differentiate countries receiving policy benefits associated with the ATC governed under the
MFA. Among the countries whose exports to the U.S. were restrained by the MFA, we include
China, India, Pakistan, Taiwan, South Korea, Thailand, Indonesia, Japan, and Hong Kong.
However, the Philippines and Sri Lanka (as less developing countries enjoying preferential trade
treatment) were free from trade restraint. Canada and Mexico, by virtue of their NAFTA
membership, were also free from trade restraint. Additionally, we substitute distance between
the exporting country and the U.S. for cost of transportation, since data on the latter is not readily
available.
Consistent with MacDonald, et al., this study abstracts from the issue of whether
importing or exporting countries capture the rents from MFA quotas, and assumes that these
rents are dissipated by rent-seeking behavior and inefficiency. That is to say, the MFA does not
create either a price gap per se between domestic and border prices or quota rents for the
restraining country (the U.S.). Instead the restraint merely causes difficulty for some countries
(especially developing countries that do not benefit from preferential access) to export their
textile and apparel products to the restraining country, and hence lower the efficiency of their
exports. Also, one limitation of the study is that it does not capture the reduced import
protection over time associated with the ATC. Therefore, potential increased export efficiencies
attained by some exporting countries with trade reform, such as China following its bilateral
trade agreement with the U.S. in 1999, are not adequately captured by this study.
The empirical reduced form gravity model to evaluate factors explaining textile and
apparel trade between the U.S. and its key trading partners is specified as follows:
TEXIMPiust = β0 +β1GDPit +β2GDPust + β3PCIit + β4PCIust + β5EXRATEiust + β6PRICEDust
β7PRICEDit +β8 DISTius + β9 DMFAit + εiust (9)