MFA Quota Removal and Global Textile and Cotton Trade: Estimating Quota Trade Restrictiveness and Quantifying Post-MFA Trade Patterns

Abstract

This paper develops new adaptations to the GTAP framework and uses them to examine the global trade implications of MFA quota removal on cotton and textile industry. The analysis is based on a new set of MFA-trade restrictiveness estimates based on 2002 product-level quota trade and price data. Using a multi-regional general equilibrium, the analysis provides comparative static assessment of changes in global trade patterns in post-MFA. The analysis also takes into account the MFA-induced implicit tax on cotton and allows for inter-fiber substitution. The model is run for several scenarios including quota removal only or in combination with tariff liberalization. The analysis confirms previous findings of significant shifts in textile and apparel trade from preferential exporters to Asian and south Asian suppliers that are subject to binding MFA-quotas. However, not all MFA-exporters benefit equally from the expanding apparel trade. The United States shows significant increases in apparel imports substituting for domestic products, raising overall consumption and producing substantial welfare gains. The implications for fiber markets on the U.S. show lower demand for cotton domestic use but expanding U.S. cotton exports due to higher world demand, particularly when both quotas and tariffs are removed.

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