The Multinational Monitor

November 1990 - VOLUME 11 - NUMBER 11


GATT's New Clothes

Bringing the Textile Industry Into GATT

by Robert Weissman

The international trade in textiles has changed. Once the province of imperial powers, which actively subverted textile industries in their colonies, the world clothing, fabric and fiber trade is increasingly coming under the control of the developing countries.

This trend promises to accelerate if negotiators successfully complete a new General Agreement on Tariffs and Trade (GATT). In exchange for significant Third World concessions in other areas of negotiations, the industrialized countries have promised to bring the textile trade, along with agriculture the only non- service sector of the world economy not subject to GATT rules, under the GATT rubric. This would remove existing quota arrangements which limit the quantity of Third World exports to the industrialized countries.

Not everyone is happy with this proposed arrangement, however. Textile unions and the textile industry in the industrialized countries have strongly resisted trading away their markets for gains which will accrue to multinational corporations in other industrial sectors. Additionally, critics charge that the offer of unprotected textile markets in the developed countries is dubious compensation for Third World countries, since the only countries that will benefit are those which orient their economies to the production of goods to meet foreign demand rather than domestic needs.

The current state of the textile trade

Third World textile exports have soared in the past 20 years, and especially in the last 10. Developing countries accounted for 17.2 percent of the world's textile trade in 1965, 22.8 percent in 1975 and 33.4 percent in 1986. They earned $43 billion for their 1986 share of textile exports. Third World countries' strength in textiles lies in labor-intensive apparel manufacture and assembly, rather than fiber and cloth production, in which chemical companies such as Dupont play a large role.

Despite the tremendous jump in Third World textile exports, the rate of exports has been slowed by quotas in the developed countries. Limits on textile imports in industrialized countries are implemented through bilateral quotas under the auspices of an international agreement known as the Multi-Fiber Arrangement (MFA).

The MFA developed out of prior international agreements on the textile trade. In 1961 and 1962, the United States and Japan negotiated agreements regulating Japanese exports of cotton textiles. Subsequently, the agreement was broadened to include other countries and other products. It lasted until 1974, when the first MFA was adopted. The fourth MFA, now in effect, is scheduled to expire in July 1991. Industrialized country adherents to the MFA include the United States, Japan and the European Community. As of 1987, 33 developing countries participated in the MFA.

The MFA permits countries to designate imports of a particular textile product from a particular country (e.g. men's cotton jackets from Hong Kong) as rising at a dangerous rate and then place a quota on that product. Imports of the product are then restricted to a growth rate of 6 percent a year.

The MFA is administered by the GATT Committee on Textiles, though it stands outside GATT rules. GATT rules on trade prohibit bilateral quota arrangements and "discrimination" against specific trading partners.

The GATT talks

Developing countries have demanded the textile trade be brought under the normal GATT rules. Organized into the International Textiles and Clothing Bureau (ITCB), 22 textile-exporting Third World countries proposed that MFA restrictions be eliminated in four phases over a six-year period ending in 1997.

Third World countries claim that they have a comparative advantage in the textile trade and say it is unfair that the one area of manufacturing in which they have an advantage is excluded from the normal rules of world trade.

In fact, the industrialized countries have agreed to place textiles under GATT rules a year ago. The strongest resistor, the United States, agreed to this step a full year before the GATT talks were scheduled to conclude in December 1990. The subsequent debate concerned only how to manage the transition from the MFA to GATT, an important question but a subordinate one to the fundamental issue of reintegrating textiles into GATT.

The United States has advocated the most cautious transition, suggesting a 10-year period during which GATT participants would adopt a new, global quota scheme. Initially, the ITCB vociferously objected to this proposal. But the U.S. proposal now appears to be the basis for a final agreement. Ron Sorini ambassador and chief textile negotiator in the office of the U.S. Trade Representative (USTR), reports that before the December GATT talks broke down over agriculture issues, textile negotiators had come close to reaching a final agreement involving a 10-year transition period and an interim global quota system.

The debate in the United States

For U.S. textile unions, however, the fundamental agreement on reintegrating textiles into GATT is tantamount to trading the industry away. Arthur Gundersheim, assistant to the president of the Amalgamated Clothing and Textile Workers Union (ACTWU), says that bringing textiles into GATT would have "a dramatic effect." ACTWU's computer analyses show that if there were a 10-year phasesout of the MFA, "at the end of the 10 years there would be 85 percent import penetration of the domestic market," at a cost of more than one million jobs.

Unions emphasize the importance of protecting U.S. textile jobs, saying they offer unique job opportunities to poorly educated, minority and women workers. According to Richard Rothstein, author of an Economic Policy Institute report, Keeping Jobs in Fashion: Alternatives to the Euthanasia of the U.S. Apparel Industry, women make up 33 percent of all manufacturing workers, but 75 percent of apparel workers; Latinos are 8 percent of all manufacturing workers, but 20 percent of apparel workers.

Textile manufacturers have been somewhat less resistant to bringing textiles under GATT. Larry Martin, director of government relations for the American Apparel Manufacturing Association, says that clothing makers would be willing to go along with a 10-year phase-out of the MFA quotas provided tariffs are not cut, other countries open their markets too and regular GATT rules become applicable. (One provision of GATT allows countries to close their market for a particular industry if the continued existence of the domestic industry is threatened by imports.)

While fearing GATT, domestic producers are not satisfied with the current world textile trade arrangement. "We will continue losing market share to the imports whether or not the GATT talks fail," says Martin. Textile imports grew rapidly in the 1980s, reaching 57.5 percent of the apparel market in 1987, according to the Fiber, Fabric and Apparel Coalition for Trade, a joint industry-union group. Four hundred thousand textile jobs were lost in the United States in the 1980s.

U.S. manufacturers and workers have not felt that the MFA, as it has been administered, has offered them sufficient protection. Herman Starobin, research director for the International Ladies' Garment Workers' Union, says he sees "the MFA as a vehicle to destroy the industry in the United States."

Textile producers emphasize that the Reagan and Bush administrations have not enforced the MFA stringently enough. They claim that the executive branch, which has responsibility for identifying the import surges that justify the imposition of quotas, has acted too slowly in imposing restrictions on imports. The base levels at which quotas are allocated are therefore much higher than they would be if they were imposed at an earlier stage.

MFA opponents such as Starobin also say the agreement is too cumbersome to be effective at protecting U.S. jobs. Rothstein relates how Bangledeshi garment exports financed by Hong Kong manufacturers whose own quota was filled, shot up 400 percent between July 1984 and July 1985. "In response," Rothstein writes, "the United States, following MFA procedures, issued a 'call' for negotiations. The negotiations could not begin, however, until late 1985, and base levels were set in relation to Bangladesh's exports after the surge, not before."

Confronted with two successive administrations antagonistic to their calls for protection, the textile producers have sought and found a sympathetic ear in Congress. Congress passed bills protecting the textile industry in 1986,1988 and 1990, but Presidents Bush and Reagan vetoed each of the bills.

The 1990 textile bill, introduced by Senator Ernest Hollings, D- SC, and Representative Marilyn Lloyd, D-Tenn., moved in the opposite direction than the GATT proposals. It would have limited the growth of textile imports to 1 percent per year. Since the U.S. market is growing at a rate of 1 percent per year, it would have guaranteed domestic producers a constant share of the market.

U.S. textile workers The bill passed the House 271-149 and the Senate 6832. The House fell shy of the 287 votes needed to override Bush's veto.

The Bush administration fought the 1990 bill aggressively. The USTR's Sorini says the bill's enactment would have "flagrantly violated our international obligation." He states that the bill so strongly contradicted the proposals being negotiated at GATT that its enactment would have brought down the entire current round of negotiations.

Opponents of the bill argued that it would increase prices for consumers, but advocates contended that lower prices for retailers do not translate into lower prices for consumers. They claim that retailers price goods at the same rate as if they had higher costs, skimming the rest as profit.

The Third World's interest

While Third World governments argue strongly for the reintegration of textiles into GATT, some critics challenge the assertion that the Third World would benefit from such a shift.

ACTWU's Gundersheim asserts that the abolition of the MFA would hurt most Third World manufacturers by concentrating production in a few extremely low-cost countries. He calls the MFA "the greatest single force for spreading" textile production. By placing limits on what a country can export to importing countries, "the MFA puts restraints on what the really big suppliers are allowed to export." Without the MFA, Gundersheim suggests, China would control 60-70 percent of the world textile trade, with the rest split between Korea and Taiwan and perhaps Pakistan and Bangladesh. "All the rest would lose out," he says.

Caribbean countries seem to share Gundersheim's view. The special access to the U.S. market which they enjoy under the Caribbean Basin Initiative would be abolished if textiles were brought into GATT. Caribbean textile exports are expected to total approximately $1.7 billion in 1990, four and a half times their value five years ago. If the Caribbean loses its preferential access to the U.S. market, Jamaican trade official Peter King told the Inter Press Service, it would "have a devastating effect on the [Caribbean's] garment industry." He added that "even with a breather of 10 years, it is inconceivable that the region's fledgling industry would be able to compete against high-volume, low-cost production of China, Hong Kong, Bangladesh and India."

A more fundamental criticism of the importance of textile exports to the Third World focuses on the underlying faith in export-oriented development. Those who emphasize the importance of bringing textiles into GATT argue that Third World countries should concentrate on exports as a means to build up their industrial base. Critics reject this view. Starobin says "export-led economic development has never worked anywhere and is sheer mythology." He says that the export-oriented development model ignores the needs of the vast majority of Third World people. Workers receive extremely low wages--that is the developing countries "comparative advantage"--and suffer terrible workplace conditions. Any benefits, Starobin argues, accrue to a small elite and "trickle down [only] in minute quantities."

The Hong Kong-based Asian Labour Update describes the conditions facing garment workers in the Philippines, Thailand and Sri Lanka as brutal and exploitative. Garment workers, almost all of them women, are forced to meet very high production quotas, enabling employers to demand overtime. "In practice, most women meet only 70 to 80 percent of their quota. Those unable to meet this average are laid off. To secure their jobs, they are generally forced to work overtime without remuneration. Both in Sri Lanka and Thailand, women workers are obliged to work for an average of 12 to 16 hours daily, six days a week." As a result, women suffer from high blood pressure and ulcers. "Skipping meals and the effect of artificial stimulants undoubtedly contribute to the 70 percent malnourishment of Sri Lankan women workers."

In the Philippines and Thailand, factories are hot and dirty and lack the fans necessary to protect workers from chemical fumes, dusts emitted from fabrics and fibrous threads, according to Asian Labour Update. As a result, workers suffer from respiratory diseases.

Critics of export-led development argue that poor countries would benefit by developing an internal market and, at least in part, producing for domestic needs. Third World textile workers, whose 1984 wages ranged from $0.16 an hour in Bangladesh to $1.74 an hour in Singapore, are not able to purchase the products they produce or much else.

Without articulating a full program for sustainable development, European and some Third World trade unions have endorsed one component. They call for a social clause to be inserted into the MFA and GATT which would preclude the "unfair competition" of unsafe working conditions and super low wages in the Third World. This proposal has not been addressed seriously in GATT negotiations, however.

Behind the administration position

Whatever the merits of the argument that textile imports do not genuinely benefit Third World countries, it is clear that the economic policy of the Reagan and Bush administrations has not been driven by a concern for the interests of the Third World. Given the likelihood that bringing textiles into GATT will devastate the U.S. domestic industry and the existence of a strong textile industry lobby, why have the Reagan and Bush administrations taken the positions they have?

Critics of the policy seem to agree that the most important factor is the Reagan and Bush administrations' ideological commitment to free trade. Starobin says administration policy has been "guided more by ideology than by analysis or fact."

A second factor is that trade officials, recognizing they must offer something in exchange for the reforms they are demanding in other areas, have designated textiles as expendable. Since many of the U.S. government's demands in the GATT negotiations work to the detriment of Third World countries, it is necessary to offer something which will appease those governments.

Third, the Reagan and Bush administrations have used access to the U.S. textile market as a foreign policy tool. They "use textiles as a reward" for Third World countries which adopt policies they view favorably, Gundersheim says. More broadly, access to the U.S. market has been a reward for countries which orient their economies to exports, as the U.S. government has advocated; if countries agree to produce for export, in part due to pressure from the United States, the United States must provide them with a market for their exports. Rothstein comments that this policy amounts to a domestic income redistribution policy, since much of the money earned by Third World countries from exports goes to pay off debts to U.S. banks. It "promote[s] a redistribution of U.S. income, via Asian and Latin American debt payments, from low-wage American workers [whose jobs are sacrificed] to American banks."

A fourth and less significant factor in explaining the administration's position on textiles is the domestic pro-GATT textile lobby. Textile importers and retailers have lobbied strongly for the textile trade to be reincorporated into GATT. Eugene Milosh, president of the American Association of Exporters and Importers, says his organization would like to see the "phase out of the MFA and getting back to less protectionism in textiles."

The future

The fate of the world textile trade is very uncertain. If negotiators are unable to resolve differences over agriculture and fail to bring the GATT talks to a successful conclusion, the MFA will have to be renegotiated before its expiration in July 1991. Milosh says that "textiles has a very different outlook" if it is not brought under GATT and predicts a future MFA would be "highly restrictive." If international textile negotiations take place over the MFA, rather than in GATT, industrialized countries are much less likely to open up their markets, since the access would not be linked to Third World concessions.

Similarly, if GATT talks fail, protectionist sentiment is likely to build in Congress; and a reintroduced textile bill might be enacted over a Bush veto.

If negotiators are able to salvage GATT, then a major battle looms ahead. U.S. textile unions and some textile producers fear that bringing the textile trade under GATT threatens their existence. Their powerful lobby could be the centerpiece of a coalition which convinces Congress to vote down a finalized GATT agreement.

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