the impact of the removal of mfa and china’s accession...
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The Impact of the MFA Removal on
Global Textile and Cotton Trade
Doris Yan Xia
Center for North American Studies
Dept. of Agricultural Economics
Texas A&M University
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Objective
Analyze and Quantify the Impact
of Elimination of the Multi-Fiber
Arrangement on Textile, Apparel
and Cotton Market with Alternative
Scenarios.
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Overview
Introduction
Methodology
Theoretical Considerations
U.S. farm program
Equilibrium Displacement Model
Parameters
Scenarios & Results
Conclusions
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Introduction
Multi-Fiber Arrangement (MFA)
Protect Importing Countries’ Textile Sector
Emerged into ATC from 1995
Removal of all MFA Quotas by Jan. 2005
Impact on Textile/Apparel Trade &
Cotton Market
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Introduction
The United States
Leading Textiles & Apparel Importer • 10.6% & 31.7% of world T&A Imports, 2002
(WTO)
• Decade Trend of Import Expansion
• Exports Remain Steady (ERS)
Leading Cotton Exporter • 41.82% of world cotton exports, 2003 (NCC)
• Domestic Consumption Declined (ERS)
• Cotton Exports Increased
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U.S. Cotton Textile Trade
Source: ERS/USDA
0
5
10
15
20
Million Bales
Exports
Imports
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U.S. Cotton Exports & Share of World Trade
Source: PS&D/USDA
1995 1996 1997 1998 1999 2000 2001 2002 2003
0
2
4
6
8
10
12
14 Million Bales
0
20
40
60
80
100 Percentage
Share of
World Trade
Exports
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U.S. Cotton Mill Use
Source: ERS/USDA, Bureau of Census
1995 1996 1997 1998 1999 2000 2001 2002 2003 0
2
4
6
8
10
12
14 Million Bales
0
10
20
30
40
50
60
70
80 Percent
Share of Demand
Mill Use
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Introduction
People’s Republic of China
Largest textile exporter to U.S. under MFA
19.62% of U.S. textile/apparel imports, 2003
(AMTAC)
Third largest importer of U.S. cotton
28% of U.S. cotton, 2003 (FAS)
Accession into the WTO
Textile: Quota-free access to the U.S. and EU market
Still with tariff
Cotton: Agree to reduce TRQ on cotton imports
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Methodology – Theoretical Considerations
Domestic and Import Textile Demand
Ti = Ti(PT, PT*, PX, Y)
Ti* = Ti*(PT, PT*, PX, Y) PT – domestic price PT* – import price
PX – price for other goods Y – per capita income
Output Supply and Input Demand
P = AC (W)
X = X (W, Y)
W – input prices Yi – ith output
X – input vector AC – average cost
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Theoretical Considerations
Equilibrium price PM = PS • (1+T)
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U.S. Farm Program
Direct Payment
Fixed
Decoupled from current production (ERS)
Counter-Cyclical Payment
CCP rate = Target price –
(DP rate + max{loan rate, price})
Reduce revenue variability and risk
Marketing loan (Loan Deficiency Payment)
Fixed
Directly coupled to current production
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Economic Model and EDM
Five country-group: U.S., EU, China, AO, and k
Textile & Apparel Market
Consumption - U.S., EU
Production - China, AO
Cotton Market
Demand - U.S., EU, China, AO
Supply - U.S., k SC=SC(PC, LDP)
World Textile/Apparel Export Price
Weighted average of export price of exporters
Trade Restrictions & Equilibrium Condition
Total differentiation of all equations to get EDM
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Parameters
Textile & Apparel Demand Elasticities -
Cost Share & Output Share - ,
Input Demand Elasticities -
Cotton Supply Elasticities -
T&A Export Market Share of China & AO to
the U.S. & EU -
Cotton Import Market Share -
Tariff Equivalent MFA Quota – T, A
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Scenario 1:Removal of MFA quota
U.S. import demand for textiles/apparel 23.98/ 35.21
U.S. domestic demand for textiles/apparel -3.75/ -25.9
U.S. import price of textiles/apparel -18.26/ -22.09
China textiles/apparel export supply 34.36/ 30.44
AO textiles/apparel export supply 17.90/ 37.15
U.S. cotton price -1.38
World adjusted cotton price 0.86
U.S. cotton supply -0.69
U.S. demand for domestic cotton -12.01
China’s demand for U.S. cotton 13.57
China’s demand for foreign cotton 4.78
AO demand for U.S. cotton 10.37
AO demand for foreign cotton 8.6
EU demand for U.S. cotton -10.75
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Scenario 2:Removal of MFA and
3% decrease in LDP
U.S. import demand for textiles/apparel 24.30/ 35.09
U.S. domestic demand for textiles/apparel -3.87/ -25.95
U.S. import price of textiles/apparel -18.51/ -21.85
China textiles/apparel export supply 35.02/ 32.33
AO textiles/apparel export supply 18.02/ 36.21
U.S. cotton price 1.46
World adjusted cotton price 2.67
U.S. cotton supply -2.27
U.S. demand for domestic cotton -13.51
China’s demand for U.S. cotton 9.58
China’s demand for foreign cotton 11.73
AO demand for U.S. cotton 8.16
AO demand for foreign cotton 8.17
EU demand for U.S. cotton -11.18
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Scenarios 3: Removal of MFA,
5% increase in foreign cotton supply
U.S. import demand for textiles/apparel 24.80/ 36.25
U.S. domestic demand for textiles/apparel -3.76/ -26.02
U.S. import price of textiles/apparel -18.66/ -22.17
China textiles/apparel export supply 60.04/ 23.46
AO textiles/apparel export supply 9.04/ 40.91
U.S. cotton price -1.21
World adjusted cotton price -0.83
U.S. cotton supply -2.84
U.S. demand for domestic cotton -12.62
China’s demand for U.S. cotton 8.73
China’s demand for foreign cotton 15.79
AO demand for U.S. cotton 4.76
AO demand for foreign cotton 10.53
EU demand for U.S. cotton -15.55
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Scenario 4: Removal of MFA, 3 % decrease in LDP,
& 5% increase in foreign cotton supply
U.S. import demand for textiles/apparel 24.92/ 36.23
U.S. domestic demand for textiles/apparel -3.80/ -26.05
U.S. import price of textiles/apparel -18.63/ -22.11
China textiles/apparel export supply 61.04/ 23.76
AO textiles/apparel export supply 8.75/ 40.77
U.S. cotton price -0.30
World adjusted cotton price -0.55
U.S. cotton supply -3.72
U.S. demand for domestic cotton -13.18
China’s demand for U.S. cotton 6.46
China’s demand for foreign cotton 19.14
AO demand for U.S. cotton 3.22
AO demand for foreign cotton 10.85
EU demand for U.S. cotton -16.48
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Conclusions
Textile and Apparel Market
U.S. & EU
— Increase in import demand
— Decrease in domestic demand
— Decrease in import price
— Mixed results for domestic price
China & AO
— Significant increase in export supply
with different export mix
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Conclusions
Cotton Market
Decrease in LDP rate affected future U.S.
cotton price & adjusted world price
Demand for cotton
— U.S. Domestic demand continue falling
— Decrease in EU
— Increase in China and AO with different
import mix
U.S. cotton supply decreased slightly
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Conclusions
U.S. cotton sector evolves from a primary
supplier to its textile industry to a stronger
exporting competitor in the global market
Policy shock in textile market, MFA quota
elimination, have significant impact on cotton
market
Policy shock in cotton market, decrease in
LDP rate, doesn’t have explicit effect on
textile market