by Steven Suranovic ©1997-2006
Another interesting effect of VERs occurred in the
textile industry beginning in the 1950s. In the mid 50s, US cotton textile
producers faced increases in Japanese exports of cotton textiles which negatively
affected their profitability. The US government subsequently negotiated
a VER on cotton textiles with Japan. Afterwards, textiles began to flood
the US market from other sources like Taiwan and South Korea. The US government
responded by negotiating VERs on cotton textiles with those countries. By
the early 1960s, other textile producers in the US, who were producing clothing
using the new synthetic fibers like polyester, began to experience the same
problem with Japanese exports that cotton producers faced a few years earlier.
So VERs were negotiated on exports of synthetic fibers from Japan to the
US. During this period European textile producers were facing the same pressures
as US producers and the EEC negotiated similar VERs on exports from many
southeast Asian nations into the EEC.
This process continued until its complexity led to a multilateral negotiation between the exporters and importers of textile products around the world. These negotiations resulted in the Multi-Fiber Agreement (MFA) in the early 1970s. The MFA specified quotas on exports from all major exporting countries to all major importing countries. Essentially it represented a complex arrangement of multilateral VERs. The MFA provided an assured upper limit (ceiling) to the extent of competition that import-competing firms could expect in the US and the EEC. This type of arrangement has sometimes been called an orderly market arrangement. It is also a reasonable example of what has been referred to as managed trade.
The MFA was renewed periodically throughout the 70s, 80s and 90s. However, the Uruguay round of the GATT, completed in 1994, renamed the MFA to the Agreement on Textiles and Clothing (ATC) and specified a ten year transition period during which the ATC will be eliminated.
International Trade Theory and Policy
Lecture Notes: ©1997-2006 Steven M. Suranovic