the impact of the removal of mfa and china’s accession...

The Impact of the MFA Removal on

Global Textile and Cotton Trade

Doris Yan Xia

Center for North American Studies

Dept. of Agricultural Economics

Texas A&M University

Objective

Analyze and Quantify the Impact

of Elimination of the Multi-Fiber

Arrangement on Textile, Apparel

and Cotton Market with Alternative

Scenarios.

Overview

Introduction

Methodology

Theoretical Considerations

U.S. farm program

Equilibrium Displacement Model

Parameters

Scenarios & Results

Conclusions

Introduction

Multi-Fiber Arrangement (MFA)

Protect Importing Countries’ Textile Sector

Emerged into ATC from 1995

Removal of all MFA Quotas by Jan. 2005

Impact on Textile/Apparel Trade &

Cotton Market

Introduction

The United States

Leading Textiles & Apparel Importer • 10.6% & 31.7% of world T&A Imports, 2002

(WTO)

• Decade Trend of Import Expansion

• Exports Remain Steady (ERS)

Leading Cotton Exporter • 41.82% of world cotton exports, 2003 (NCC)

• Domestic Consumption Declined (ERS)

• Cotton Exports Increased

U.S. Cotton Textile Trade

Source: ERS/USDA

0

5

10

15

20

Million Bales

Exports

Imports

U.S. Cotton Exports & Share of World Trade

Source: PS&D/USDA

1995 1996 1997 1998 1999 2000 2001 2002 2003

0

2

4

6

8

10

12

14 Million Bales

0

20

40

60

80

100 Percentage

Share of

World Trade

Exports

U.S. Cotton Mill Use

Source: ERS/USDA, Bureau of Census

1995 1996 1997 1998 1999 2000 2001 2002 2003 0

2

4

6

8

10

12

14 Million Bales

0

10

20

30

40

50

60

70

80 Percent

Share of Demand

Mill Use

Introduction

People’s Republic of China

Largest textile exporter to U.S. under MFA

19.62% of U.S. textile/apparel imports, 2003

(AMTAC)

Third largest importer of U.S. cotton

28% of U.S. cotton, 2003 (FAS)

Accession into the WTO

Textile: Quota-free access to the U.S. and EU market

Still with tariff

Cotton: Agree to reduce TRQ on cotton imports

Methodology – Theoretical Considerations

Domestic and Import Textile Demand

Ti = Ti(PT, PT*, PX, Y)

Ti* = Ti*(PT, PT*, PX, Y) PT – domestic price PT* – import price

PX – price for other goods Y – per capita income

Output Supply and Input Demand

P = AC (W)

X = X (W, Y)

W – input prices Yi – ith output

X – input vector AC – average cost

Theoretical Considerations

Equilibrium price PM = PS • (1+T)

U.S. Farm Program

Direct Payment

Fixed

Decoupled from current production (ERS)

Counter-Cyclical Payment

CCP rate = Target price –

(DP rate + max{loan rate, price})

Reduce revenue variability and risk

Marketing loan (Loan Deficiency Payment)

Fixed

Directly coupled to current production

Economic Model and EDM

Five country-group: U.S., EU, China, AO, and k

Textile & Apparel Market

Consumption - U.S., EU

Production - China, AO

Cotton Market

Demand - U.S., EU, China, AO

Supply - U.S., k SC=SC(PC, LDP)

World Textile/Apparel Export Price

Weighted average of export price of exporters

Trade Restrictions & Equilibrium Condition

Total differentiation of all equations to get EDM

Parameters

Textile & Apparel Demand Elasticities -

Cost Share & Output Share - ,

Input Demand Elasticities -

Cotton Supply Elasticities -

T&A Export Market Share of China & AO to

the U.S. & EU -

Cotton Import Market Share -

Tariff Equivalent MFA Quota – T, A

Scenario 1:Removal of MFA quota

U.S. import demand for textiles/apparel 23.98/ 35.21

U.S. domestic demand for textiles/apparel -3.75/ -25.9

U.S. import price of textiles/apparel -18.26/ -22.09

China textiles/apparel export supply 34.36/ 30.44

AO textiles/apparel export supply 17.90/ 37.15

U.S. cotton price -1.38

World adjusted cotton price 0.86

U.S. cotton supply -0.69

U.S. demand for domestic cotton -12.01

China’s demand for U.S. cotton 13.57

China’s demand for foreign cotton 4.78

AO demand for U.S. cotton 10.37

AO demand for foreign cotton 8.6

EU demand for U.S. cotton -10.75

Scenario 2:Removal of MFA and

3% decrease in LDP






U.S. cotton price 1.46

World adjusted cotton price 2.67








Scenarios 3: Removal of MFA,

5% increase in foreign cotton supply







World adjusted cotton price -0.83








Scenario 4: Removal of MFA, 3 % decrease in LDP,

& 5% increase in foreign cotton supply







World adjusted cotton price -0.55








Conclusions

Textile and Apparel Market

U.S. & EU

— Increase in import demand

— Decrease in domestic demand

— Decrease in import price

— Mixed results for domestic price

China & AO

— Significant increase in export supply

with different export mix

Conclusions

Cotton Market

Decrease in LDP rate affected future U.S.

cotton price & adjusted world price

Demand for cotton

— U.S. Domestic demand continue falling

— Decrease in EU

— Increase in China and AO with different

import mix

U.S. cotton supply decreased slightly

Conclusions

U.S. cotton sector evolves from a primary

supplier to its textile industry to a stronger

exporting competitor in the global market

Policy shock in textile market, MFA quota

elimination, have significant impact on cotton

market

Policy shock in cotton market, decrease in

LDP rate, doesn’t have explicit effect on

textile market

the impact of the removal of mfa and china’s accession...

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