Aaron Rogers and Dr. Bradford, Economics
Up to the end of the Uruguay Round, textile and clothing quotas were negotiated bilaterally and governed by the rules of the Multifiber Arrangement (MFA). As GATT transmogrified into the WTO, a long-awaited uniform approach was arranged. On January 1, 1995, the WTO Agreement on Textiles and Clothing (ATC) replaced the MFA. This multilateral approach was originally planned to elapse from 1995 to 2004. It entails a process of progressively enlarging the existing quotas until their removal. The liberalization is increased over time. The agreement targets all products which were previously subject to MFA-type quotas: tops and yarns, fabrics, made-up textiles products and clothing.
There are three phases enumerated, using total 1990 imports of listed products as the base. First, beginning on January 1, 1995 Members were to integrate products, of their choice, representing not less than 16 percent of the base year’s imports. In the second phase, starting on January 1, 1998 not less than a further 17 percent was to be integrated. Lastly, during the current and final stage begun on January 1, 2002 all remaining products (less than or equal to 49% of 1990 imports) are to be integrated. Following integration, the Agreement terminates. New provisions set the ATC apart from the MFA. Unique to the ATC is the establishment of the Textiles Monitoring Body (TMB). The TMB is entrusted with supervising the implementation and monitoring compliance with the agreement. A second key aspect is the special transitional safeguard mechanism. Its purpose is to protect Members during the period of transition against import-induced damages from products not already integrated. Countries must determine the threat to its domestic industry and then decide from which Member(s) this damage is incurred. The Council for Trade in Goods adjudicates in the event of an abrogation of the rules.
India and the U.S. are two major players in the agreement, the U.S. as importer and India as exporter of textiles. Interestingly enough, although the largest fraction of Indian GDP is connected to the textile industry, it also maintains extremely steep barriers to trade in most industries. The U.S., of course, is, along with the E.U., one country where elimination of barriers could potentially benefit the major textile-producing countries.
According to the ATC’s schedule of integration, the U.S. should have significantly enlarged its quotas on textiles and clothing. Two questions are implicitly posed by my research. First, in the absence of trade barriers, do economies tend to specialize in the areas of comparative advantage? Second, do trade agreements have an actual impact on opening markets? With the answers to the foregoing questions left to be discovered, the quantifiable aim of my research is to discover whether or not there is a correlation between the ATC’s implementation over time and the amount of Indian textile exports to the United States. The absence of a correlation would either indicate a failure of the ATC’s stated objectives or a contradiction of comparative trade theory.
The dependent variable I have chosen measures Indian textile exports to the U.S. as calculated by the United States International Trade Commission (SITC 26 classification). The independent variables include exchange rates, Indian GDP and U.S. GDP. All time data is quarterly between 1995 and 2002. The regression is first run with dummy variables (letting the first three years be the base) and then, as the data is trended smoothly, with a trend variable and lagging observations a year. The interpretation of the research forms the core of my on-going and future honors thesis.