The purpose of this study is to introduce the definition of the Multi-Fiber Agreement (MFA), and to identify its potential problems and solutions, bearing in mind that the MFA is an inevitable situation that the Korean textile industry must face. It also looks for ways to avoid trade conflicts, thereby seeking ways of development through export.
The Korean textile industry first built its base during the early 50s and throughout the 60s. Through the government’s strong export orientation, it was able to develop into a champion industry in the 70s. In 1987, the industry alone was in charge of 68% of the export industry, bringing a steady annual growth rate of 27.5% from 1970 to 1988. It was definitely in charge of the national economy as it reached a scale of $1.2541 million in 1988.
While growth rapidly reached 39% in 70s, it started to decline steadily in the 80s to 23~35%, implying the structural limitations found in the textile industry’s growth. The main internal reasons behind this are the wearing out of machinery, lack of automation, and increase in production costs due to a rise in wages. The external factors are appreciation of the Korean Won and a distorted resource distribution under the voluntary export restraint according to the MFA. In addition, some point out the textile industry as having passed its expansion stage in relation to the stages of industrial development.
Asides from the limited income elasticity of textile products, the textile industry is already at its stage of saturation in terms of supply in developed countries. Developing countries showing a large potential for growth signify a limit in maintaining the high growth of the industry through supply-oriented export schemes. Possible measures to address this issue and help the textile industry develop are developing domestic demand; changing the production structure into a flexible manufacturing system; and increasing productivity through industrial equipment automation.
Although MFA will last until July 31, 1991, most developed countries are discussing a progressive return to the GATT system in the current Uruguay Round negotiations. Thus, there is a need for a more practical and realistic alternative.
With the quota distribution policy revolving around the established upper class, its resulting inefficiency in production and rent-seeking behavior, MFA has brought a number of negative consequences including a distorted domestic resource allocation, leading to the decreased opportunities in new competitive companies to participate in trade. On the other hand, from the perspective of competing with new textile exporting countries, there have been some positive results, such as a stabile amount of share in Korean textile export, and an increased export in high-priced articles. However, considering the failure in the diversification of export markets to non-regulated areas, there are many disadvantages in the short-term and realistic terms, leading to the difficult adaptation of the auctioning system.
Taking the aforementioned phenomena in consideration, a short-term approach to improving the textile export quota distribution system is to maintain a stable export. In the long-term, a structural reform of the textile industry, an expansion of the production base keeping in mind the possible change in the MFA system, and an improvement in elasticity to increase the opportunity for entry for small-and-medium industries will be necessary. This being so, maintaining stable exports in the short-term, expanding export rent in the medium-term, an emphasis in the distribution of export quota through small-scaled participation in export to address the changes in the export environment, and distributing L/C arrival rankings on minor items, are also viable.
However, pushing out low-end goods for the sake of exhausting the textile fabric is a waste of resources and can bring adverse effects. Thus, the study also points out that there is no need for excessive action.
MFA와 한국섬유무역정책(The Multi-Fiber Agreement and Korea’s textile trade policy)
수출쿼터배분제도를 중심으로(As according to the textile export quota distribution scheme)
[서울] : 한국개발연구원
|Series Title; No||정책연구시리즈 / 90-09|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Trade|
|Holding||KDI; KDI School|