Forecasting the Trade Outcomes of Liberalization in a Quota Context—What Do We Learn From Changes in Textiles Trade After the ATC?

Abstract

The liberalization of clothing and textiles trade on 1 January 2005 under the Agreement on Textiles and Clothing (ATC), gives us a very interesting real world example of the impact of liberalizing quota restrictions on markets and, by implication, the impact on markets of quotas themselves. Several efforts were made to forecast the outcome prior to liberalization. The most comprehensive used CGE models based on the GTAP database. This article looks at the actual impacts of liberalization, particularly on the EU market, but also on the United States. It finds that, although models forecast some elements of the outcome reasonably accurately—specifically the large increases for China and India—other forecasts were less accurate. In particular, the heavy losses of the Asian tigers—especially Korea and Taiwan—were not anticipated. The fact is that ATC quota restrictions, by limiting competition on protected markets, were to some extent, also protecting certain less competitive suppliers’ market share.