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MFA

MASTER OF FASHION MANAGEMENT

MANAGERIAL ECONOMICS

MULTI FIBRE AGREEMENTSUBMITTED BY :GAYATHRI.VS.(11)GREESHMA.V(12)PALLAVI GUNJE(13)SANTHI BIJU(31)

SUBMITTED TO Asst. Prof. Mr.SHIVKUMAR BELLI

To study Multi Fiber Agreement

MFA on Indian Economy while MFA and Phase out period.

To study in the perspective of Indian economy

Factors which go against India

What are the reason for optimism

OBJECTIVESORIGIN OF MFAMFA is international trade agreement under which two countries may negotiate quota restrictions on textile and apparel imports from each other . MFA restrictions are normally prohibited under WTO rules and must have been phased out by 2005The quantitative restrictions on textile imports from developing countries were first introduced in 1930s, mainly directed against the increasingly competitive Japanese cotton textile industry. International trade in agricultural products and in textiles and clothing was gradually taken out of reach of GATT-1947 disciplines starting in 1950s.The textiles and clothing sectors in the developed countries were increasingly coming under pressure from relatively cheap imports of these products from the developing countries.

The developed countries aimed at protecting employment of skilled and semi-skilled workers in textiles and clothing sectors, which, as of 1960s, accounted for a major share of employment in the manufacturing sectors of many OECD countriesInstead of permitting reallocation of resources in line with shifting comparative advantage, the developed countries chose to limit imports of textile and clothing products. There were Short-Term Arrangement (STA) on Cotton Textiles under the support of the GATT Dillon Round (1961) followed by a Long-Term (LTA) Arrangement in 1962.Restrictions on Japanese cotton textile exports had also led to rapid growth of exports from developing Asian countries, namely, Hong Kong, Korea and Taiwan.

FROM MFA TO ATCIn the year 1995, WTO had renewed its MFA and adopted Agreement on Textiles and Clothing (ATC) which stated that all quotas on textiles and clothing shall be removed among the WTO member countries by 2005.

The MFA phased out and the textiles trade got integrated in to GATT provisions by 2005.

The world T&C export:- US$ 272.43 billion in 1994 to US$ 530 billion in 2006, world textile and clothing trade rose by 9.7% to US$530 billion in 2006, by 10.6% to US$583 billion in 2007.

MFA: EXAMPLE

ECONOMICS OF MFA

The governments of the exporting countries adopt voluntary export restraints (VERs) and allocate export quotas to individual exporting firms on the basis of certain criteria like past performance and/or current exports of unrestricted productsThe binding quotas lead to rents being associated with quota rights, which command varying prices in different countries depending upon the severity of restrictions. Many countries allow quota rights to be traded among exporters. An exporting firm either has to buy a quota or forego the sale of quota right that it might hold. The quota rent thus adds to the cost of export, which is analogous to the cost imposed by an export tax.The MFA imposes heavy costs of protection on textiles and apparel importing developed countries as the quotas induce increase in costs of the suppliers and hence in prices at which they are willing to supply textiles and clothing.

The import tariffs are also being reduced on both textiles and clothing and on a wide range of other goods. The MFA abolition offers great opportunities for exporting countries.

An original intent of the MFA to regulate trade from the largest exporting countries. What in practice ended up happening was that trade was scattered around the globe as apparel producers worked to avoid countries subject to quota.

By moving production to non-quota countries, apparel companies were better able to meet the soaring demand for low-cost apparel in importing countries.

The Indian textile industry managed to penetrate its roots deep in the international market but that was in the era when multi-fibre Agreement (MFA) was in existence, but now, since 1, January 2005, the Multi-fibre Agreement has phased out and India needs to strive harder to sustain its past achievement. This is a key alteration in the international trade scenario for textile manufacturers across the world offering opportunities for penetration into markets that have been off limits under the previous regime. At the same time, it causes threats of market loss in the face of competition from other countries. For India, in particular, performance of the textile industry in this new era can be of major implication for the economy as a whole.POST MFAExports of textiles and clothing products from India have increased steadily over the last few years, particularly after 2004 when textiles exports quota stood discontinued.In the liberalized post-quota period, India has emerged as a major sourcing destination for buyers from all over the globe. As a measure of growing interest in the Indian textiles and clothing sector, a number of reputed houses opened their sourcing / liaison office in India. These include Marks and Spencer, Haggar Clothing, Kellwood, Little Label, Boules Trading Company, Castle, Alster International, Quest Apparel Inc., etc. Commercially the buoyant retailers across the world are looking for options of increasing their sourcing from the Indian markets. Indian manufacturers are also pro-actively working towards enhancing their capacities to fulfil this increased demand.

In the post MFA period, Indias T&C export has increased from US$ 13.64 bn in 2004 to US$ 19.52 bn in 2006, in which textile export rose by 20.68% in 2005 and 10.28% in 2006, and clothing export grew by 38.9% in 2005 and 10.6% in 2006. In the post MFA period, Indias clothing export rose from US$ 6.63 bn in 2004 to US$ 10.19 bn in 2006; exceeding the US$ 9.33 bn textile export achieved in 2006.The Ministry of Textiles (2008) has reported the decline in Indias T&C export in the year 2006 - 2007 over the previous year which is due to appreciation of rupee against dollar and also recession in the US market. Recently an article in Times of India (March 1, 2008) shows that Indias T&C export failed to grow in the post MFA period while neighbouring China marched ahead. In the post MFA period, China has also exported more clothing than textile.

SOURCE OF IMPORTS OF TEXTILE AND CLOTHING TO THE USA

Source: FICCI reportSOURCE OF IMPORTS OF TEXTILE AND CLOTHING TO THE EU

Till the end of MFA, India has exported textile and clothing equally and in 2006, it has exported 48% textile and 52% clothing. It indicates that India has also started exporting larger quantity of clothing than textile in the post-MFA period.

POST MFA SCENARIOMarkets % of Textile Exports2002-20032005-2006Textiles and ClothingTextiles and ClothingEU4.9 %8.1 %US3.8 %5.78 %THE INDIAN PERSPECTIVEThe popular and trade press largely support the predictions that India will be better off with the expiration of the MFAThe Textile industry contributes 4 % to gross domestic product and 14 % to total industrial production.Furthermore, the industry employs 30 million workers and earns 35 % of Indias foreign exchangeIndias Textiles & Clothing (T&C) exports registered a robust growth of 25% in 2005-06, recording a growth of US$ 3.5 billion over 2004-05 in value terms thereby reaching a level of US$ 17.52 billion and the growth continued in 2006-07 with T&C exports of US$19.15 billion recording a increase of 9.28% over the previous year and reached USD 22.15 billion in 2007-08 denoting an increase of 15.7% but declined by over 5% in 2008-09.

Pressure on the Indian Government: The textile industry has been putting pressure on the Indian government to modify domestic policy, the justification being that the industry needs to restructure itself to compete in the post-quota market.

Latest Trend during the period 2012-13 (P):The total textile exports during 2012-13 (P) were valued at Rs 1,72,494.71 crore as against Rs 1,59,570.55 crore during the financial year 2011-12, registering an increase of 8.10 percent in rupee terms.

In US dollar terms, the same was valued at US$31,705.53 million (2012-13, P) as against US$33,310.21 million during the corresponding period of financial year 2011- 12 registering a decline of 4.82 percent.

FACTORS THAT GO AGAINST INDIAFragmentation of the Industry - It is a major concern for the Indian textile industry. The textile industry divided into mill and non mill sectors. The non mill sector accounts for 95% of production and is the main source of employment & export earnings. Although it is hard to predict whether smaller firms will be able to compete in the long run, the obvious argument for smaller firms being driven out of the sector is that they will be unable to compete due to diseconomies of scale and technological disadvantages Weak Technological Progress - Textile products vary significantly in quality because production processes are not uniform. Upgrading existing technology is therefore a prerequisite for access to international marketsLabour Laws - It favours organized labour in India and has a great deal of support from the political left.

Savings is not permitted; for an export-oriented industry, this can be quite burden some.

Labour policy is perhaps the most significant hindrance to India increasing its international competitiveness.

Indian firms are also looking to establish manufacturing units in other countries like Bangladesh and Nepal. This would lead to what is called triangle-type manufacturing

REASON FOR OPTIMISMIndia has a cost advantage in cotton production.

The textile industry does not