enormous share that China ac- counts for in both the textile sector (about one sixth) and the clothing sector (about a quarter). Taking Taipei (region of Taiwan) and Hong Kong as dependencies of China into further con- sideration, this share is even higher, with 29 % for textiles and even 34 % for clothing. As regards the EU, Italy has been the major exporter of both clothing and textiles in 2002, fol- lowed by Germany and France in textiles and Germany and Belgium in clothing respec- tively.13

In general, the textile and clothing sector makes up for a higher share of exports for developing countries (12 % in 2002) than for developed countries (4 %).14

3 Textile Quotas

3.1 Implementation Reasons

Trade policy affecting the textile and clothing industry has been a politically sensitive topic because of the importance of these activities for employment in both developing and devel- oped countries. In the European Union, the sector is dominated by small and medium-sized companies in a number of regions that are highly dependent on this industry.15 One such ex- ample is the Como district in Italy which is entirely specialised on the production of silk fab- rics.16 In 2002, all 180.000 textile and clothing companies of the old EU-15 produced a turn- over of about 200 billion Euros. After its enlargement in 2004, the EU employed about 2.6 million people in the textile and clothing production.17 In the US, about 908.000 people were employed by the industry in 2002.18 Usually, women or members of ethnic minorities account for a majority share of workers. Generally low skilled, many of them would face difficulties in finding new jobs if laid off. The costs for social benefits, professional training measures and other re-employment efforts would therefore be significant for the respective govern- ments.19 Usually, the productivity in the two sectors is higher in industrialised countries20. However, due to lower wage rates and the labour intensiveness of the industry, many develop- ing countries have a comparative advantage in international trade of clothing and textiles.21 Furthermore, the technical equipment needed for the production, particularly of clothing, is relatively cheap to accomplish.22

Thus, the initial objective of imposing export restrictions on developing countries was pro- tecting the textile industry and particularly the clothing industry in industrialised countries from an overload of cheap imports, thus defending domestic employment and wage levels.23 Later agreements originally aimed at enabling industrialised countries to adapt to the chang- ing economic environment by gradually opening the market for textile and clothing exports, hence giving them time to develop strategies to cope with the increased competition.

3.2 Form

3.2.1 Early Agreements (1950s - 1973)

Protection of the textile and clothing sector has a long tradition in Europe and the USA. The first attempts to implement export constraints were initiated by the US back in the 1950s and included a number of individually negotiated agreements with Japan, India, Pakistan, China and Hong Kong.24 In an attempt to meet the increasing demand to create a universal frame- work of rules, twenty-nine importing and exporting nations agreed on the Long Term Agree- ment on Cotton Textiles (LTA) in 1962. This agreement allowed importing countries to re- quest export restraints from exporting countries in a number of specific product categories.

Under the LTA, two negotiating parties had a maximum period of 30 days to come to consent. Thereafter, the importing country could unilaterally impose its own quotas on the respective exporting country. It has been suggested, that the actual reason why exporting countries en- tered into these agreements was their fear of the implementation of unilateral American quo- tas.25 The limits on imports of cotton products under the Long Term Agreement lead textile exporters to increasingly market products made with chemical fibre which did not fall under the quota restrictions by then.

3.2.2 The Multi Fibre Agreement (1974-1994)

As a consequence, after a number of re-negotiations and extensions, the LTA was eventually replaced by the Multi-Fibre-Agreement26 (MFA) in 1974. As the name suggests, this ar- rangement covered specific products not only made of cotton, but in addition it included those made of wool and chemical fibres.27 Similar to the preceding arrangements the MFA pro- vided rules for the implementation of quotas, either through bilateral agreements or through unilateral measures in case of “severe market disruptions or the proof of an existing threat thereof” in the importing countries.28 Both the LTA and the MFA were major deviations from the basic rules of the General Agreements on Tariffs and Trade (GATT)29, especially from the principle of non-discrimination. They were supposed to be transitory measures which would give producers in developed countries time to restructure and adapt to the competition of cheaper imports from developing countries. However, initially created for the duration of four years, the MFA was constantly extended before it ultimately expired in 1994.30 During that time, hundreds of quota arrangements have been imposed, since each agreement was tailored for a specific product category, such as “women’s knitted petticoats” or “work gloves”. Nev- ertheless, in practise not every quota actually affected exports as many countries did not fully use up the allowed maximum export quantities in certain categories.31 During the time from 1974 to 1994 a number of importing countries left the MFA and in its final year, the remain- ing industrialised participants were the EU, USA, Canada, and Norway who actively applied a total of more than 1300 bilateral export restraints on about 30 developing countries.32


1 Refer Congressional Research Service, 2005, p.1.

2 Refer WTO (a),2004, p.7 and following.

3 Refer Same Source.

4 Refer ILO, 2005, p.7.

5 Refer WTO (a), 2004, p.7.

6 Refer WTO (a), 2004 p.5.

7 Refer Harvard University,2004, p. 4.

8 Refer WTO (a)2004,, p.11.

9 Refer WTO (d,e), 2005.

10 Refer WTO (b,c), 2005.

11 Refer Commission of European Communities, 2003, p.3.

12 Refer WTO (f,g), 2005.

13 Refer ILO, 2005, p. 24 and following.

14 Refer Congressional Research Service, 2005, p.2.

15 Refer WTO (a),2004, p.5.

16 Refer Sistema Moda Italia,2004, slide 16.

17 Refer Handelsblatt, 25.12. 2004.

18 Refer ILO, 2005, p.21.

19 Refer ILO, 2005, p. 55.

20 Refer Deutsche Bank,2005, p.6.

21 Refer Congressional Research Service, 2005, p.1.

22 Refer Same source.

23 Refer Deutsche Bank, 2005, p.2.

24 Refer ILO,2005, p 11.

25 Refer George Washington University, n.d., p.7.

26 Also referred to as “Multi Fibre Arrangement”.

27 Refer WTO(a), 2004, p.17.

28 Refer WTO (h), n.d.

29 GATT: Established in 1947, the GATT provide a framework of international agreements with the primary goal of limiting or eliminating tariffs and quotas on trade to establish "free trade" between nations.

30 Refer WTO (a),2004, p.17.

31 Refer Suedwind Institut, 2003.

32 Refer Textas Tech University, n.d., p.3.

Excerpt out of 29 pages


Quotas on Textiles and Clothing - A Review
Berlin School of Economics
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Covers the following points: Implementation Reasons, Form, Impact, Criticism, Termination, Termination Problems.
Quotas, Textiles, Clothing, Review
Quote paper
Monique Isenheim (Author), 2006, Quotas on Textiles and Clothing - A Review, Munich, GRIN Verlag, https://www.grin.com/document/51307


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