From the early stages of the Industrial Revolution in Great Britain to the East Asian success story of the last forty years, the textile and clothing industry has played, and continues to play, a central role in the economic development process. Clothing exports are often the first step away from a division of labour in which poor countries export natural resources in exchange for industrial products from developed countries. Today, the share of clothing in the total exports of the poorest countries like Bangladesh and Cambodia is growing and accounts for more than 60% of their total exports. For middle-income countries like Morocco, Tunisia, or Romania, clothing makes up around 30% of their total exports. For the developed countries, the share is declining very fast and represents less than 3% of exports from the USA, the EU, or Korea, Taiwan and Japan.
The textile and clothing industry has also always been a very competitive industry due to low entry costs and to the intensive utilisation of low-skilled workers.
In the last thirty years, the share of the developing countries jumped from 30% of world trade to more than 60%. This progress was made in spite of an exceptional trade regime called the Multifibre Arrangement (MFA), implemented for the first time in 1974, and renewed up to 1994. This system was based on quotas on imports by the USA, Canada and the European countries. At first, the MFA was only dedicated to protecting developed countries’ industries, but from the mid-1980s, the Arrangement was complemented by the granting of favoured treatment for selected developing countries. On the one hand, the USA allowed the free import of clothing made from US fabrics by the Caribbean countries (under the Caribbean Basin Initiative - CBI) and lately by some African countries (via the African Growth and Opportunity Act - AGOA). On the other hand, it signed an FTA with Mexico, which favoured the development of the maquiladoras.¹ The European Union had a similar policy vis-à-vis Mediterranean countries such as Morocco or Tunisia and lately vis-à-vis the transition economies of Eastern Europe.
This strategy has been beneficial for the developed-country textile industries since their exports to preferred developing countries increased rapidly. Consequently, according to trade flow statistics taken from the CEPII’s CHELEM database, strong regional relations have emerged. This was eventually detrimental to Asian exports, which declined from the mid-1980s to the early 2000s. In 2002, the quota system was still a major obstacle only to Chinese and, to a lesser degree, Indian exports of clothing.
When exploring the consequences of phasing out the MFA in 2005 (Avisse & Fouquin, 2001 & 2002), the most difficult task for the CEPII has been to estimate the real level of protection and its cost. There are two ways of measuring this: 1/ to use Chinese quota prices at the end of the last known year; 2/ to consider Japanese import prices (which are free of quotas) as a reference for the price of free imports of clothing. The first method has been preferred since it appears that Japanese imports were probably too specific to be compared with US or EU imports.
The price of quotas was introduced by the CEPII into the GTAP model, to simulate various scenarios of liberalisation and to compare the CEPII’s results to several other exercises. The main results are as follows:
  1/ commercial gains are concentrated in developing Asian countries;
  2/ among these, the two developing giants, China and India, are the main winners;
  3/ the small developing countries are practically excluded from any gains or may even lose out under liberalisation;
  4/ the developed nations benefit more in terms of consumer gains – due to price decreases – than they lose in terms of production;
  5/ improved access to the developing markets does not compensate for increased imports to developed countries.
Nine months after the phasing out of quotas, what can we say about the CEPII’s simulations?
The first two results have undoubtedly been borne out: China, and to a much more modest extent India, are clear beneficiaries. This is so much so that the EU and the US are using safeguard measures vis-à-vis some Chinese products.
The third conclusion reached by the CEPII has to be qualified. Some developing countries are losing out, such as the Mediterranean countries, but others like Bangladesh appear to be resisting better.
Evidence on the fourth conclusion is not that clear: there has been a decrease in import prices (the quota price has disappeared), but consumers are not benefiting from it, and distribution networks are the real beneficiaries.
Concerning the last result, it should be noted that developed-country producers' access to the developing markets is still under discussion at the WTO.
As for the Doha Development Round, simulations have been carried out (Bchir, Fontagné & Jean, 2005), comparing several formulas for tariff reduction: from the elimination of tariff peaks to full liberalisation, via intermediate Girard formulas.² These exercises use bound (i.e. ceiling) tariffs for the first time, in addition to applied tariffs.³ The textile and apparel sector has still the highest of all industrial tariffs. When applying a standard Girard formula (with a coefficient equal to 1), the increase in the world trade of industrial products is rather weak, concentrated in a handful of sectors and firstly in clothing and textiles. However, these figures mask a significant reshuffling of industrial activity world-wide. Actually, in the clothing sector, Asian countries strongly benefit from liberalisation, with an increase in value added of 12 to 18% (in China, the Tigers⁴ and the Dragons⁵) and of almost 20% in India. In contrast, value added is reduced by more than 10% in Canada and in Mexico, and halved in Maghreb countries, where a substantial adjustment becomes a necessity. In textiles too , the Dragons record increased value added, mainly at the expense of Canada, SACU, ANZCERTA and Mexico. In this reshuffling of industrial market shares, the Asian countries thus play a prominent role, illustrating the strong offensive interests of China and the Tigers in light industry.
Another study on the erosion of tariff preferences , potentially associated with the Doha Round (Bouët, Fontagné & Jean, 2005), shows that trade preferences are still high in the textile and clothing sector, which is a much debated issue concerning European preferential schemes. Even when account is taken of the evidence of overlapping preference schemes, the problem of underutilisation of preferences is identified for this industrial sector, in contrast to other sectors.⁶ The reasons are the strong international division of labour which is taking place in this industry, and the importance of this industrial sector for poor countries. Here, the arguments about the use of Rules of Origin as protective instruments are fully applicable. Actually, as regards the EU, the problem of the underutilisation of preferences in textiles and clothing is limited to the GSP scheme and does not, for instance, extend to the Cotonou Agreement, although this agreement fully covers the sector. Still, the problem is important, especially for the Everything But Arms (EBA) Initiative, where preferential margins are rather large. Thus, the underutilisation of preferential schemes is widespread for textile and apparel products, which seriously undermines the benefit that poor countries can reap from most non-reciprocal preferential agreements.