Multi-Fibre Arrangement Research Articles

Local Embeddedness and Economic and Social Upgrading in Madagascar's Export Apparel Industry

Over the past decade, several Sub-Saharan African (SSA) countries have developed or expanded export-oriented apparel industries in the context of the Multi-Fibre Arrangement (MFA) quotas and preferential market access, most importantly under the African Growth and Opportunity Act (AGOA). Madagascar is different to the other main SSA low-income country (LIC) apparel exporters – Kenya, Lesotho and Swaziland – given its more diverse end markets and ownership structures and the political instability that led to the loss of AGOA status at the end of 2009. This paper assesses the development of Madagascar’s export-oriented apparel industry and economic and social upgrading dynamics in particular in the context of the AGOA loss. It identifies four types of firms and value chains that differ with regard to ownership patterns, end markets and, most importantly, ‘local embeddedness’, with important implications for both economic upgrading dynamics and possibilities and the sustainability of the industry. The paper concludes that, despite the contraction in the export-oriented apparel industry post-AGOA, Madagascar is still a more successful apparel producer in terms of economic upgrading than the other main apparel-exporting LICs in SSA. The key to this trajectory lies in the differentiation of global value chain (GVC) relationships, local embeddedness and export diversification.

Do Vertical Linkages Limit Protectionism? Switzerland in the Multifibre Arrangement

AbstractThe multifibre arrangement (MFA) heavily restricted the world trade in textiles and clothing (T&C) from 1974 to 1994. Switzerland joined the MFA as one of 44 signatory economies in 1974, but never applied its discriminatory instruments. To explain this peculiar behaviour, we apply international trade theory as well as files gathered from the Swiss Federal Archives. Our analysis suggests that Switzerland used the MFA, first, as an instrument to seek better market access, and second, as an option to protect its T&C industry if required. Switzerland refrained, however, from exercising the option mainly because of the existence of an important vertically related export industry, that is the Swiss textile machinery industry.

Firm dynamics in the Cambodian garment industry: firm turnover, productivity growth and wage profile under trade liberalization

The international garment trade was liberalized in 2005 following the termination of the Multifibre Arrangement (MFA) and ever since then, price competition has intensified. Employing a unique firm dataset collected by the authors, this paper examines the changes in the performance of Cambodian garment firms between 2002/03 and 2008/09. During the period concerned, frequent firm turnover led to a growth of the industry's productivity, and the study found that the average total-factor productivity (TFP) of new entrants was substantially higher than that of exiting firms. Furthermore, we observed that, thanks to productivity growth, an improvement in workers’ welfare, including a rise in the relative wages of the low-skilled, was taking place. These industrial dynamics differ considerably from those indicated by the ‘race to the bottom’ argument as applied to labor-intensive industrialization in low-income countries.

The Competitiveness of Ready Made Garments Industry of Bangladesh in Post MFA Era: How Does the Industry Behave to Face the Competitive Challenge?

The challenges that originate from changes in the global trade regime and the relative competitive environment in the global markets are reasons for deep concern for Bangladesh. Because of quota system abolition many of the less efficient suppliers will lose quota rents and market shares as they are forced to compete with more efficient suppliers among developing countries. Since 1974, Bangladesh was enjoying a quota free access of garments under the Multi- Fibre Arrangement (MFA). But the phase out of the Multi- Fibre Arrangement (MFA) has completed in 2005 under the Uruguay round of GATT (General Agreement for Tariffs and Trade) in 1994. The freeing of trade in textiles and clothing has created a formidable challenge to the Bangladesh Ready Made Garments (RMG) Industry. The phase-out of the MFA, emergence of competitors such as China, India, Vietnam, Turkey, Mexico and African nations have negatively impacted on the fortunes of Bangladesh RMG sector. Dependence on imported raw materials, political instability, turbulent economy, high bank interest rates, lack of government incentives, poor knowledge of international marketing, port problem, poor infrastructure and labor union are some of the internal problems of Bangladesh RMG. This sector is being incrementally faced with the burden of obligations imposed by the developed countries in the guise of compliance issues. There are two types of views about the future of Bangladesh Ready Made Garments (RMG) Industry after MFA era. The optimistic view

Firm Efficiency in Cambodia's Garment Industry on the Eve of the Multi-Fiber Arrangement Termination

Applying a frontier analysis to 2004 firm-level data, the present paper investigates firm efficiency and its determinants for Cambodia's garment industry. The study finds that firm experience and remuneration are crucial for improving scale efficiency and overall technical efficiency, while effective use of capital and adequate labor-skill development are important for enhancing a firm's technical capabilities. Foreign-owned enterprises with a relatively larger share of foreign labor outperform local firms. However, the present study does not reveal evidence of any advantages of a cluster-type concentration in Phnom Penh and export markets, nor of any positive impacts of product specialization. The findings imply a need to support skill development for workers and local managers at the middle management level, and to streamline foreign direct investment measures to attract greater numbers of efficient foreign enterprises, so as to promote the development of the garment industry as a whole.

The United States–Korea Free Trade Agreement (KORUS) and Its Impacts on China’s Textile and Apparel Exports to the United States

This study is an empirical evaluation of the impact of the U.S.-Korea Free Trade Agreement (KORUS) on China's textile and apparel (T&A) exports to the United States, with special focus on potential trade diversion effects of the agreement. On the basis of estimated export similarity index and trade elasticity of substitution values for T&A products of China and South Korea, trade diversion caused by the KORUS is predicted to most strongly affect China's apparel exports (in HS Chapters 60-63). The KORUS may also affect China's exports in other T&A categories (in HS Chapters 51, 52, 56, 57 and 59), but results suggest the effects will be limited. This study contributes to understanding the T&A-specific sectoral impacts of the KORUS and suggests a need to reconsider the competitiveness of China's T&A exports in the era following elimination in 2005 of Multi-Fiber Arrangement quantitative trade restrictions.

When the Floodgates Open: 'Northern' Firms' Response to Removal of Trade Quotas on Chinese Goods

Using the dismantling of the Multi-fibre Arrangement quotas on Chinese textile and clothing products in conjunction with China's accession to WTO, within firms adjustments to intensified low-wage competition is analyzed. Employing Danish employer-employee matched data supplemented with transaction-level data from between 1995 and 2007, the analysis shows a significant increase in skill and capital intensity associated with downsizing in response to heightened competition. Competition is found to negatively affect employment, value-added and intangible assets of the Danish firms, and firms are found to refocus their innovative efforts away from goods where China's competitive advantage becomes higher. The results show an important role of the distributional impact of low-wage competition within firms in restructuring the industry and support theories that indicate compositional changes in the scopes and operations of Northern firms in response to competition from South.

National and Global Aspects of India’s Textiles and Apparel Industry and Trade: An Overview

The elimination of Multi-Fibre Arrangement (MFA) quotas is expected to create a new environment for world trade in textiles and apparel by vastly increasing the scope for developing countries to expand their exports and thereby creating employment in this sector. As a natural consequence, a study of the true competitiveness of the exportables of the textile and apparel items of India in the international market becomes essential in order to make an informed projection for Indian exports vis-à-vis others beyond 2005. We discuss the national or domestic aspects of the textile and clothing industry of India with special emphasis on the domestic policies affecting the structural and performance indicators of the firms in this industry. Further, we offer measures of competition among firms in an industry, such as the indicators of industrial structure and performance. It seems that the level of industrial concentration in the textile sector has gone up in the post-MFA regime.

Moving Up the Quality Ladder? Eu-China Trade Dynamics in Clothing

We apply a simple method to study the relative quality of Chinese versus European products exported in the clothing sector after the end of the Multi-Fiber Arrangement. Based on the model of Foster et al (2008), we interpret the relative change of export prices and quantities sold in narrowly defined product categories as an indicator of quality shifts. Using UN Comtrade data we find that European varieties exported to the US typically sell for a higher price than identical Chinese varieties exported to the US, but this price gap is narrowing. Despite rising prices, Chinese varieties are gaining market share. This opposite movement of relative prices and quantities sold in the same destination market, are a strong indication of China moving up the quality ladder in its clothing exports relative to the EU. While European 'core' products in clothing are stable over time, Chinese exports show strong product dynamics with exit and entry of new 'core' products every year and 'core' products changing rapidly. Both China and the EU export in every product category, resulting in an almost perfect product overlap with almost no products being exported by only one of the two.

Likely Impacts of Quota Policy on RMG Export from Bangladesh: Prediction and the Reality

The Multi-fibre Arrangement (MFA) (Note 1) in global trade in apparels and textiles was phased out inDecember 2004. South Asian countries major concern was to prevent large-scale job losses due to liberalizationand globalization. It was apprehended that the RMG sector of smaller countries especially Bangladesh will beadversely affected by losing a huge number of jobs, will face high competition from its low-cost competitorcountries and will experience negative impact due to its high dependence on the United States and the EuropeanUnion markets for its RMG products.Despite the concern and fear of negative impact on in the aftermath of quota removal of RMG sector inBangladesh appears with positive trends along with the substantial increasing rate of export amount, the numberof jobs and industries and GDP’s growth. In 2010, the sector keeps around 20 percent GDP growth of thecountry.

Meeting the challenge of China: the Vietnamese garment industry in the post MFA era

AbstractAlthough China has diversified into sophisticated, higher value‐added exports, it is still a formidable competitor in global markets for basic labour‐intensive products. It is the world's largest exporting country of textiles and garments, the archetypical driver of industrial growth both in developed countries in the past and in most newly industrializing countries more recently. When the export restrictions under the Multi‐Fibre Arrangement (MFA) ended at the start of 2005, it was predicted that China would greatly increase its market shares at the expense of most competitors, except perhaps India. Vietnam has proved to be an effective competitor in the garment industry in markets where China is dominant. In this article, we investigate how key export‐oriented garment suppliers of Vietnam have been coping with competitive challenges in the post MFA era at a time when global buyers have been reorganizing their international production networks. We emphasize the influence of different global value chains on upgrading since Vietnamese suppliers switched to the US market after the implementation of the US Bilateral Trade Agreement in 2001. We note the uneven performance of Vietnamese garment suppliers, with some lagging behind others in upgrading and competitiveness, and their different responses to Vietnam's growing labour shortages. We base the article mainly on interviews conducted over the 2001–2008 period with garment companies and global buyers in Vietnam, Hong Kong and China.

AGOA Rules: The Intended and Unintended Consequences of Special Fabric Provisions

Lesotho and other least developed African countries responded impressively to the preferences they were granted under the African Growth and Opportunities Act with a rapid increase in their clothing exports to the US. But this performance has not been accompanied by some of the more dynamic growth benefits that might have been hoped for. In this study we develop the theory and present empirical evidence to demonstrate that these outcomes are the predictable consequences of the manner in which the specific preferences might be expected to work. The MFA (Multi-Fiber Arrangement) quotas on US imports of textiles created a favorable environment for low value-added, fabric intensive clothing production in countries with unused quotas by inducing constrained countries to move into higher quality products. By allowing the least developed African countries to use third country fabrics in their clothing exports to the US, AGOA provided additional implicit effective subsidies to clothing that were multiples of the US tariffs on clothing imports. Taken together, these policies help account for the program’s success and demonstrate the importance of other rules of origin in preventing poor countries from taking advantage of other preference programs.But the disappointments can also be attributed to the preferences because they discouraged additional value-addition in assembly and stimulated the use of expensive fabrics that were unlikely to be produced locally. When the MFA was removed, constrained countries such as China moved strongly into precisely the markets in which AGOA countries had specialized. Although AGOA helped the least developed countries withstand this shock, they were nonetheless adversely affected. Preference erosion due to MFN reductions in US clothing tariffs could similarly have particularly severe adverse effects on these countries.

Business implications in the subcontracting alliance life cycle: case examples from the Tunisian clothing and textile industries

PurposeDependence on access to European markets through subcontracting relationships with European firms has exposed subcontracting clothing and textile producers in less developed economies to the vagaries of international market competition. This paper aims to examine the problems that such exposure creates and the requirements for developing marketing activities through the concept of the alliance life cycle as a viable solution for a sample of Tunisian clothing and textile firms.Design/methodology/approachThe inductive reasoning of this research was implemented through qualitative research based on a range of tools derived from a case study and a dual ethnographic approach.FindingsThe main results showed that life cycle stages of the subcontracting firms reflected Schumpeter's creation and destruction cycle of innovation. Therefore, subcontracting firms could learn from their activities with their business customers so that they developed marketing competences in innovative processes. The findings also demonstrated that some of the firms in the Tunisian clothing and textile industries were more successful than others.Research limitations/implicationsThis research focused mainly on subcontracting alliances with implications for future study of other alliances for different industries.Practical implicationsThe life cycle approach could be of great interest to subcontracting managers in the post Multi Fibre Arrangement era. This approach is relevant mainly for decision makers in providing them with a framework within which they might optimise their marketing strategies and their implementations.Originality/valueThe research originality resides in its Schumpeterian perspective in considering business‐to‐business relationships. The value of the paper is to focus on the evolutionary aspects of relationships between contractors and subcontractors and the patterns of the marketing development within these relationships.

China's role in world cotton and textile markets: a joint computable general equilibrium/partial equilibrium approach1

Under the Uruguay Round's Agreement on Textiles and Clothing (ATC), the quotas inherited from the Multifibre Arrangement were gradually phased-out between January 1995 and 31 December 2004. This study estimates the impact of the ATC's implementation on China's textile industry and China's cotton sector. The study finds that, assuming equilibrium levels of income and exchange rates, the adoption of ATC are expected to increase China's net apparel exports, textile production, cotton consumption, cotton production and cotton imports. However, this study fails to support the hypothesis that the adoption of the ATC results in China supplanting the textile industries of the rest of the developing world. The impacts on cotton are also smaller than indicated by previous studies. These outcomes are somewhat sensitive to estimates of expected efficiency gains around the world.

Embroidery Pirates and Fashion Victims: Textiles, Craft and Copyright

Debates over copyright and craft are particularly thorny, jumping as they do from notions of a common shared history of quilting bees and knitting circles that should be open and welcoming to all, passing through the idea that as an apparently gendered pastime crafting is regularly devalued (and that this is something its practitioners should resist) and concluding with more recent arguments that there are lucrative opportunities for professional crafters and designers that need to be protected through the copyrighting, patenting and trademarking of designs and processes. Of late, however, calls for ever more stringent protection and policing have marked the online crafting world, a transformation that I connect (albeit indirectly) to massive changes in the global textile industry and increasing anti-piracy initiatives resulting from the 2005 end of the Multifibre Arrangement (MFA). In this article, I analyze the appearance and spread of this intimidating lexicon of copyright protection in the (online) craft world. I argue that the rising interest in copyright and craft needs to be seen not only in light of growing visibility and marketability for crafting practice online, but also in terms of the positioning of intellectual property as an increasingly important economic strategy for Global North nations. So too, a transition from an ethos of community-based practice to one of individual property rights can be read as a part of ongoing debates over copyrighting (or lack thereof) for fashion designers, regulations concerning craft and textiles as protected national property in indigenous, developing and transitional economies, the changing global textile industry, and further debates over open source software and anti-copyright activism. My purpose here is to understand how and why a reiteration of (often incorrect or unsupported) norms is creating a strong atmosphere of policing and protection that contrasts with more traditional understandings of crafting.

Long-run relationship between output, capital, labour and productivity in emerging market economies

Long-run relationship between the variables involved in the production function is an issue that is important particularly in developing countries, as the neoclassical production function is best suited for developed countries and its applicability to developing countries is questionable in various ways. This motivates us to do this based on time-series analysis, taking Indian textile industry as an example, which is currently at its crucial stage as a critical industry in an emerging economy, with the phasing out of Multi Fibre Arrangement in 2005. This study documents existence of cointegration between capital and output, negative impact of employment shocks on output changes, substitutability between changes in capital and labour, negative effect of shocks to changes in capital stock on productivity and negative effect of employment shocks on future productivity. These results are in line with the general perceptions about this industry and with the standard neoclassical propositions, as explained in this article.

Sustaining Ready-made Garment Exports from Bangladesh

This paper analyses the main drivers of growth, challenges faced and performance of ready-made garment (RMG) manufacturing in Bangladesh following the abolition of the Multi-Fibre Arrangement (MFA). It provides evidence to show that both national and international MFA quotas did provide Bangladesh garments with access to guaranteed international markets. However, as shown by the rising export volumes and market shares of Bangladesh RMG over the period 2005-06, the withdrawal of MFA quotas did not impede the further development of the industry in Bangladesh. This is an outcome of safeguard measures imposed against China in major markets such as the USA and the European Union. The paper argues nevertheless that both the government and private sector of Bangladesh should stimulate upgrading so that the removal of its preferential treatment privileges will not adversely hinder the industry's growth in future.

Ready-made Garment Exports from Sri Lanka

With the phasing out of the Multi-Fibre Arrangement (MFA), the Sri Lankan economy, highly dependent on ready-made garment exports, has become vulnerable to the changing global trading system affecting this industry. In such a global environment, strengthening the competitiveness of the industry has become imperative for Sri Lanka if it is to remain as one of the suppliers of choice in major markets. The paper highlights the strengths and weaknesses of the industry and shows the steps that have been taken to address the latter. Additional steps taken to select specific garment products according to past performance and global positioning for further improvement and promotion are also highlighted. The paper also suggests some strategies to cope up with the new global challenges.

The Development of Labour-intensive Garment Manufacturing in Indonesia

Indonesia's garment industry is a relatively young industry which only emerged as a factory activity around the mid-1970s. This was in response to an expanding domestic market and growing export opportunities. Before the 1970s garment production was largely conducted in small tailor shops all over the country. Since the mid-1980s to the Asian economic crisis of 1997-98 the garment industry has emerged as one of the most important export-orientated industries, generating increasing foreign exchange revenues and job opportunities for low-skilled, mostly women workers, because of its labour-intensive production process. After the Asian economic crisis, garment exports declined because of declining competitiveness in the face of strong competition from other developing countries, particularly China and Vietnam. Unfortunately, due to its relatively low international competitiveness, Indonesia's garment industry was not able to take full advantage of the expiry of the Multi-Fibre Arrangement in early 2005 to expand and increase its exports.

Malaysia's Textile and Garment Firms at the Crossroads

This paper discusses the development of the textile and garment industry in Malaysia, and its sustainability through an assessment of trade balance and trends and changes in technology. Foreign textile and garment firms were identified by the Malaysian government as some of the key import-substituting and, later, export-orientated industries for promotion. The industry expanded strongly to become a major contributor to manufacturing employment, value-added and exports over the period 1968-97. Rising material and labour costs, and increasing competition following the termination of the Multi-Fibre Arrangement quotas, quickened the absorption of automation and other advanced process technologies in manufacturing from the 1990s. However, the lack of co-ordination in government policies to stimulate the co-evolution of critical complementary industries, such as advanced materials and cutting-edge machinery and equipment, in addition to imports of foreign unskilled labour, has restricted the shift towards high-end operations. Hence, employment, exports and value-added of the textile and garment industry has contracted since 2000.