In 1962, a Long Term Agreement (LTA) regarding international trade in cotton textiles was signed. It replaced the one-year Short Term Agreement that existed at the time. LTA underwent several renewals and was subsequently replaced by the Multi-Fibre Agreement (MFA) in 1974, which was expanded to cover exports of synthetic fibres and woolen products, besides cotton.
MFA came into force to allocate export quotas to the low cost developing countries, limiting the amount of imports to countries whose domestic industries were facing serious challenge from rapidly increasing imports. It sought to expand trade, reduce barriers to trade and progressively liberalise world trade.
The MFA regime existed for 25 years, until 1994 when the Uruguay Round of Multilateral Trade Negotiations resulted in the Agreement on Textiles and Clothing (ATC). The ATC sought to phase out all quota restrictions in four phases spread over a period of 10 years. The first three partial phase-outs were in January 1995, January 1998 and January 2002. The final one is due on January 01, 2005.
This came into force along with the WTO framework for multilateral trade in 1995: stipulated that the quota system for textile exports and imports under the Multi-Fibres Agreement (MFA) was finally phased out on January 1, 2005. More specifically, in terms of the agreement, the transition period, which began in 1995, would be operative for ten years and, by the end of that time, all textiles and apparel articles will have to be brought under the GATT discipline, subject to the same rules, as are the products of other sectors.
China and the Multi-Fibre Agreement: -
China was a participant country of the MFA, the implications of the end of the MFA regime on world trade generally in textiles and apparel, also the projected impact on the Chinese textile and apparel industry. To set the perspective, the MFA was negotiated under GATT 1947 and was functional from 1974 to 1994. In the eyes of the USITC, the agreement was intended to deal with domestic market disruption in importing countries: that is, developed economies - while allowing the exporting, or developing, nations to expand their textile and apparel trade as much as possible. This was achieved by the MFA through the instrument of negotiating bilateral agreements on export quotas. Cotton fibre is considered as an agricultural product and therefore covered by the WTO agreement on agriculture. All other cotton-based products, such as yarn, weaves and other textile products were subject, until January 2005 to the Multi-fibres Agreement. That agreement which came into force in 1974 was intended to protect the textile industries of developed countries from the growing exports of developing countries by way of a system of quotas.
The European Union's Cotton Textile Policy: -
The EU cotton regime was put in place in 1981 when Greece joined the European Economic Community. The accession of Spain and Portugal in 1986 enlarged the number of countries covered by the WTO agreement on cotton.
Aid was paid to cotton ginners on condition that cotton producers benefited from a minimum price per tone of cottonseeds. This system made it possible to protect producers from variations in world prices while enabling companies to sell cotton fiber at the international price. The aid per tone of cottonseeds was equal to the difference between the guide price (fixed every year) and the world market price. The payment of aid was limited to a maximum guaranteed quantity (MGQ) set annually.
From 1987, a guide price cut-off system was introduced to protect growers from the risk of very big falls in the minimum price. The original cut-off was 15% but