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Prospects for Development of the Garment Industry in Developing Countries: What Has Happened Since the MFA Phase-Out?

Discussion Papers

No.101

April 2007

ABSTRACT

On January 1, 2005, the controlled trade regime on textiles and clothing which was based on the Multi-Fiber Arrangement (MFA) made in 1974 was abolished. This institutional change wrought great impacts on the world market for textiles and clothing. This paper reviews the impacts of the changes on the main markets and examines the prospects for the markets and the source countries. The main conclusions are as follows: (1)after the renewal of quantitative restrictions on Chinese garment exports were agreed with the US and the EU, the post-MFA surge in Chinese garment exports was significantly attenuated; (2) instead, the growth in garment exports from other Asian low-income countries to the two markets was revived in 2006; (3) the Japanese market has been kept almost intact from the impact of the regime shift; (4) some developing countries, such as Bangladesh and Cambodia, not only survived the liberalization but also have steadily expanded their garment exports throughout the transition; and (5) an indicative fact is that the profitability of the garment industry in Bangladesh and Cambodia was high on average according to surveys conducted in 2003, which might have bolstered the steady growth of garment exports in the past, and possibly future growth, too.

Keywords: Garment; MFA phase-out; China; Bangladesh, Cambodia
JEL classification: L67, O53

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