Trade adjustments following the removal of textile and clothing quotas

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Abstract:

With the end of the WTO Agreement on Textiles and Clothing and the removal of all textile and clothing quotas on 1 January 2005, the characteristics of global production patterns and trade flows will change substantially. Countries previously constrained by quotas will gain under the new situation. This paper analyses the restrictiveness of the quotas that were applied by the EU in 2004 and argues that large and instantaneous changes in terms of prices and import shares are a natural and expected adjustment that is proportionate in size to the quotas' level of restriction. It also finds that import increases in volumes are much higher than in value, as quota abolition is accompanied by falling prices. In that light the paper discusses the rationale for safeguard measures and concludes that they are not justified. Indeed, sharp increases in imports are simply a natural adaptation to the new situation - to a large extent the shock of the quota removal will be absorbed by other countries. Nevertheless, the 10-year transition period should have been used more effectively by both producers and governments to prepare for the aftermath of the abolition of the quota system.