Impacts of Multi-Fiber Arrangement Removal on Textile & Cotton Trade: Impacts of Multi-Fiber Arrangement Removal on Textile & Cotton Trade Slide Presentation of a Poster Presented at the Annual Meetings of the Southern Agricultural Economics Association Orlando, Florida – February 6-8, 2006
Yan Xia, and Parr Rosson
Center for North American Studies
Dept. of Agricultural Economics, Texas A&M University
Multi-Fiber Arrangement (MFA): Multi-Fiber Arrangement (MFA) Protect Importing Countries’ Textile Sector
Caused an increase in the textile & apparel
prices in importing countries, a decrease in
the prices in exporting countries and
reduction in trade volume.
Emerged into WTO’s Agreement on Textile
Clothing from 1995
Removal of all MFA Quotas by Jan. 2005
Impact on Textile/Apparel Trade & Cotton
Market
Objective: Objective Analyze and Quantify the Impact
of Elimination of the Multi-Fiber
Arrangement on Textile, Apparel
and Cotton Market with Alternative
Scenarios by Using Equilibrium
Displacement Model (EDM)
The United States: 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)
Cotton Exports Increased
Domestic Consumption Declined (ERS)
U.S. Cotton Textile Trade: U.S. Cotton Textile Trade
U.S. Cotton Exports & Share of World Trade: U.S. Cotton Exports & Share of World Trade
U.S. Cotton Mill Use: U.S. Cotton Mill Use
People’s Republic of China: People’s Republic of China Largest textile exporter to the 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, but still with tariff
Cotton: Agree to reduce TRQ on cotton imports
U.S. Farm Program: 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
Loan Deficiency Payment
Fixed
Directly coupled to current production
Incorporated in the simulation
Scenario 1:Removal of MFA quota : Scenario 1:Removal of MFA quota U.S. import demand for textiles (.2396, .2416)
U.S. import demand for apparel (.3513, .3524)
U.S. domestic demand for textiles (-.0382, -.0374)
U.S. domestic demand for apparel (-.2593, -.2591)
U.S. import price of textiles (-.1863, -.1855)
U.S. import price of apparel (-.2213, -.2194)
China textiles export supply (.3455, .3454)
China apparel export supply (.30, .3165)
U.S. cotton price (-.0169, .0028)
World adjusted cotton price (.0043, .0201)
U.S. cotton supply (-.0079, .0013)
U.S. demand for domestic cotton (-.1281, -.1217)
China’s demand for U.S. cotton (.1037, .1737)
AO’s demand for US cotton (.0942, .1014)
Scenario 2:Removal of MFA, and 3% decrease in LDP : Scenario 2:Removal of MFA, and 3% decrease in LDP U.S. import demand for textiles (.244, .2604)
U.S. import demand for apparel (.3419, .3503)
U.S. domestic demand for textiles (-.046, -.039)
U.S. domestic demand for apparel (-.2607, -.2595)
U.S. import price of textiles (-.1847, -.1786)
U.S. import price of apparel (-.2175, -.2030)
China textiles export supply (.344, .360)
China apparel export supply (.332, .458)
U.S. cotton price (.0243, .1794)
World adjusted cotton price (.035, .156)
U.S. cotton supply (-.019, .054)
U.S. demand for domestic cotton (-.179, -.132)
China’s demand for U.S. cotton (.112, .651)
AO’s demand for US cotton (.057, .104)
Scenarios 3: Removal of MFA, 5% increase in foreign cotton supply: Scenarios 3: Removal of MFA, 5% increase in foreign cotton supply U.S. import demand for textiles (.234, .2405)
U.S. import demand for apparel (.3538, .354)
U.S. domestic demand for textiles (-.0376, -.0374)
U.S. domestic demand for apparel (-.2602, -.26)
U.S. import price of textiles (-.1868, -.1866)
U.S. import price of apparel (-.2223, -.2219)
China textiles export supply (.3682, .3704)
China apparel export supply (.2807, .2831)
U.S. cotton price (-.0186, -.014)
World adjusted cotton price (-.0143, -.012)
U.S. cotton supply (-.044, -.0332)
U.S. demand for domestic cotton (-.1311, -.1248)
China’s demand for U.S. cotton (.0003, .0597)
AO’s demand for US cotton (.0461, .0493)
Scenario 4: Removal of MFA, 3 % decrease in LDP & 5% increase in foreign cotton supply : Scenario 4: Removal of MFA, 3 % decrease in LDP & 5% increase in foreign cotton supply U.S. import demand for textiles (.2413, .2416)
U.S. import demand for apparel (.3535, .3537)
U.S. domestic demand for textiles (-.038, -.0379)
U.S. domestic demand for apparel (-.2605, -.2604)
U.S. import price of textiles (-.1865, -.1863)
U.S. import price of apparel (-.2215, -.2212)
China textiles export supply (.3736, .3748)
China apparel export supply (.286, .2874)
U.S. cotton price (-.0073, -.0048)
World adjusted cotton price (-.0092, -.0078)
U.S. cotton supply (-.0473, -.0413)
U.S. demand for domestic cotton (-.133, -.1305)
China’s demand for U.S. cotton (.0099, .0442)
AO’s demand for US cotton (.0315, .0361)
Conclusions – Textile & Apparel Market : Conclusions – Textile & Apparel Market The United States
Increase in import demand
Decrease in domestic demand
Decrease in import price
China
Significant increase in export supply with different export mix of textile and apparel
Take a larger market share
Conclusions – Cotton Market: Conclusions – Cotton Market Decrease in LDP rate affected future U.S.
cotton price and adjusted world price
Demand for cotton
U.S. Domestic demand continue falling
Increase in China and AO with different import
mix depending on the presence of increase in
foreign cotton supply
U.S. cotton supply decreased slightly
More Conclusions: More 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
(input) market
Policy shock in cotton market, decrease in
LDP rate, doesn’t have explicit effect on
textile market
Slide17: For More Information, Please Contact
Yan Xia at sonataxia@tamu.edu, or
Parr Rosson at prosson@tamu.edu