Prosperity for all? Real adjustment in the MFA complex after Marrakech

Abstract

More than thirty years after Ludwig Erhard suggested a breathing spell for European textile/clothing (T+C) industries to adjust to new market conditions, the Final Act in Marrakech foresees yet another transitional period before liberalization is achieved. During the breathing spell factors shaping trade/production patterns of MFA products led to production shifts to NON-ICs and concomitantly exports back to ICs. While initially and primarily clothing production - given technological constraints - continued expanding in labor-abundant countries, recent shifts in the production location of textiles underline the erosion of ICs' capital-intensive/high-tech advantages. At the same time, the high-tech equipment demanded for manufacturing MFA products originated - contrary to most other engineering products - ever more from ICs. Since competitiveness of textile machinery firms depends upon interfacing with textile producers, might there be danger of reneging on Marrakech promises? For European producers this danger does not seem imminent as Eastern European manufacturing sites are rapidly evolving. And the impact of the Final Act on future T+C production/trade patterns? If an EC strategy initially excludes liberalization of highly restricted MFA products, Eastern Europe seems to have a head start, whereas Hong Kong will have to wait. While countries like Hong Kong may still pocket quota rents, early liberalization will help promote more efficient production, hence prosperity.