The Administration of Textile and Apparel Quotas: A Case Study of Malaysian Policy and Its Implications for the U.S

Abstract

Most international textile trade operates under the auspices of the Multifiber Arrangement (MFA), which allows protection through voluntary export restraints (VERs). The rights to agreed-upon quotas are given to the governments of importing countries. The importing country then allocates these rights to manufacturers within the country. This study examines the distinctive characteristics of VERs by means of a case study of Malaysia, Malaysia's trade relations with the U.S., and a political economy analysis. Standard economic models facilitate one dimension of analysis but neglect the political and social effects, knowledge of which yields increased understanding of the interests involved and the outcomes of the process. Conclusions of the analysis thus go beyond the finding that the economic benefits of VERs to Malaysia are moderately high while in the U.S. it is the costs that are high. The evidence also indicates that social costs in Malaysia are high but relatively low in the U.S. Politically there are mixed costs and benefits in Malaysia and relatively high benefits in the U.S. These conclusions are discussed in relation to the ongoing discussions of textile trading nations regarding a phaseout of the MFA and a return of textile trade to the auspices of the General Agreement on Tariffs and Trade.