international business environment

international business environment

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...

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