Abstract

This paper examines the recent trend of rise in protectionism policy in many countries. The general trend of commercial policy during the postwar era was toward a liberal world trading system. In contrast to this trend, pressures for protection have emerged in many countries recently, and it seems probable that the pressures for protectionism will continue. If these pressures are given in to, the consequences for the international economy will become increasingly serious, especially for developing and other primary producing countries whose development and industrialization are affected.

Appendices

I. Measurement of Protection: A Note

It is theoretically conceivable, using an econometric model of the world, to estimate the levels of trade, incomes, prices, and employment that would prevail in the various economies in a situation of free trade, i.e., absence of all protective measures. The differences between these hypothetical levels and the actual levels may then be interpreted as the effects of protection. An approach using this methodology would be a mammoth and difficult undertaking. It would require a highly disaggregated input-output model of the world and a complete inventory of all the trade barriers applied. In addition to tariffs, the secretariat of the gatt has listed 33 categories of nontariff practices, and the identification of those with restrictive effects in given contexts is not often straightforward. Moreover, even if all restrictive practices were identified, their integration into the model would involve additional difficulties because such measures are not equally amenable to quantitative assessment, an issue discussed further below.

Because of these considerations, empirical studies on protection have been more selective in focus. Using less complicated, partial equilibrium models of individual national economies, these studies have attempted to measure the effects of changes in the restrictiveness of certain trade barriers to imports, as well as such other variables as domestic employment and production. In general, only the “impact” effects have been measured because the determination of the total effects (i.e., the effects after the repercussions of initial shocks have worked through the economy) has been beyond the scope of the models used. Despite their limitations, such studies nevertheless provide a useful quantitative approximation of the magnitudes involved.

The attempts to measure the effects of protection may be divided into three basic approaches: (1) methods using nominal tariffs and estimated nominal tariff-equivalents of nontariff barriers; (2) methods using implicit nominal tariffs; and (3) effective protection methods using variables in the first category. Each is discussed in turn below. Also briefly discussed are attempts to measure the protection provided by nontariff barriers through an index based on the frequency of such barriers per tariff line.

Nominal Tariffs and Tariff-Equivalents

Methods using nominal tariffs and estimated nominal tariff-equivalents are fairly common.1 The crudest version of such methods postulates that increases in tariffs raise the domestic prices of imports proportionately and that the effect on import demand could be estimated by simply multiplying the tariff changes by the corresponding estimated price elasticities of demand for imports; by extension, the effect of changes in nontariff barriers could be determined in a similar fashion after calculating their nominal tariff-equivalents. More complex specifications involving, for instance, the elasticity of foreign supply of an import in question and the elasticity of domestic supply of import substitutes would result in a more complex formula without changing the essence of the approach.

The estimation of the nominal tariff-equivalents of nontariff barriers is difficult, but it has been reasonably successful for a wide variety of nontariff barriers expressed in quantitative terms—such as import quotas, tariff quotas, variable levies, advance import deposits, border tax adjustments, surcharges, and minimum prices. Nontariff barriers expressed in nonquantitative terms—health and sanitary standards, quality and measurement standards, packaging and labeling conventions, consular formalities, customs valuation procedures, and the like—would require estimates of the costs of compliance and a per unit distribution of such costs in order to obtain their respective nominal tariff-equivalents. In the case of government procurement, the discriminatory or protective effect involved has been approximated through the use of the differentials between governmental and private propensities to import by sector.2

Implicit Nominal Tariffs

The problem of identifying nontariff barriers and their nominal tariff-equivalents has long been recognized. One way of getting around this problem was proposed by a gatt panel of experts headed by Professor Gottfried Haberler and applied by the UN Economic Commission for Europe in a study of protection on agriculture in Western Europe.3 On the premise that, in the absence of trade barriers, market forces would tend to equalize domestic and international prices, the proposed method interprets the observed differentials between such prices (less the normal costs of trade) to be proxies for the combined effect of tariffs and nontariff barriers. Such price differentials divided by the corresponding international prices may thus be seen as implicit nominal tariffs, which could be used in the same fashion as nominal tariffs to estimate the protection involved.

The simplicity of this approach is appealing. However, its application could be questioned in cases where the observed domestic prices are artificial in the sense that they do not clear the corresponding markets. Furthermore, this approach shares a deficiency with the first approach in that both deal with nominal rather than effective protection.

Effective Protection

The first two methods described above are open to the objection that the resulting estimates of protection would be biased because the methods implicitly and unrealistically assume that imports are finished products, or, in other words, that imported inputs are not used in domestic production. In effect, the methods ignore the impact of the tariff structure on the various stages of domestic production.

Intuitively, it may be seen that a tariff on a finished import increases the protection on domestically produced substitutes (in the sense that such a tariff would permit domestic output prices to be raised relative to international prices) and that tariffs on imported inputs incorporated in the domestic production of import substitutes would reduce the protection on such production (in the sense that input tariffs would raise input costs without permitting an increase in output prices). The concept of effective protection relates to the balance of these opposing effects. Formally, the effective protective rate on the jth import (Ej) is defined to be equal to the tariff on the jth import (tj) less the aggregate of input tariffs (ti) weighted by the respective shares of inputs in total costs (aij), divided by the proportion of domestic value-added (vj).4 This rate represents the amount by which the cost of domestic value-added could exceed the cost of foreign value-added and still remain competitive with it in the domestic market. Empirical studies have shown that effective protective tariff rates are usually higher than the corresponding nominal tariffs, although in rare cases negative effective protective rates have been observed.5

If the effective protective rates corresponding to nominal tariffs could be estimated through the use of input-output models, the next logical step would be to estimate the effective protective rates of the nominal tariff-equivalents of nontariff barriers. The main difficulty involved in this type of exercise would be the enormous amount of information required.

Inventory Approach

The conceptual and statistical problems involved in estimating the protective effect of nontariff barriers by the methods described above have spurred research into alternative methods. Several recent studies have used the so-called inventory approach, in which indices of the frequency of all or selected nontariff barriers per tariff line are used to measure the restrictive-ness of such barriers.6 The utility of these indices is questionable because they implicitly assume all nontariff barriers to have equivalent impacts. In effect, if a nontariff barrier that acts to reduce imports under a tariff line by $100 million is replaced by another that acts to reduce imports under the same tariff line by only $50 million, such indices would register no change in restrictiveness; moreover, if the replacement consists of two nontariff barriers that act to reduce imports by $50 million, such indices would perversely register an increase in restrictiveness.

Conclusion

Clearly, the measurement of protection should be based on the concept of effective protection. The information required for this approach is such that only a few full-scale studies have been made, and for the most part they refer only to tariffs. However, as tariffs become less and less important in protective structures, and as the need to negotiate reductions of nontariff barriers becomes more and more urgent, the quantification of the effective protective effects of the latter, no matter how imperfect, will become indispensable.

II. Trade Actions: Methods and Procedures

The survey of trade actions in recent years that was made for this study demonstrates that countries have resorted to a variety of instruments and that the methods of restriction are becoming increasingly ad hoc, complex, and sophisticated. It is difficult to document fully the growing use of the numerous nontariff measures that have been used—or used inappropriately—to restrict imports.1 This appendix is therefore limited to observations on certain specific methods and instruments of trade restriction.

Safeguard Measures Under GATT (Art. XIX)

Emergency actions taken under the safeguard provisions of the gatt (and notified to that body) to protect domestic industries against injury from import competition are shown in Table II—1. Such actions in recent years have been relatively few and have taken the form of quantitative restrictions (and occasionally embargoes) on imports as well as of tariff increases. A major reason often cited for the infrequent invocation of these provisions is that they may be applied only on a nondiscriminatory basis, whereas countries often prefer measures that can be applied selectively with respect to the source of the import. There have, however, been two recent instances of the use of the safeguard provisions on a selective basis—the invocation of the Art. XIX provisions of the gatt by the United States in 1977 in connection with its bilateral agreement with the Republic of Korea limiting imports of nonrubber footwear (see p. 26 above), and their invocation by the eec in 1977 in regard to imports of television sets from the Republic of Korea into the United Kingdom (see p. 32 above).

Table II–1.

Actions Taken Under Safeguard Provisions (Art. XIX) of GATT, 1971–771

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Source: GATT secretariat.

Not all of the notifications to the gatt that are listed here specifically mentioned Art. XIX.

Letters indicate the following: BRA=bilateral restraint agreement; E=embargo; OMA=orderly marketing agreement: QR=quantitative restriction: T=tariff; TQ=tariff quota.

Measures Under National Legislation

United States: “Escape clause” actions2

“Escape clause” actions (to provide temporary import relief so as to facilitate orderly adjustments to import competition by producers) are taken when the U.S. International Trade Commission determines, on the basis of a petition from an industry or a group of workers, that imports have increased (relatively or absolutely), that the industry in question is suffering or threatened with serious injury, and that increasing imports are “a substantial cause” of the injury. In the event of a negative finding, the case is dismissed. In the case of an affirmative finding, the Trade Commission specifies remedial measures, which could take the form of higher tariffs, tariff quotas, import quotas, orderly marketing agreements, or any combination of these. The President has the final authority to accept or modify the recommendation of the Commission, although if his action differs from the recommendation, Congress can impose the recommendation by a majority of both Houses.

United States: Antidumping duties

Under U.S. procedures, investigations to determine whether a particular class or kind of foreign goods is being or is likely to be sold in the United States at less than “fair value” are initially undertaken by the Treasury, usually in response to petitions by domestic producers.3 When the Treasury determines that imported goods are sold at less than “fair value,” the results of the investigation are communicated to the U.S. International Trade Commission, which in turn determines whether imports at less than “fair value” have caused, or are threatening to cause, injury to the import-competing domestic industry. If an affirmative finding is made, an antidumping duty equal to the difference between the “fair value” and the price of the imported article is assessed. A product is considered to be sold at less than “fair value” if the purchase price or the exporter’s sales price of an imported product in the United States is less than the “foreign market value.”

The amendments to the Antidumping Act of 1921 (contained in Section 321 of the Trade Act of 1974) created a new option for complainants in cases where the export price is not below the price in the exporter’s home market: a complainant may argue that a commodity is being dumped if the export price is demonstrably below “the cost of production,” i.e., the manufacturer’s full costs, even though the export price may not be below the domestic price in the exporting country. If it can be shown that the sales in the exporter’s domestic market are being made over “an extended period of time and in substantial quantities, and … are not made at prices which permit recovery of all costs within a reasonable period of time in the normal course of trade,” then such sales may be disregarded in the determination of “fair value,” effectively raising the level of the “fair value.” Furthermore, if the remaining sales are inadequate for determining “fair value,” then “constructed value” becomes the basis for a determination of dumping; and if export prices are below this for a reasonable period of time, dumping is established.4 There is no precise definition of production costs in the Trade Act of 1974, but they have been interpreted to mean average unit costs.

United States: Countervailing duties

The procedures dealing with countervailing duties are similar to those pertaining to antidumping duties. On the basis of petitions submitted by producers, the U.S. Treasury conducts an investigation to determine whether imported products are receiving government subsidies in the country of production (in the form of either export or production subsidies). A final determination is made by the Treasury within a year. When a product is found to be subsidized, the International Trade Commission is asked to determine, within three months, whether an industry is being or is likely to be injured, or is prevented from being established, by reason of importation of subsidized products. If the determination of the Trade Commission is in the affirmative, a countervailing duty equal to the estimated amount of subsidies is assessed on imported products. Under the Trade Act of 1974, the Secretary of the Treasury is, however, authorized to waive the imposition of countervailing duties until January 1, 1979, if he finds that there is a reasonable prospect that an international agreement on the use of export subsidies will be reached in the Tokyo Round of the multilateral trade negotiations.

European Economic Community (EEC)

The basis for protective measures implemented by the eec is Art. 113 of the Treaty of Rome and Regulations EEC 1439/74 (for gatt countries) and 109/70 (for state-trading countries). These laws and regulations, in conformity with the safeguard (Art. XIX) provisions of the gatt, empower the Commission of the European Communities to act on its own initiative or at the request of a member state. Safeguard measures taken may apply to imports into the eec as a whole or into certain member countries. In practice, the eec invokes Art. XIX of the gatt for products liberalized at the Community level, while Regulation 1439/74 is generally invoked for products liberalized by individual member states but not by the entire Community. Actions under Regulation 1439/74 need the approval of Committee 113 of the eec, whose decisions depend on such considerations as the ratio of imports to demand in the affected country concerned and any decline in output, employment, and exports. As regards products that are not included in the common liberalization list, member states have the option of invoking Art. XIX of the gatt at the national level. Until mid-1977, Denmark, Ireland, and the United Kingdom could take certain independent actions against nonmember states.

With respect to antidumping cases, complaints may be directed either to member countries or directly to the Commission of the European Communities. If the complaint is adequately substantiated by evidence, the Commission initiates an investigation along the criteria mentioned in the gatt, namely, that the product being dumped must cause material injury, threaten such injury, or materially retard the development of an industry. Interested parties must be given a hearing. In emergencies, temporary duties may be imposed for three months; they are definitively imposed if an affirmative finding is made. Similar procedures apply with respect to the adoption of countervailing duties against subsidized imports.

In April 1977 a recommendation by the Commission was adopted containing precise definitions of dumping and subsidies, and of damage suffered by a Community industry in respect of products covered by the Treaty of the European Coal and Steel Community.5 For the above purposes, a variety of trade measures may be taken, including quantitative restrictions, increases in duties, limitations on the validity of import documents, and the subjecting of imports to authorization. In addition, limitations on imports of many products take place through bilateral agreements with exporting countries.

Canada: Countervailing duties and antidumping duties

Canadian producers who believe that imports which are dumped or which benefit from foreign subsidies are causing or threatening material injury to their production may register a complaint with the Deputy Minister of National Revenue, Customs and Excise. In this complaint the injurious foreign subsidy or dumping practice must be outlined and evidence of material injury must be provided. On the basis of this information, the Deputy Minister may initiate an investigation to establish whether the per unit amount of subsidy or the dumping margin and the actual or potential volume of imports is greater than negligible. On an affirmative finding, a provisional countervailing or antidumping duty is imposed or a bond equal to the estimated applicable duties is required. The Anti-Dumping Tribunal subsequently reports on whether or not the subsidized imports are causing or threatening material injury, and thus on whether the countervailing or antidumping duty should be ratified or rescinded. During the course of domestic procedures, consultations are held with affected foreign countries, generally within the framework of the gatt.

Canada: “Escape clause”

Under Canadian legislation, safeguard actions of an emergency or temporary nature may be taken when imports cause or threaten serious injury to domestic production. Decisions to resort to safeguard measures are taken after an examination by the senior policy officials concerned and only after consideration by ministers concerned, often in full Cabinet. In reaching a decision, ministers take into consideration a whole range of questions involving the effects of potential action on Canada’s trade and economic relations with other countries.

Japan

As in other countries, there are regulations in Japan that apply to various aspects of importing and, in addition, informal procedures that affect imports. While most of these measures—such as those relating to quality control, health standards, measurement specifications, and the like—are designed for specific internal purposes, exporters to Japan have at times claimed that such measures may have an indirect trade-retarding effect on their exports.6 It is very difficult to assess the overall quantitative effect of such measures with any degree of accuracy; it is therefore equally difficult to determine whether there has been an increase in this form of protectionism in recent years.

Japanese health and sanitary regulations and quality standards, which are strictly enforced, are not intended as measures to restrict imports, although they may indirectly have a trade-impeding effect. Another feature that may also have an indirect effect on imports is the domestic distribution system in Japan. There are no restrictions on the activity or expansion of medium-sized and small retail outlets. The expansion of large outlets, however, is regulated in each local area by a committee composed of small and medium-sized retailers, consumers, and an outsider. An important consideration of the committee is the protection of small and medium-sized retailers. However, about 300 large retail stores are established each year, and the proportion of these to total retail outlets (currently 20 per cent) is growing.

The distribution system for manufactures consists of traditional distributors (wholesalers that distribute textiles and general merchandise); manufacturers (distributing new products, such as cars, electrical appliances, and whiskey); and large retailers. One of the facets of exporting to Japan confronted by exporters is that imports into Japan of new products are at times distributed through the distributing system of Japanese noncompeting manufacturers (for example, some air conditioners manufactured in the United States are distributed by a major Japanese automobile manufacturer). A further aspect is that the imported goods are frequently distributed through “sole agents,” which operate with high mark-ups and low volume, and for this reason some imported goods are sold at very high prices in the domestic market.

III. Protectionism in Textile Trade

Background

In addition to tariffs, international trade in various textile products has been restricted over the past 17 years under the bilateral agreements concluded between importing and exporting countries in the framework of multilaterally negotiated arrangements, viz., the Short-Term Arrangement (1961/62), the Long-Term Arrangement (1962–73), and the Multifiber Arrangement (1974–81).

Protectionism in this field is of particular concern for several reasons. First, the multilateral arrangements, which may have been devised initially to deal with “short-run” problems in the textile sector, have become more or less permanent. Despite the declaration of the participating countries that the restrictive features of these arrangements should not be considered as a model for application in other fields, there are indications that the concepts of “orderly marketing” and “market sharing” implicit in these arrangements are being applied to other sectors, e.g., footwear, steel, and electronics. Second, in the course of negotiation and review, the arrangements have been criticized by participating countries, both importers and exporters, as having failed to solve the fundamental problems of the textile trade. Yet not only has the number of countries participating in the arrangements increased, but the product coverage also has expanded over the years. Third, restrictions on trade in textiles have a particularly negative effect on the trade and development prospects of many developing countries. The development of the textile industry has been an important element (often the leading sector) of the industrialization efforts of developing countries, and the amount of capital invested in modern technology has been substantial. As a result, the textile industry in many developing countries has been able to improve its competitive position in the world market and has become an important source of foreign exchange earnings and of jobs for semiskilled labor.

Developments Before 1962

The first multilateral arrangement aimed at regulating international trade in textiles—the Short-Term Arrangement on Cotton Textiles—was negotiated in 1961 under the auspices of the gatt and remained in force for one year beginning October 1, 1961. The 19 participants agreed that international action was needed

  • (i) to significantly increase access to markets where imports are at present subject to restriction;

  • (ii) to maintain orderly access to markets where restrictions are not at present maintained; and

  • (iii) to secure from exporting countries, where necessary, a measure of restraint in their export policy so as to avoid disruptive effects in import markets.1

A participating importing country was allowed to request any participating exporting country to restrain exports of any covered cotton textile product to a level not lower than the level prevailing during the 12-month period ended June 30, 1961, if such products were causing or threatening to cause a disruption in the domestic market of the importing country. The participating importing country had the right to restrict imports unilaterally to a specified level if no agreement was reached with the participating exporting country within 30 days. The Short-Term Arrangement referred to an earlier decision of the Contracting Parties to define what constituted market disruption, as follows:

  • … These situations [market disruption] generally contain the following elements in combination:

  • (i) a sharp and substantial increase or potential increase of imports of particular products from particular sources;

  • (ii) these products are offered at prices which are substantially below those prevailing for similar goods of comparable quality in the market of the importing country;

  • (iii) there is serious damage to domestic producers or threat thereof;

  • (iv) the price differentials referred to in paragraph (ii) above do not arise from governmental intervention in the fixing or formation of prices or from dumping practices.

  • In some situations other elements are also present and the enumeration above is not, therefore, intended as an exhaustive definition of market disruption.2

Several notable structural changes that had taken place in the cotton textile industry and trade of the world and had led to the negotiation of the arrangement may be noted briefly.3 World production of cotton textiles and clothing (excluding the U.S.S.R., Eastern Europe, and the People’s Republic of China) during 1953–60 fell behind the rate of expansion in the output of manufacturing industries as a whole; while the latter expanded by 37 per cent, output of the cotton textile and clothing industries expanded by only 28 per cent. During the same period, whereas the value of world exports of all manufactures nearly doubled, the value of world exports of cotton textiles and clothing rose by 32 per cent.

A declining growth in the demand for these products during this period created a situation of excess supply. Although the per capita consumption of cotton textiles varied considerably from one country to another, on the whole it rose very little. In contrast, the per capita consumption of man-made fibers increased significantly during the period.

At the same time, the structure of world trade in cotton textiles and clothing underwent a significant transformation: exports of developed countries (excluding Japan) that participated in the 1961/62 Short-Term Arrangement declined by 5 per cent, while exports of developing countries expanded by 88 per cent and exports of Japan by 155 per cent.

Long-Term Arrangement (1962–73)

While the Short-Term Arrangement was being negotiated, the participating countries began to work on a longer-term solution. The outcome was the conclusion of the Long-Term Arrangement Regarding International Trade in Cotton Textiles, which entered into force for a period of five years following the expiry of the Short-Term Arrangement at the end of September 1962.4 It was subscribed to by 29 countries. Although the definition of cotton textiles remained basically unchanged,5 the provisions were considerably more elaborate than those of the Short-Term Arrangement. The new arrangement not only contained a provision dealing with domestic market disruption, but also attempted to regulate the expansion of trade in cotton textiles over the five-year period. It drew a fundamental distinction between the obligations of countries that maintained restrictions on cotton textile imports and countries that did not. The former were to grant a specified percentage increase in market access to the participating exporting countries between the base year 1962 and the terminal year of the arrangement.6 Where bilateral arrangements existed, although the freedom to determine the percentage of annual increase in market access was reserved to the negotiating parties, it was stated that it would be desirable that such percentages should correspond as closely as possible to one fifth of the overall target rate of increase in market access.

As under the Short-Term Arrangement, the participating importing countries in the Long-Term Arrangement that were not maintaining restrictions on cotton textile imports were permitted to enter into mutually acceptable bilateral agreements with the participating exporting countries and to impose restrictions on imports to remedy or avoid a situation of market disruption. When restrictions were introduced for this purpose, however, the level of imports restricted during the first year was not to be lower than the actual level during a preceding 12-month period, and if restrictions were maintained during subsequent years they were to allow, as a rule, for an annual increase in the level of imports of 5 per cent. In exceptional cases, an increase of less than 5 per cent was allowed to be applied in consultation with the exporting country concerned, but in no case was the percentage to be less than zero. The standards to be applied in defining market disruption were the same as set out in the Short-Term Arrangement.

The Long-Term Arrangement differed from the Short-Term Arrangement in certain additional respects: (1) the obligations of the participating countries not to introduce new import restrictions on cotton textiles or to intensify existing ones inconsistently with their obligations under the gatt were more explicitly spelled out; (2) the participating countries invoking the market disruption clause mentioned above were obliged to report at least once a year to the Cotton Textiles Committee (a newly established gatt body entrusted with the responsibility of administering the arrangement) regarding liberalization measures they had taken.

Although the United Kingdom maintained restrictions on cotton textile imports and would therefore have been obliged to increase access to its markets, it was permitted to accept the arrangement with a reservation that excluded this obligation. The reservation was permitted on the grounds that (1) in the decade preceding the entry into force of the arrangement, there had been a substantial contraction in the cotton textile industry of the United Kingdom; and (2) the ratio of U.K. imports, particularly from the developing countries and Japan, to domestic production had been raised.

As a result of the Kennedy Round of the multilateral trade negotiations, the Long-Term Arrangement was extended for three years beginning October 1, 1967.7 The commitments of the participating importing countries that were maintaining restrictions to increase their import quotas during the three years October 1, 1967-September 30, 1970 were increased substantially, particularly those of the eec (to 154 per cent) and Austria (to 152 per cent).

The Long-Term Arrangement was renewed for a second three-year period until September 30, 1973.8 No changes were introduced. During the three years, Austria, Denmark, Norway, and Sweden agreed to increase market access by percentages higher than those agreed during the previous three years. As the eec decided to proceed with an arrangement whereby its commitment regarding future market access would be determined under bilaterally negotiated agreements, it was deleted from the list of countries to which the general market access formula applied. When the Long-Term Arrangement expired in 1973, 33 countries, representing about three fourths of world trade in cotton textiles, were parties to it.

The operation of the Long-Term Arrangement was frequently criticized by participating countries, both exporting and importing. Exporting countries, the majority of which were developing countries, expressed disappointment that an arrangement that was initially regarded as an “exceptional and transitional measure” designed to deal with special trade problems in the cotton textile sector had become a permanent one, depriving them of opportunities to increase their export earnings. The growing number of restrictive bilateral agreements concluded within the framework of the Long-Term Arrangement, the lack of objective criteria and of uniformity in the interpretation of the provisions on “market disruption” by importing countries, and rigid administration of quotas were pointed out as the basic problems of the arrangement. Participating importing countries, on the other hand, complained that some exporting countries had failed to observe their commitments under the arrangement by not limiting exports or by exporting through third countries.

Background to Multifiber Arrangement 9

A number of significant changes in the patterns of world production of and trade in cotton textiles occurred during the lifespan of the Long-Term Arrangement. During the decade ended 1972, world production of textiles and clothing expanded at a much slower rate (52 per cent and 46 per cent, respectively) than overall industrial production (92 per cent). Production of textiles and clothing in developing countries continued to expand at a considerably faster rate (58 per cent and 66 per cent, respectively) than in developed countries (46 per cent and 24 per cent, respectively).

A major structural change in the textile and clothing sector during the decade preceding the negotiation of the Multifiber Arrangement was that production of man-made fibers expanded at a much faster rate than cotton and wool varieties, and as a result, the share of natural fibers in total fiber production declined from 78 per cent in 1960 to 59 per cent in 1971 (Table III–1). This appears to have been due to price developments in favor of man-made products and the creation of new varieties of such products for specific requirements.

Table III–1.

World Production of Principal Textile Fibers, 1960 and 1971

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Source: GATT, Study on Textiles: Report of the Working Party on Trade in Textiles, L/3797, December 29, 1972, 3 vols.

The shift in the production and consumption of textile products from pure cotton and wool varieties to man-made fibers and blends was reflected in the international trade in textile products in the 1960s. The share of man-made fibers in the yarn trade rose from 44 per cent to 69 per cent between 1960 and 1970, and the share of man-made fibers in the fabric trade rose from 17 per cent to 38 per cent over the same period (Table III–2).

Table III–2.

Shares of Cotton, Wool, and Man-Made Fibers in World Trade in Yarns and Fabrics, 1960 and 19701

(In per cent, based on value)

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Source: GATT, Study on Textiles: Report of the Working Party on Trade in Textiles, L/3797, December 29, 1972, 3 vols.

Excludes trade of Eastern European countries, but includes intra-EEc trade.

With regard to the distribution of trade in man-made fiber yarns and fabrics (woven), the share of developing countries increased only in respect of fabrics (Table III–3). The share of developing countries in the trade in natural fiber fabrics also showed a small increase between 1960 and 1970. However, their share in trade in man-made fiber yarns showed a significant decrease, from 38 per cent to 23 per cent between 1960 and 1970, that in trade in cotton yarns remained unchanged, and that in trade in wool yarn showed a significant gain, from 13 per cent to 22 per cent, over the same period.

Table III–3.

Shares of Developed and Developing Countries in World Imports of Yarns and Fabrics, 1960 and 19701

(In per cent, based on value)

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Source: GATT, Study on Textiles: Report of the Working Party on Trade in Textiles, L/3797, December 29, 1972, 3 vols.

Percentages do not add to 100 because the shares of Eastern European countries are excluded. Imports of industrial countries include intra-EEC trade.

As a result of these structural developments in world production of and trade in textile products, pressures developed to expand the coverage of textile products under the Long-Term Arrangement.

Multifiber Arrangement (1974–81)

The Arrangement Regarding International Trade in Textiles (Multifiber Arrangement, or MFA) was negotiated in the course of 1973 and entered into force on January 1, 1974 for a period of four years.10 It had 42 signatories (counting the EEC as one), compared with 29 signatories to the Long-Term Arrangement originally and 33 when it expired. The basic difference between the two arrangements was that the product coverage was expanded to include not only cotton textiles but also those made of man-made fibers and wool. Textile products covered by the Multifiber Arrangement were “tops, yarns, piece-goods, made-up articles, garments and other textile manufactured products (being products which derive their chief characteristics from their textile components) of cotton, wool, man-made fibres, or blends thereof, in which any or all of those fibres in combination represent either the chief value of the fibres or 50 per cent or more by weight (or 17 per cent or more by weight of wool) of the product.” 11 Artificial and synthetic staple fibers were explicitly excluded, but the arrangement provided for the application of restraints on imports of these products in cases of market disruption. The arrangement excluded exports of fabrics manufactured by cottage industries in developing countries, such as handloom fabrics or handmade products of such fabrics and traditional folklore handicraft products.

Like the Long-Term Arrangement, the Multifiber Arrangement set out two distinct obligations regarding the use of quantitative restrictions on textile imports. Existing quantitative restrictions were required to be notified to the Textiles Surveillance Body (a body entrusted with the responsibility of over-seeing the administration of the Multifiber Arrangement, discussed below), and such restrictions were required to be terminated within a year unless one of the following conditions was met: (1) the country concerned adopted a program for the phased elimination of the restrictions within three years, with a “major effort” being made in the first year; (2) the restrictions represented part of a bilateral agreement, in conformity with the Multi-fiber Arrangement, and provided for an increase in imports of at least 6 per cent a year; or (3) the restrictions were imposed as a result of market disruption in accordance with the criteria established under a separate provision of the Multifiber Arrangement.

With respect to the use of quantitative restrictions aimed at remedying a situation of market disruption, the Multifiber Arrangement contained much more objective criteria for the determination of market disruption and of the procedures regarding the introduction of new restrictions than did the Long-Term Arrangement. The determination of a situation of market disruption was to be based on the existence of serious damage to domestic producers or actual threat of such damage, and such a situation had to be caused by a sharp and substantial increase in imports of particular products from particular sources offered at abnormally low prices, and not by changes in technology or consumer preference. The Multifiber Arrangement enumerated the economic factors that the examination of the conditions of the domestic industry should cover: turnover, market share, profits, export performance, employment, volume of disruptive imports, production, utilization of capacity, productivity, and investment. When an importing country believed that its market was being disrupted by an excessive increase in imports, it was obligated to consult with the exporting countries concerned regarding the level of exports to be restrained. In the course of these consultations, which had to be completed within a period of 60 days, the consulting countries were to reach understandings regarding the removal of the cause of the market disruption, including the level to which imports could be restricted. The formula defining the maximum permissible degree of restriction in the Multifiber Arrangement was that the level of imports must not be restricted to a level below the actual level of imports during a preceding 12-month period. In cases where restrictions were maintained for more than a year, the level of restricted imports for subsequent 12-month periods following the first 12-month period must provide for an annual rate of import growth of at least 6 per cent. If consultations did not result in an agreement, the importing country was permitted, after the lapse of a 60-day period, to restrict the level of imports. The formula to be applied in such cases was the same as that described above. The arrangement provided that in exceptional cases, where the 6 per cent rule regarding the annual rate of increase in imports was likely to result in a recurrence of market disruption, or where the 6 per cent rate would cause damage to a country’s “minimum viable production,” a lower rate of growth could be agreed upon after bilateral consultations.

In the area of international surveillance, the Multifiber Arrangement, as already mentioned, introduced an important institutional arrangement by establishing a standing committee, the Textiles Surveillance Body, consisting of a chairman and eight members. There was no comparable institutional arrangement for multilateral surveillance under the Long-Term Arrangement. The Textiles Surveillance Body was entrusted with the broad responsibilities for supervising the implementation of the Multifiber Arrangement. Its main functions included the formulation of recommendations for the settlement of disputes among participating countries concerning the interpretation and enforcement of the provisions of the arrangement as well as the terms of bilateral agreements concluded within the framework of the arrangement. The participating countries were to try to accept in full the recommendations of the Textiles Surveillance Body, and whenever they found it not possible to do so, they were required to inform it of the reasons and of the extent to which they would be able to follow its recommendations. Another important function of the Textiles Surveillance Body was to maintain a complete record of all restrictions reported by the participating countries, and to review such restrictions with a view to determining their conformity with the Multifiber Arrangement. Since the coming into force of the arrangement, 105 bilateral agreements have been concluded between participants, and 21 unilateral actions to restrain imports have been notified.

It is difficult to relate the operation of the Multifiber Arrangement to the rate of growth or change in the pattern of world trade in textiles and clothing since 1974.12 It appears, however, that world trade 13 in these products has been expanding at a reasonable rate. The value of world imports of textiles and clothing rose by 21 per cent in 1974, somewhat less than in preceding years. In 1975, however, only imports of clothing rose (11 per cent), and imports of textiles declined (7 per cent). The value of world imports of textiles and clothing combined remained unchanged in 1975 (see Table III–4). In the first half of 1976, world trade in clothing continued to expand at a rapid rate and world trade in textiles recovered slightly. Developments in the trade of developed and developing countries as groups, however, showed considerable divergence from these overall trends, as Table III–4 shows.

Multilateral discussions regarding the future of the Multifiber Arrangement began in late 1976. In the July 1977 meeting of the Textiles Committee of the gatt, the participating countries reiterated their complaints regarding the operation of the arrangement. From the viewpoint of the participating importing countries, the main shortcoming was that the provision for a 6 per cent annual rate of increase in market access had been too generous, especially in the case of suppliers with high market shares, and sufficient freedom had not been given to depart from this “norm” in the negotiation of bilateral agreements. The participating exporting countries, on the other hand, considered that the 6 per cent “norm” was not sufficient to allow for orderly expansion in their exports and that some of the provisions of bilateral agreements were too restrictive. Another major shortcoming pointed out by exporting countries was that there had been tendencies to impose unilateral restrictions on grounds of market disruption without prior consultation and without the provision of adequate data in support of the claims of market disruption. At the July 1977 meeting, the eec expressed strong opposition to an extension of the Multifiber Arrangement without revisions, by arguing that the level of imports into the eec as agreed under the arrangement caused excessive market penetration and aggravated the unemployment situation in the textile and clothing industries of the eec countries. The intention of the eec was to achieve the following objectives through bilateral agreements to be negotiated with individual countries before the end of 1977 or before a new Multifiber Arrangement became operative: (1) to vary the annual growth rate of imports inversely with their degree of market penetration; and (2) to stabilize certain textile imports at the 1976 level. The developing exporting countries were highly critical of the eec proposal. The outcome of this meeting was that the United States submitted a proposal calling for a renewal of the Multifiber Arrangement without textual changes but with an understanding that bilateral agreements to be negotiated under the arrangement would include “the possibility of jointly agreed reasonable departures from particular elements in particular cases.” The United States proposed further that countries supporting its compromise formula agree to renew the arrangement in its present form for four years by signing a protocol to that effect. This procedure was accepted by the eec, but it was opposed by a number of major developing exporting countries, which put an alternative proposal before the Textiles Committee. No final decision regarding a renewal of the Multifiber Arrangement was taken at this meeting.

Table III–4.

Summary of World Trade in Textiles and Clothing, 1974 and 1975

(In per cent, based on value)

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Sources: See footnote 12 in text.

Excluding trade of Eastern European countries and the People’s Republic of China.

Over the preceding year.

The Textiles Committee reconvened in December 1977 following intensive rounds of bilateral discussions between the main exporting and importing countries. In the end, the committee agreed on a protocol providing for the extension of the Multifiber Arrangement in its present form for four years (until December 31, 1981). The protocol is open for acceptance to the parties to the Multifiber Arrangement, and it entered into force as from January 1, 1978 for the countries that had accepted it by that date and as from the date of acceptance for the countries accepting it later.14 In the conclusions adopted by the Textiles Committee, which were attached to the protocol, the difficulties that some importers and exporters had encountered in implementing the Multifiber Arrangement and the disagreement between certain participating countries on whether it needed modification were noted. It was emphasized, however, that any serious problems that existed in world trade in textile products should be resolved through consultations and negotiations; otherwise they could work to the detriment of countries participating in international trade in textile products, with adverse repercussions on trade relations in general and on the trade of developing countries in particular.

French and EEC Measures in June and July 1977

On June 23, 1977, France introduced quantitative restrictions on imports of the following textile products: untreated cotton yarn; undershirts, vests, T-shirts, and other undergarments for men; outer garments and blouses for women and children. The restrictions, which were to be effective until the end of 1977, limited the volume of imports of these products in 1977 to the level of 1976. Given the increase in imports during the first half of 1977, this implied a significant reduction during the second half. Market disruption and injuries to domestic industries arising from a substantial increase in imports were cited as the justification for this action. The action could not be considered as having been taken in the framework of the Multifiber Arrangement because it was not reported to the Textiles Surveillance Body and the consultation requirements of the arrangement were not observed. Furthermore, the measure was not notified to the gatt, and discussions did not take place within the gatt as to whether the requirements under Art. XIX of the gatt were being met.

The eec objected to the French measures on the grounds that such action should have been taken in a Community context, and on July 13 it introduced less restrictive and more selective measures than the French ones as regards the countries affected, the products covered, and the level of quotas. These restrictions did not apply to countries that were signatories to the Multifiber Arrangement and that had entered into bilateral agreements with the eec, provided the agreed import ceilings had not yet been reached. The level of import quotas for the second half of 1977 was set at half the level for the whole year 1976. Taking into account the higher level of imports in the first half of 1977 compared with the corresponding period in 1976, this formula implied an increase during 1977 as a whole, and was therefore more liberal than the French measure.

The products and countries affected by the eec measures were as follows: (1) Egyptian exports of cotton yarn to all eec countries; (2) Colombian, Spanish, and Indian exports of cotton yarn to France; (3) Spanish exports of T-shirts to the Federal Republic of Germany, France, and Benelux; (4) Malaysian exports of T-shirts to France and the Federal Republic of Germany; (5) Pakistani exports of T-shirts to France and Denmark; (6) Tunisian exports of T-shirts to France, the Federal Republic of Germany, and the United Kingdom; (7) Turkish exports of women’s blouses to France; and (8) Moroccan and Tunisian exports of T-shirts to France. Although the eec measures were intended to be effective until the end of 1977, they were initially applicable for a period of six weeks pending their approval by the Council of Ministers. On July 26 the Council approved the measures, following which France agreed to rescind its unilaterally imposed restrictions. The eec justified its measures under the safeguard clauses contained in the trade agreement with Spain, the Association Agreements with Turkey, Egypt, Morocco, and Tunisia, and bilateral agreements with Colombia, India, Malaysia, and Pakistan concluded in the framework of the Multifiber Arrangement.

Appendices IV and V: Notes to Tables

1. The tables were compiled (by Dawit Makonnen) on the basis of data provided by the gatt secretariat.

2. All 1976 data are provisional.

3. “Eastern trading area” denotes Albania, Bulgaria, Czechoslovakia, German Democratic Republic, Hungary, Poland, Romania, U.S.S.R., People’s Republic of China, Mongolia, North Korea, and Viet Nam.

4. The totals include Australia, New Zealand, and South Africa.

5. The category “E. Semimanufactures” in Appendices IV-A and V-A denotes nonferrous metals, iron and steel, chemicals, and other semimanufactures.

6. The category “F. Manufactures” in Appendices IV-A and V-A includes engineering products, textiles, clothing, and other consumer goods.

7. The category “G. Total Trade” in Appendices IV-A and V-A includes the residual, i.e., commodities and transactions not classified according to kind (SITC Section 9) as well as revisions and adjustments applied to the total trade data but not available in commodity breakdown.

8. “Developing Countries” in the titles of Appendices V-A and V-B denotes non-oil exporting developing areas as classified by the gatt secretariat; see GATT, International Trade, 1976/77 (Geneva, 1977), pp. 173-74.

9. The data for 1963 and 1968 in Appendices V-A and V-B include data for oil exporting countries.

Appendix IV–A. Japan: Share in World Imports by Commodity Groups, 1963–76

(In per cent, based on value)

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See Notes on p. 96.

Appendix IV–B. Japan: Share in World Imports of Semimanufactures and Manufactures, 1963–76

(In per cent, based on value)

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See Notes on p. 96.

Appendix V–A. Developing Countries: Share in World Imports by Commodity Groups, 1963–76

(In per cent, based on value)

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See Notes on p. 96.

Appendix V–B. Developing Countries: Share in World Imports of Semimanufactures and Manufactures, 1963–76

(In per cent, based on value)

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See Notes on p. 96.

Appendix V–C. Developing Countries: Share in World Trade, 19741

app05cufig01
Source: UN Trade Tapes.1 Excluding centrally planned economies. Also, the UN data for developing countries do not include data for the Republic of China nor for Yugoslavia and other European countries, but do include data for Turkey. The abbreviation n.e.s. stands for not elsewhere specified.

Appendix VI. Import-Penetration Ratios of Selected Industrial Countries1

(In per cent, based on value)

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Source: Unctad, Handbook of International Trade and Development Statistics, 1976 (New York, 1976), Table 7.1.

The import figures used in the computation of the import-penetration ratio for the eec exclude intra-eec trade. Similarly, in the case of the three “total” columns, the import figures are defined to exclude trade between the eec, the United Kingdom, the United States, and Japan.

Original six members only (Belgium, France, the Federal Republic of Germany, Italy, Luxembourg, and the Netherlands).

Including oil exporting countries.

Appendix VII. Developing Countries:1 Exports of Selected Products

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Source: United Nations, Yearbook of International Trade Statistics, 1976 (New York, 1977), Vol. II.

Developing countries exclude the Republic of China and Yugoslavia but include Turkey.

Total exports to all market economies.

Not elsewhere specified.

Appendix VIII. France: Selected Import-Production Ratios, 1972 and 1976

(In per cent)

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Source: Based on data in Rapport fait au nom de la Commission d’enquête parlementaire chargée d’examiner les conditions dans lesquelles ont lieu des importations “sauvages” de diverses catégories de marchandises, by M. Limouzy, rapporteur (Paris, November 18, 1977).