explaining protectionism and liberalization in european union trade policy: the case of textiles and...
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Explaining protectionism andliberalization in EuropeanUnion trade policy: the case oftextiles and clothingMehmet UgurPublished online: 04 Feb 2011.
To cite this article: Mehmet Ugur (1998) Explaining protectionism and liberalizationin European Union trade policy: the case of textiles and clothing, Journal of EuropeanPublic Policy, 5:4, 652-670, DOI: 10.1080/13501769880000071
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Journal of European Public Policy 5:4 December 1998:652-70
Explaining protectionism and liberalization in European Union trade policy: the case of textiles and clothing Mehmet Ugur
ABSTRACT The political economy of trade policy models and theories of European Union (EU) policy-making can explain only the incidence of protectionism or inertia in EU trade policy. To address this weakness, this article proposes an alternative approach based on state--society interaction under different degrees of issue transparency/ divisibility. In this perspective, four endogenous policy outcomes may emerge: strict protectionism, selective protectionism, selective liberalization and dominant liberalization. The conclusion is that the level of protectionism is determined by the level of issue transparency/divisibility rather than the level of protectionist demands. This conclusion- based on the functionality of European integration in equalizing the rates of returns on societal loyalty to a territorial jurisdiction - is tested against evidence on the evolution of the EU's textiles and clothing policy during the Multifibre Arrangement and Uruguay Round negotiations. The evidence lends support to this argument and suggests that regional integration, in contrast to the unqualified claims of its opponents and proponents, is conducive to both protectionism and liberalization - depending on the extent to which trade policy issues are treated as transparent/divisible.
KEY WORDS European integration; EU trade policy; lobbying; protectionism; textiles and clothing.
Developed countries have protected their textiles and clothing (T&C) industry not only during the short- and long-term agreements of 1961-73, but also under the Multifibre Arrangement (MFA) of 1973-94. Over this period, the European Union's (EU's) policy has gone through low-level protectionism up until 1976, strict protectionism from 1977 to 1985 (Dolan 1983; Aggarwa11983; Farrands 1979; Pelkmans 1993), and gradual liberalization after 1986. The reversal of the policy in 1986 led not only to the elimination of national quotas in 1993, but also to the conclusion of the Agreement on Textiles and Clothing (ATC) in 1994. This article develops and tests an analytical framework for explaining the incidence of protectionism/liberalization in EU trade policy on the basis of two variables: the level of protectionist pressure and the degree of transparency/divisibility of the policy issue.
Section 1 reviews briefly the political economy of trade policy (PETP) literature © 1998 Routledge 1350-1763
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in economics and the political science perspectives on EU policy-making. This review suggests that the existing literature derives the policy outcomes in a reductionist manner from the demands for protection and the institutional context within which they emerge. To address this shortcoming, section 2 presents an alternative approach, suggesting that the degree of protectionism in EU policy may or may not be a positive function of protectionist demands - depending on the level of issue transparency/divisibility. Section 2 will demonstrate that the level of protectionism is inversely related to issue transparency/divisibility and may be positively or negatively related to the level of protectionist demands of the producers. Section 3 probes the relevance of this analytical framework by examining the EU's T&C policy in the context of both the MFA and the Uruguay Round. The evidence presented there suggests that the level of protectionism in EU policy tended to be high (low) when issue transparency/divisibility was low (high) and the sign of the association between protectionism and the level of protectionist demands depended on the extent to which the T&C trade policy issue was treated as transparent/divisible.
1. PROTECTION A N D INERTIA IN EU TRADE POLICY: A BRIEF REVIEW
What is common to the PETP and theories of EU policy-making is the acknowledgement that policy outcomes must be derived from state-society interaction. Yet this is only part of what is required to derive a non-reductionist policy stance. It is also necessary to conceptualize the state-society interaction without deriving the policy outcomes from the preferences of either the state or the society. This is what is missing in Magee (1997), who states that policy-makers cannot control the level of protectionism any more than an auctioneer can control the price of pork bellies. This reductionist tendency ignores the possibility that the state (or the policy-maker as a proxy) may deploy strategies that enable it to resist protectionist demands.
This is acknowledged implicitly in Rodrik (1994), who criticizes the PETP for treating the supply of protection (i.e. the state) as a 'black box'. This criticism applies, for example, to Findlay and Wellisz (1982) and Magee (1984) who assume that the level of protection is a positive function of lobbying by import-competing industries and a negative function of lobbying by consumers and other industries. Given the collective action problem faced by the large and diffused group of consumers (Olson 1965), both works conclude that trade policy will be protectionist. The same logic also leads Magee et aL (1989: chs 3, 9) to show that protectionism will prevail even when the parties' election probability is an increasing function of the contributions they receive and a decreasing function of the policy intervention they are committed to. A similar tendency can also be found in Grossman and Helpman (1993). Even though 'the parameters of the country's political economy' are considered as significant, these authors still conclude that protectionism is a positive function of lobbying and the regional/sectoral concentration of the sectors involved.
As observed by Meier (1990) and Rodrik (1994), this approach suffers from a
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bias towards treating the state as a soft entity akin to a price-taker firm. The state's territorial competence, however, may enable the policy-maker to choose either the level of protection or the intensity of the protectionist demands as given and react accordingly. If the policy-maker chooses the latter, the PETP's tendency to derive the level of protection from societal preferences may be justified. If, however, the state picks up a certain level of protection as given, the demands for protection will be the dependent variable determined in the 'market'. The level of protection to be chosen can be determined, for example, within a regional integration framework that enables the member states to approximate their policies and reduce the ability of the pro-protection groups to secure special treatment.
The impact of regional integration on the level of protectionism is discussed widely in the PETP literature. The verdict is generally pessimistic: regional integration generates high levels of protectionism as the freeing of intra-bloc trade intensifies the demands for protection against extra-bloc trade (see, for example, Bhagwati 1993). One deviation from this trend is de Melo et aL (1993), who show that a customs union (CU) may lead to less protectionism as lobbyists in different member states take the actions of each other as given and end up with lower levels of lobbying. Another contribution, by Panagariya and Findlay (1994), demonstrates that protection in a CU may be lower than in a free trade area (FTA) as the common external tariff (i.e. policy convergence) makes protection a public good. Then a free- rider problem emerges, leading to a fall in the supply of protection as the level of lobby donations declines. Despite their improvement on the preceding PETP models, these contributions are still reductionist: they derive the lower level of protectionism from the dampening effect that regional integration has on protectionist demands. This, however, is incompatible with the evidence suggesting that the EU's T&C policy has become less protectionist without a fall in protectionist lobbying.
Are theories of EU policy-making better equipped to deal with such outcomes? I will explore this question by beginning with policy community/networks. Authoritative reviews of this literature can be found in Petersen (1995) and Richardson (1996). Therefore, I will limit myself to its implications for EU trade policy. As Rhodes (1990), Marsh and Rhodes (1992) and Petersen (1995) point out, policy networks reflect a spectrum of coherence and stability determined by membership insularity and strength. Therefore, one can relate the perpetuation of the status quo in policy outcomes to network stability/coherence. This, however, poses more problems than it resolves. First, the continuity of the T&C policy network did not ensure continuity in the policy stance. This was despite the fact that societal members of the T&C policy network such as the Co-ordination Committee for the Textile Industries in the European Community (COMITEXTIL) remained the main source of technical inputs until the 1990s. Second, there is no rule for determining ex ante why a certain policy area would generate a less or more stable policy network. Finally, the policy community/ networks literature does not build on an explicit state theory (Kassim 1994) that would allow for determining whether the interdependence between policy actors is symmetric or asymmetric.
As a result, the approach would predict protectionism as long as the
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interdependence is symmetric and the societal members of the policy network represent declining industries. This can also be deduced from the theoretical/ historical links between corporatism and policy communities/networks. The proliferation of EU-level policy communities/networks can be related to the demise of corporatism at the national level which was due to the emergence of global factors that challenged the Keynesian policy framework within which corporatist bargaining took place (Streeck and Schmitter 1991). As a substitute for structured corporatism, the policy community/network would enable the societal members representing declining industries to blur the transparency/divisibility of the policy issues by supplying partial information and the symmetric interdependence between the policy actors is highly likely to generate protectionist policy outcomes.
The application of institutionalism to EU policy-making has also commanded positive reviews (Pollack 1996; Keman 1997; Kerremans 1996). Institutions, defined as formal rules and procedures, structure the relationship between the actors of the economy and polity (Hall 1986: 19). Therefore, they do matter as intervening variables between the preferences of society and the state (Pierson 1994, 1996); or between member state preferences and EU policy output (Scharpf 1988; Moe 1990; Tsebelis 1990, 1994; Pollack 1996). Nevertheless, both historical and societal institutionalism suggests that institutions emerge as a source of inertia. That is because of the rigidity of the institutions (Hall 1986: 233-4, 266), or the 'lock-in' effect generated by past policies (Pierson 1996). Although such outcomes may be significant aspects of the policy process, it is also necessary to explain how a given policy convergence codified at the EU level may emerge despite institutional differences between the member states, or enable the latter to bypass the 'lock-in'.
Contributions to rational choice institutionalism are aware of these limitations. Therefore, they treat institutions as 'rules in use' rather than 'rules for use'. This macro-level institutionalism is useful in explaining how EU institutions may compel the member states to agree to policies that they otherwise may not adopt. Viewed from a principal-agent perspective, this may be due to the EU institutions' (i.e. the agent's) 'shirking' or 'bureaucratic drift', which the member states (the principals) could not prevent because of imperfect information or limited capacity to sanction (Scharpf 1988; Moe 1990; Tsebelis 1990,1994; North 1990; Garrett 1992; Pollack 1996). The weakness here, however, is the absence of a micro-foundation within which interaction between the state and society can be conceptualized.
A similar absence of micro-foundations can be observed in the international regimes theory and its applications to EU policy-making (Keohane 1989; Keohane and Hoffmann 1991: 19-22). The international regimes theory relates the policy stance to the existence/absence of a hegemonic power that would advocate a liberal system through which its hegemonic values can be diffused (Gilpin 1975; Kindleberger 1981; Keohane and Nye 1977; Keohane 1984; Ruggie 1982). The case of the T&C trade, however, contradicts this view on twocounts: the hegemon of the post-1945 trading regime- the US - was the first to violate the General Agreement on Tariffs and Trade (GATF) rules on T&C trade; second, the US had been the driving force behind T&C protectionism since the early 1960s, when declining hegemony could not be invoked as an explanatory variable.
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2. DYNAMICS OF CHANGE IN EU TRADE POLICY: AN ALTERNATIVE A P P R O A C H
Two conclusions may be derived from the brief review above: (i) the policy stance is protectionist when a vulnerable sector generates high levels of protectionist demands; (it) protectionism becomes entrenched once it has been introduced. These conclusions can explain the EU T&C policy only partially up to 1985, but are refuted by evidence concerning the period thereafter. This is because of a reductionist tendency that derives the policy outcomes from societal preferences or from institutional constraints. It can be overcome only if the demand for and supply of policy are treated even-handedly and the interaction between the two sides is specified in the context of policy transparency/divisibility. As far as the demand for protection is concerned, one needs to add to the specifications of PETP literature the contribution by Milner (1988). Milner demonstrates convincingly that different degrees of internationalization and export dependence may generate different degrees of protection. Therefore, Mitner's approach can provide useful insights into the nature of the demand for protection in the T&C sector. As a labour-intensive sector, textiles and clothing lost comparative advantage against developing country production. The protectionist demands that this structural context generated were reinforced because of limited internationalization of production - with the exception of overseas processing in clothing. Export markets are obviously important and this might have had a dampening effect on the demands for protection. Protectionism in developing countries, however, checked this tendency and generated a defensive position favouring protection of the domestic markets in
developed countries. The supply side of the policy process, however, has been underworked. To
address this, I define the state - the supplier of policy - as a political institution which differs from societal groups because of its territorial competence as compared to the functional/sectoral competence of the latter (Nettl 1968; Mann 1986; Nordlinger 1981). The state supplies territorially enforceable policies, which may be constrained by "exit' or 'voice' tendencies of the societal groups (Hirschman 1970). Given the societal constraint and depending on the nature of the policy issue over which the state-society interaction unfolds, the state tries to legitimate its policy in two ways.
When the policy issue is non-transparent/non-divisible, the state would tend to differentiate its policy from other states in order to increase the relative returns on loyalty to its territorial domain. The drawback to this strategy is competitive bidding between states that reduces the returns on policy differentiation but increases societal pressure for higher loyalty pay-off differentials. When the policy issue is transparent/divisible, however, the state may engage in policy approximation as a means of reducing the incentives for loyalty shifts and/or reducing the scope for securing special treatment. The drawback here is the sharing of territorial competence with other states and agreeing to binding rules that make future policy differentiation less feasible. This line of reasoning has certain parallelisms with Hirschman (1981: 277-84) and Hotelling (1929) who have demonstrated that policy approximation may enable the state (or the firm) to
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supply policies diverging from the revealed preferences of the constituents (or clients). The analysis here, however, differs from these contributions by specifying the condition generating policy convergence/differentiation and determining the stance of the converged/differentiated policy.
This condition is the transparency/divisibility of the policy issues. Transparency/divisibility is both an exogenously given aspect and an endogenously determined quality. It refers to the extent to which the consequences of a policy decision can be quantified and are distributed unevenly within the societal realm. Its endogenous component depends on the extent to which the state tries to achieve a contracted outcome (such as low unemployment) through active demand management or rule-based supply-side regulation. When the outcome is sought through intervention and demand management, the state assumes strength as a result of attracting a higher level of societal claims and counterclaims, but the undertaking to deliver the contracted outcome through intervention limits its capacity to differentiate sectoral demands from an overall national interest. Under this condition, the endogenous component of the issue transparency/divisibility falls - leading to a decline in the total level of transparency/divisibility and generating a method of legitimation based on policy differentiation. When, however, the state adopts rule-based regulation for delivering the contracted outcome, the state becomes weak as it commits itself to specified rules, but it assumes strength owing to its enhanced capacity to treat sectoral demands as such. Here, the endogenous component of issue transparency/divisibility is reinforced - leading to an increase in the total level of transparency/divisibility and encouraging a method of legitimation based on policy convergence.
Given this analysis, it can be demonstrated that different combinations of protectionist demands and transparency/divisibility may generate different degrees of policy integration (i.e. convergence) and different levels of protection/ liberalization. Transparency/divisibility of the policy issues can be measured as the extent to which gains and losses from a policy decision are quantifiable and associated with different groups rather than an undivided national interest. On the other hand, protectionist pressure can be operationalized as the intensity of protectionist lobbying. Stylized facts about the T&C sector suggest that protectionist demands would be high as the competitiveness of the industry declines. In the case of the EU T&C industry, this pressure was relatively low until the early 1970s and increased significantly thereafter as it lost competitiveness. The transparency/divisibility, on the other hand, was relatively low until the first oil crisis of 1973, assumed an even lower level thereafter until the mid-1980s, and began to increase from approximately the mid-1980s. Therefore, the stance of the EU's T&C policy has fluctuated between different levels of protectionism/liberalization implied by cells A1, B1 and B2 of Figure 1.
Figure I suggests that policy integration will be limited and the level of protectionism will be positively related to the level of protectionist demands when transparency/divisibility is low. In that sense, cells A1 and B1 confirm the PETP arguments. This, however, is only part of the spectrum. Comparing cell A1 with cell B2, it can be seen that the level of protection is negatively related to protectionist demands. Also, comparing cell B1 with cell B2, it can be seen that the level of
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Protectionist demands
B. High
A. Low
B1
Shallow integration
Protectionism dominant
A1
Shallow integration
Selective protectionism
B2
Deep integration
Selective liberalism
A2
Deep integration
Liberalism dominant
1. Low
Figure I Policy stance and integration in the EU
2. High
Transparency/Divisibility
protectionism declines even though protectionist demands remain high. The dynamic generating these outcomes wilt be explained below, but suffice it to indicate here that the proposed analytical framework is comprehensive enough to accommodate not only the findings of the PETP, but also to go further and delineate other possible outcomes which are consistently ignored in that literature or cannot be tackled by the existing theories of EU policy-making.
The reason why cell B1 implies shallow integration and a protectionist policy stance is that low levels of transparency/divisibility coupled with high levels of protectionist demands make the state reluctant to engage in package deals at either national or EU levels. Low transparency/divisibility enables the pro-protection groups to equate their interest with non-divisible national interest. In other words, these groups assume a 'veto power' constraining the state's policy options significantly. Under this condition, the member states would discount the value of policy integration (convergence) as a means of equalizing returns on loyalty to their respective jurisdictions. On the contrary, they would engage in policy
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differentiation to increase the relative rates of return on loyalty. The only way in which this can be done within the CU is to invoke the escape clause (Article 115 of the EEC Treaty) allowing for national restrictions. These are likely to be endorsed by the Commission, not only as a result of the pro-protection league's pressure but also because of the expectation that protectionism may reduce the pressure on member states with vulnerable sectors and thereby prevent further degeneration of the integration process.
Despite similar levels of protectionist demands, however, cell B2 implies deep integration and a selective liberal stance. That is because of high transparency/divisibility, which reduces the ability of either the interest groups or the state to equate the interest of the vulnerable sector with a national interest that cannot be traded off in package deals. Under this condition, and in an attempt to increase the credibility of the rule-based regulatory policy, the member states would be inclined to treat the high demands for protection as sectoral and engage in policy convergence that would be codified at the EU level. Then the resulting equalization of returns on loyalty reduces the scope for securing special treatment and may be conducive to further liberalization as the consent of even those member states with vulnerable sectors could be secured in return for concessions in other policy areas. In cell A1, the incidence of protectionism is higher than in cell B2 despite the fact that the level of protectionism is lower. The low level of protectionist pressure in cell A1 may still generate higher levels of protectionism because the low level of transparency/divisibility will make the member states receptive to protectionist demands even if these are not as intense as in cell B2.
These endogenous outcomes are more comprehensible when they are examined in the light of the correlation between the policy stance and the level of integration. Figure I suggests that the deeper the integration, the more liberal the policy stance. There is, however, no causal relationship here. The causal relationship is between transparency/divisibility as the independent variable and both integration and policy stance as the dependent variables. It is the level of transparency/divisibility that makes policy convergence and integration on the basis of package deals both feasible and desirable for member states and for EU institutions.
A recent statistical modelling of voting procedures in the EU lends support to this analysis. Kirman and Widgren (1995) show that the stance of the EU's trade policy would depend on the Commission's ability to link policy issues within package deals. When the Commission's policy proposals are linked, the chance of accepting the liberalization proposal is higher than the chance of not only protectionist proposals but also of a compromise around the status quo. It is in everybody's interest that the package is accepted even if the comparative pay-offs associated with each proposal are different for different member states (Kirman and Widgren 1995: 439-41). Our analysis is not only compatible with this finding, but also specifies the conditions under which the Commission would be less or more able to link policy issues and present the member states with package deals. This will happen when policy issues are transparent/divisible.
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3. EU TRADE POLICY IN PRACTICE: THE CASE OF TEXTILES AND C L O T H I N G
Despite US protectionism, the EU policy during MFA I negotiations was influenced by the liberal approach of Germany and the Netherlands. This was possible mainly because of the low level of protectionist demands as the European T&C industry had not yet lost comparative advantage to the same extent as the US industry had. Therefore, the Commission was of the view that it was wrong to tackle the industry's problems without structural adjustment (O J: Debates no. 192, 1975: 236). Consequently, MFA I agreements concluded for the 1973-6 period were less protectionist than what the lobby groups demanded and relative to those concluded by the US. This is compatible with cell A1 of Figure 1, combining low protectionist demands with low transparency/divisibility. Because of the low-level protectionism, the EU's T&C trade balance deteriorated by 63 per cent and import penetration increased from 21 per cent to 37 per cent from 1973 to 1976 (Dolan 1983: 587). This development led the COMITEXTIL to circulate figures pointing to a dramatic fall in employment: from 2.13 million in 1971 to 0.88 million in 1974 (OJ: Debates no. 196, 1976: 141). Questioning the reliability of these figures, the Commission told the European Parliament (EP) that the emergence of protectionist pressure was understandable, but it would be wrong to give in to these pressures. The Council, however, was signalling an accommodating stance and told the EP that the EU's general policy would be to negotiate voluntary export restraints (VERs) for all products faced with the risk of market disruption (OJ: Debates no. 196, 1976: 142-3).
3.1 Strict protectionism and issue non-transparency/non-divisibility: 1977-85
As the oil crisis of 1973 increased the cost of production and the loss of competitiveness intensified, the producers stepped up their protectionist demands. Given the recession and the increase in unemployment at a time when state-society interaction unfolded within a corporatist revival (Streeck and Schmitter 1991: 143-6), member states with less competitive T&C industries became more responsive to protectionist demands. Therefore, T&C trade issues were elevated to the level of a non-negotiable national interest and their transparency/divisibility declined. Under this combination of reduced transparency/divisibility and intensified protectionist demands, the feasibility of package deals as a basis for EU policy-making declined. Therefore, the Commission-Council conflict was resolved in favour of protectionism as cell B1 of Figure I suggests.
Thereafter, the Commission agreed not only to regulate the synthetic fibre industry through the 'crisis cartel' arrangement, but also to switch the emphasis away from restructuring towards protection. It accepted the Council's protectionist mandate and negotiated accordingly at two levels: the GATT platform where the global MFA II was being negotiated; and the bilateral platform where the EU was negotiating bilateral agreements with exporting countries. Despite US objections to global quotas and contrary to the original MFA provision of a 6 per cent limit on
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annual growth rates, the EU insisted on and managed to secure implicit global quotas and annual import growth rates of less than 6 per cent for sensitive products (Agence Europe, 20 October 1977: 7).
The dynamic underlying this outcome was the way in which the transparency/ divisibility of the T&C trade policy was blurred and therefore the T&C producers managed to present their demands as a reflection of national interest. For example, the European Trade Union Confederation (ETUC) and the national federations of the clothing industry were calling for a tough stance against imports. The Committee of Commercial Organizations (the retailers), however, drew attention to the 'vested' nature of the producers' interests and called for more generous import quotas and simpler control procedures (Agence Europe, 17 November 1977: 4; 18 November 1977: 13; 5-6 December 1977: 9). Despite these conflicting interests, the tendency of some member states to treat the T&C industry as a matter of national interest and the pressure they exerted in the Council produced a policy outcome reflecting the interests of the producers. The treatment of the T&C industry as a non-negotiable national interest constituted such a constraint on national and EU policy that the concessions given by the Commission to some developing countries were agreed to by the Council only after Germany had accepted that it would absorb the extra imports that might occur (Agence Europe, 15 December 1977: 10; 19-20 December 1977: 5; 21 December 1977: 3).
Before MFA III negotiations for 1981-4 began, the T&C producers were determined to extend the capture on EU policy. COMITEXTIL and the Association of Clothing Industries (AEIH) adopted a common approach to the third renewal of the MFA well before 1981 and demanded even stricter protectionism (Agence Europe, 10 May 1978: 12). Trade unions criticized the Commission for failing to incorporate social clauses as a safeguard against 'unfair competition' and demanded an MFA renewal for ten rather than five years. Dissatisfied with the Commission's response, the Committee of Textile, Garment and Leather Workers' Union - supported by management - voted for a work stoppage on 2 December 1980 to intensify the pressure on the Commission (Agence Europe, 19 November 1980: 14; 1-2 December 1980: 10). Following consultations with the Article 113 Committee and further talks with T&C representatives, the Commission had to submit to the Council a highly protectionist proposal for MFA III. According to the proposal of March 1981, annual growth rates of import from MFA countries should be reduced to around 1 per cent (Dolan 1983: 605). This proposal was rejected by German, Danish and Dutch negotiators who wanted to use the MFA III as a platform for introducing some relaxation. This opposition, however, proved ineffective as the pro-protection league made it clear in the Article 113 Committee and the Committee of Permanent Representatives (COREPER) that any relaxation would be rejected. Consequently, the Commission negotiated with a highly protectionist mandate and secured a reduction in the annual growth rates of imports from 1-6 per cent under MFA II to 0.9-4.5 per cent under MFA III.
Given this strict protectionism, import penetration increased only slightly from 38 per cent in 1977 to 44 per cent in 1980 (compared to an increase from 21 per cent to 38 per cent between 1973 and 1976) (Dolan 1983: 587); the trade balance in textiles reflected a surplus for most of the first half of the 1980s; and the trade
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balance in clothing was stabilized at a deficit of around ECU 2.5 billion (European Commission/DG III). This evidence suggests that EU protectionism has achieved what it was designed for. However, this was possible only because the member states had been prepared to treat the interests of the T&C sector as reflections of a non-negotiable national interest. Otherwise, a high level of protectionist demands may not have generated the protectionist policy stance. This is not a counterfactual assertion but a hypothesis that can be tested in the light of the evidence concerning the post-1985 developments.
3.2 Gradual liberalization and issue transparency/divisibility: post-1986
Preparations for MFA IV began in the first half of 1985 against similar protectionist demands. The British Trades Union Confederation (TUC) called for the inclusion of social clauses in the MFA IV. According to the Chairman of the TUC's Textiles Committee, 'any decision to relax or abandon the Multifibre Arrangement . . . would be an act of industrial vandalism.' At the EU level, COMITEXTIL argued that restrictive measures were still required as 77 per cent of T&C imports into the EU came from countries that maintained protectionism (Agence Europe, 1 May 1985: 14; 30 May 1985: 13). In addition, two countries with substantial textiles sectors - Greece and Portugal- were either members or about to become members of the EU. Judging by this constellation of factors, one would expect continuity in the protectionist stance. Surprisingly, however, the EU began to signal a certain move towards moderate liberalization. The EU position announced on 23 July 1985 was described as 'no return to GA'I~ yet, but acceptance of eventual return when the time is right' (Agence Europe, 24 July 1985: 8).
It should be noted that this move took place against a highly complicated background which made the justification of protectionism very difficuk. Despite restrictions, employment in the T&C industry fell by 500,000 from about 3.2 million in 1980 to 2.7 million in 1985. Second, any dampening effect of the protection on job losses must be set against slow productivity growth until 1985 (European Commission/DG III). Third, the management of import quotas and the surveillance procedures became very costly as, by 1985, 60 per cent of the very sensitive and 40 per cent of the sensitive products were subject to restrictions and surveillance. Finally, the MFA regime enabled the T&C industry to establish such complex links with national governments and the EU that the ability of the policy- makers to devise sensible policies was reduced significantly (Pelkmans 1993: 29).
Although these factors might have instigated a policy reversal, the decisive factor was the gradual convergence of national macroeconomic policies towards a rule- based supply-side framework from the early 1980s onwards. The search for an alternative to Keynesian demand management was reflected in the change of governments and government policies in western Europe - beginning with the election of the Conservative government in Britain in 1979 and ending with the conversion of the socialist French government from Keynesian activism towards supply-side policies in 1983 (Hall 1986: 192-202). This process led not only to a move towards fiscal tightening as Alessina (1989) has demonstrated, but also to a deepening in European integration which was reflected in the Single European Act.
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This change was based on an increase in the transparency/divisibility of the trade policy issues which, in turn, enabled the EU and the member states to use the results of the protectionist period as counter-arguments against demands for protection. Aware of the implications of this development, T&C producers began to step up their campaigns for MFA IV in the second half of 1985. Nevertheless, national representatives in the Article 113 Committee and the COREPER were able to work out a compromise towards gradual liberalization - which was in contrast to their pro-protection decisions of 1980-1 and the US insistence on a protectionist MFA IV (Economist Intelligence Unit 1990: 93).
The relaxation of protectionism in MFA IV was not an unqualified move towards liberalization. The EU's aim was to open up its market gradually and selectively in return for easier access to foreign markets. This reciprocal market opening underlined the EU's approach not only in MFA IV but also in the Uruguay Round negotiations. Although such tit-for-tat strategies may degenerate into further protectionism, the EU demonstrated that it was in favour of gradual liberalization in its document submitted to the Negotiation Group 4 (NG 4) of the Uruguay Round in June 1988. In that document, the EU argued for gradual integration into GATr; parallelism with progress made in other sectors; and inclusion of all grey measures such as subsidies, safeguards, dumping and trade- related intellectual property rights (TRIPs). This document was in stark contrast to the US approach which sought to globalize the MFA before phasing it out later at an unspecified date. This contrast was interesting not only because it reflected the extent to which the EU was prepared to treat the T&C trade issues as transparent/ divisible, but also because it divided the protectionist bloc.
With the Textile Bill before Congress, the US government was unable to trade off gains in other sectors for concessions in the T&C sector. Therefore, its position was to highlight the protectionist measures implemented by developing countries without any commitment to integrate the sector into GATT. According to Rafaelli and Jenkins (1995: 27, 62), the acceptance by the US of the general statement to that effect later in the Mid-term Review of 1989 was largely because of the EU's pro- integration approach which signalled to the US Congress that the EU would press for integration and the Textile Bill might become redundant even if it was passed. This signal contributed to the defeat of the Bill in 1990 - after which the US gradually began to discuss the modalities of integrating the T&C sector into GATT.
In the mean time, and despite intense pressure from COMITEXTIL and the AEIH, the Commission - in close collaboration with national representatives - had accepted the Uruguay Round's Mid-term Review. The Council approved the Review following negotiations that ironed out the difficulties raised by Portuguese objections to and French/Italian reservations about its details (Agence Europe, 29 April 1989: 1-2). The text of the Mid-term Review, drafted by Mr Dunkel to meet the deadline, was too vague. This was not only because of US reservations, but also because of concerns expressed by the International Textiles and Clothing Bureau (ITCB) representing the developing countries. The ITCB was concerned about developed countries' emphasis on strengthened GATT rules and disciplines (SGRAD) which, it was feared, could force the developing countries to open their markets at an unacceptable speed. One factor that allayed such fears was the EU's
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clarification that SGRAD and the linkage it implies between the T&C and other sectors would not be a precondition, but a principle open to negotiations. Another factor was the EU's assurance that the initial burden of liberalization would be taken by developed countries and the newly industrialized countries (Rafaelli and Jenkins 1995: 29, 40).
The link between this pro-liberalization tendency and issue transparency/ divisibility can also be seen in the emerging industrial policy. The Commission's communication of 1990, endorsed by the Council, emphasized that restructuring was the appropriate method for improving the industry's competitiveness. Not only that, it was up to the economic agents to 'take initiative or responsibility in respect of structural change'. As the industry Commissioner had put it to the General Assembly of COMITEXTIL earlier in the year, the T&C industry must now be able to act 'on the basis of clear parameters' rather than protectionist measures (Press Release No. IP/90/422; 29 May 1990). This strategy was confirmed in the Commission communication of 1991 on improving the competitiveness of the T&C industry, which confirmed that convergence among national policies improved the prospect for a qualified majority. Encouraged by this prospect, the Commission emphasized that commercial policy should be geared towards reciprocal market opening whereas industrial policy should avoid production subsidies (European Commission 1991).
Faced with this policy stance, T&C producers began to establish new lobby organizations as securing special treatment became more difficult. The first initiative was taken in late 1989 when twenty-five of the largest European textile groups met in Brussels to form a new lobby group (Financial Times, 8 January 1990, p. 8). Then the European Trade Union Committee for Textiles began to organize public meetings and demonstrations in 1990. Later on, in 1993, the European T&C producers (labour and industrialists) joined forces with US, Canadian and other producers to issue a 'Magna Carta' emphasizing the need to maintain protectionism until developing country markets are made more open. A new European lobby group, the European Textile and Clothing Coalition (ETCC), initiated a wide advertising campaign to maintain the momentum and drew attention to the danger of trade deflection into the EU market given the protectionist stance of the US. The Commission's response to these developments confirmed the link between issue transparency/divisibility and gradual liberalization: return to protectionism was ruled out as this was likely to jeopardize the gains that the EU stood to make in the Uruguay Round through market opening in other sectors (Agence Europe, 4 June 1993: 15; 2July 1993:13-14).
This link has also been reflected in the elimination of national quotas in intra-EU trade and non-reciprocal concessions granted to associated countries. Although the removal of national quotas was less significant than the gradual integration into GATT, it must be recalled that the European Court of Justice (ECJ) had had to rule in 1986 that the textiles import regime constituted a tariff union (i.e. a free trade area) rather than a customs union (Eeckhout 1994: 173-5, 189-91). Therefore, the elimination of national quotas in 1993 had the effect of not only deepening the integration process but also contributing to the process of gradual liberalization. Second, it is true that the non-reciprocal concessions granted to the Central and
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Eastern European countries (CEECs) were facilitated by the existence of a significant level of overseas processing trade (OPT). Nevertheless, Corado (1994) has demonstrated that Europe Agreements with CEECs were highly likely to divert OPT from, and intensify competition with, southern EU members such as Portugal and Greece. Not only that, Europe Agreements made it easier for the EU to adopt a pro-liberalization stance in the Uruguay Round because of the partial liberalization that these had already implied (Majmudar 1996: 10).
These developments were possible as a result of trade-offs not only between inter-sectoral but also inter-country interests. Evidence of inter-country trade-offs can be seen in the introduction of support programmes for restructuring and retraining. Some of these (the FORCE programme for improving the quality of vocational training and the EUROFORM for the acquisition of new skills) were general, but they were extended to the T&C sector with the Commission communication of 1991 (European Commission 1991). The RETEX programme, however, was sector-specific and aimed at assisting restructuring in the T&C industry. A principle common to both was the emphasis on non-production subsidies, i.e. the prohibition of the use of EU funds for the purpose of keeping inefficient plants afloat. In fact, in the case of country-specific aid to Portugal, the explicit condition was not to increase production in terms of volume. The rationale for this principle was the need for ensuring transparency and avoiding distortions in the EU market (European Commission 1994).
Evidence of inter-sectoral trade-offs was also extensive. Following its response to ETCC pressure mentioned above, the Commission reiterated the impossibility of addressing the problems of the T&C sector through protectionism. In its report of 1993 on the competitiveness of the T&C industry, the Commission acknowledged the crisis but it also emphasized that restrictions in third markets were only one of several factors (low net productivity gains, high wage settlements, depreciation of the dollar, etc.) that contributed to the current situation. Therefore, it was necessary to secure market opening and fair trade, but the solution to the crisis lay in improving competitiveness through serious restructuring towards more sophisticated and higher value-added product ranges (European Commission 1993). The Council approved this policy on 22 April 1994 and agreed on a programmme designed to 'encourage the adaptation of the industry to the new conditions of international competition' (European Commission 1995: 1). Although the future loss in employment was considered a key problem, this was to be tackled through the EU's overall employment policy (to the extent that it exists!) rather than as a problem specific to the T&C sector (European Commission 1995: 15).
As a result of gradual liberalization, the EU's T&C trade balance deteriorated sharply after 1985. The trade balance in textiles fell from a surplus of ECU 764 million in 1986 to a deficit of ECU 4 billion in 1997, while the figures for clothing reflected a deterioration from a deficit of ECU 2.8 billion in 1986 to a deficit of ECU 11 billion in 1995 (European Commission/DG III). An EU-sponsored study on the impact of international developments found that progressive integration into GATT would not have a significant effect on current trends, as these would affect
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only 43 per cent of total EU imports and 16.5 per cent of the imports in restricted T&C categories (European Commission 1995: 4-5). Drawing on these findings, the Commission submitted a communication stating that the T&C sector should not be taken as uniform and that international developments would create winners as well as losers. Therefore, vulnerable producers should emulate the practices of successful companies and concentrate on 'the discovery as well as development of new sources from which to buy, new partners with whom to co-operate and new markets to sell into' (European Commission 1995: 8). The Council secured a compromise between the southern and northern member states, and endorsed this policy line in March 1996. It also adopted a decision stating that the development of appropriate strategies for overcoming the crisis is the responsibility of the producers, while the EU authorities would limit themselves to contributing to the creation of favourable conditions (Agence Europe, 30 March 1996: 12).
These policy developments took place against a background of intense lobbying to delay the integration of sensitive categories into GATT, retaliation against protectionist countries, and introduction of new policy instruments aimed at assisting the sector. These demands were put forward in unison by the European Apparel and Textile Organization (EURATEX) that succeeded the ETCC and the representatives of the trade unions in the T&C sector. Although this pressure forced the Commission to amend the list of products envisaged for the second stage of the MFA phase-out, the stance of the policy remained the same, The Commissioner for External Relations, Sir Leon Brittan, told the producer representatives that the EU must also take into account 'imperatives linked to diplomacy and development co- operation' (Agence Europe, 21 June 1993: 14). In a trade magazine published by World Textile Publications, the Commissioner reiterated that the protectionist MFA regime 'could not offer any lasting relief to or safeguards for employment' in the European T&C industry. The article reiterated that the Commission was sensitive to the industry's demands concerning gradual integration, but these demands must be justified by facts wlfich suggest that a delay would be appropriate (Wool Record, 16 December 1996).
It is clear from the above analysis that the EU and its member states have gone a long way towards distancing themselves from the non-transparent/non-divisible treatment they had accorded to the T&C sector in the 1970s and 1980s. This move has been reflected not only in the way in which the continued industry demands for protection ceased to be treated at face value, but also in the disintegration of the protectionist league composed of France, the UK, Italy and the new members Portugal and Greece. From the early 1990s onwards, the UK joined the pro- liberalization group while the others had to agree to various package deals involving T&C trade liberalization in return for regional or sector-specific assistance. Although some of these countries (e.g. France) have recently demonstrated that they were keen to utilize the existing industrial policy instruments in a non- transparent way, the Commission warned the French authorities and producers that any such attempt would be challenged legally on the grounds that it would distort competition in the EU market.
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4. CONCLUSIONS
The preceding analysis has demonstrated that the stance of the EU's T&C policy has fluctuated between protectionism and liberalization and that these variations have been the result of state-society interaction under different levels of protectionist pressure and transparency/divisibility. Therefore, it would be too simplistic to predict either protectionism or liberalization as the dominant aspect of the EU's trade policy stance in the medium to long term. This finding incorporates, and goes beyond, the partial explanations that can be derived from the PETP literature and theories of EU policy-making. Strong and continued industry pressure for protection may generate a protectionist EU policy stance when the issue transparency/divisibility is low, but may also generate selective liberalization as a convergent policy response that makes the protectionist pressure less likely to succeed by equalizing returns on loyalty and reducing the scope for securing special treatment. This result, directly or indirectly, is not generated by a fall in protectionist demands - it is produced by the transparency/divisibility of policy issues that enables the member states and the EU institutions to engage in package deals where different sectoral interests could be traded off.
On the basis of this finding, I suggest that the impact of regional integration on multilateralism and trade liberalization would not necessarily be negative, as Bhagwati (1993) has suggested. The impact would depend not only on the possibility that regional blocs may foster protectionism owing to increased incentives for protectionist demands, but also on the extent to which regional integration may emerge as an arrangement protecting nations not only against international competition but also against their own interest groups (Krugman 1993: 58). As the case of the T&C trade demonstrates, the latter function of regional integration is more likely when the policy issue is treated as transparent/divisible and not as a reflection of an undivided national interest. Under this condition, increased societal pressure for protection, combined with high levels of transparency/divisibility, provide the public policy-maker with incentives and scope to engage in national or transnational package deals as a basis for liberalization without risking loyalty shifts.
Address for correspondence: Mehmet Ugur, University of Greenwich, Social Sciences, Avery Hill Road, London SE9 2UG, UK. Fax: 44 181 331 8905. email: [email protected]
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