The impact of the removal of the Multi-Fiber Arrangement on textile and cotton trade of the United States and China

Textiles and apparel trade has been governed by the Multi-Fiber Arrangement (MFA) for three decades. Trade restrictions have generated substantial welfare losses and price wedges in exporting and importing countries through trade distortions. Beginning in 1995, textiles and apparel trade underwent fundamental changes in trade flows and patterns. The World Trade OrganizationÂs Agreement on Textiles and Clothing (ATC) aimed to remove all MFA quotas by January 2005. This study established an equilibrium displacement model to investigate the impact on textile and cotton sectors of different countries and country-groups of removing the MFA quota. The model specifies the basic linkages of textile and cotton markets in the United States, China and four other country-groups. With different assumptions about U.S. textile supply elasticity, foreign cotton exporters reaction and changes in the U.S. farm program payments, alternative scenarios are simulated to predict changes in domestic and import demand for textiles and apparel, import demand for U.S. cotton, domestic and import price of textiles and apparel, U.S. cotton price and adjusted world cotton price. Uniform distribution was imposed for selected parameters involved in the model to overcome the deficiency of equilibrium displacement models of assuming certainty of known related parameters. Results indicate increased import demand for U.S. cotton by China, higher U.S. cotton supply, more textile and apparel supply from China, decreased domestic demand for U.S. cotton, and lower U.S. domestic demand for textiles and apparel. However, prices of both textile and cotton markets experience both positive and negative changes under different scenarios. Holding other assumptions unchanged, when farm program payments increase, U.S. cotton price and adjusted world cotton price declined. When farm program payments are held constant, prices rise. The changes expected in U.S. cotton price are, in absolute value, greater than those of the adjusted world price