trade in textiles-holding the chinese juggernaut in check
Since 1974, international trade in textiles has been governed by a system of quotas known as the
Multi-Fiber Agreement (MFA). Designed to protect textile producers in developed nations from
foreign competition, the MFA assigned countries quotas that specified the amount of textiles
they could export. The quotas restrained textile exports from some countries, such as China, but
in other cases created a textile industry that might not have existed. Countries such as
Bangladesh, Sri Lanka, and Cambodia were able to take advantage of favorable quota allocations
to build significant textile industries that generated substantial exports. In 2003, textiles
accounted for more than 70 percent of exports from Bangladesh and Cambodia and 50 percent of
those from Sri Lanka.
This is now changing. When the World Trade Organization was created in 1995, member
countries agreed to let the MFA expire on December 31, 2004. At the time, many textile
exporters in the developing world expected to gain from the elimination of the quota system.
What they did not anticipate, however, was that China would join the WTO in 2001 and that
Chinese textile exports would surge. By 2003, China was making 17 percent of the world's
textiles, but this may only be a start. The WTO forecasts that China's share may rise to 50
percent by 2007 as the country's producers take advantage of the removal of quotas to expand
their exports to the United States and European Union, displacing exports from many other
developing nations. China's gains are due to its comparative advantage in the manufacture of
textiles. Not only does the country benefit from low wages and a productive labor force, but
China's huge factories also enable its producers to attain economies of scale unimaginable in
most developing nations. Also, the country's good infrastructure ensures quick...