Multi-Fiber Arrangement Expiration: Implications for South Asia Ashe Hate Shisir Khanal John Larsen Paul Smart Romina Soria David Zanni

Background Effective 1974–2005 Set limits on textile imports Limits applied to 47 developing countries Agreement on Textiles and Clothing, 1994 U.S. also reduces tariffs --Founded as a way to protect domestic producers from competition. Expired in 2005 as a result of WTO agreements. -- Example: only 5000 boys shorts from Honduras. 20,000 yards of fine woven bla blah from pakistan. --

Importance of Textile and Apparel Industry India Pakistan Bangladesh Sri Lanka Nepal GDP (PPP) 2003 $3 trillion $311 billion $259 billion $74 billion $38 billion Industry/GDP 4% 9% N/A 7% Industry/Exports 30% 72% 75% 44% 40% Industry/ Labor Force 6% 3% 8% 1% --Here are the important numbers. --Now john will talk, giving something of an literature review on pre-expiration opinion on the effects of expiration for South Asia. -- Paul will give a synthesized view of how things are likely to turn out for the varous countries, -- I will return for Impact on the U.S. and conclusions.

Predictions from Economic Theory For exporting countries Loss of quota rents Reduction of trade inefficiencies For developed countries Decrease in prices Increase in imports Transfer of income from producers to consumers

Expert Opinion and Predictions India, Pakistan, Bangladesh, and Sri Lanka held back by quotas Nepal benefited from high quotas Some benefit from preferential access to U.S. and EU markets Loss of output and employment in Bangladesh Significant job loss in Sri Lanka 36 percent export increase for South and Southeast Asia 87 percent export increase for China

Predictions from the Press Gains for India and Pakistan Mixed predictions for Sri Lanka and Bangladesh Asian press more optimistic than European press Significant losses for Nepal

Summary of Predictions COUNTRY THEORY EXPERTS PRESS India Win Pakistan Sri Lanka Mixed Ambiguous Bangladesh Nepal Lose

Winner: India Leading cotton producer Backward linkages Substantial FDI Outsourcing opportunities Government under reform pressure Lower labor costs than China

Winner: Pakistan Leading cotton producer Backward linkages Substantial FDI Low labor costs Government involvement Product specialization Access to U.S. and EU markets

Loser: Nepal Political instability Small firms Low labor productivity Low product diversity High transportation costs High dependence on U.S. market Lack of government support

Unclear: Bangladesh Advantages Niche market Low labor costs Proactive government and trade associations Recent growth trends Challenges Falling prices Dependence on raw material imports Dependence on FDI Limited access to U.S. market

Unclear: Sri Lanka Advantages Niche market Potential trade arrangements Regional U.S. and EU Tsunami relief Challenges High wages Low productivity Dependence on raw material imports Small firms Lack of peak organizations

Implications for U.S. Restructuring of U.S. retailers Loss of U.S. production and employment Benefit to U.S. consumers

Conclusions Winners: India and Pakistan Loser: Nepal Unclear: Sri Lanka and Bangladesh U.S. benefits overall with some job loss Geo-political considerations?