Determinants of U.S. Textile and Apparel Import Trade

partners. The WTO ratified the Agreement on Textiles and Clothing (ATC) in 1995 to phase out
quotas established under the MFA by January 1, 2005. Therefore, the world textile market
effectively became fully integrated into the WTO when the ATC ended. With it also ended
control of the imports of textiles and apparel into the U.S.

MacDonald et al (2001), by using a dynamic computable general equilibrium (CGE)
simulation model found that the 2005 trade reforms in textiles and clothing would improve
welfare in every region in the world, and would cause world textile, apparel, and cotton
production to rise. In particular, U.S. production would decline for cotton as well as for textiles
and apparel, although U.S. cotton exports potentially would rise. Therefore, it appears that
conditions are rife for global exporters of textiles and apparel to gain even greater access into the
U.S. market. Yet, many developed countries, including the U.S., which are supposed to lift their
quotas, are reluctant to do so because developing countries, such as China, have increased their
share of the global textile and apparel market.

Moreover, it is a sector where relatively modern technology can be adopted even in poor
countries at relatively low investment costs. These technological features of the industry have
made it suitable as the first rung on the industrialization ladder in poor countries, some of which
have experienced a very high output growth rate in the sector. These characteristics, however,
have also made it a footloose industry that is able to adjust to changing market conditions
quickly (Nordas, 2004). The latest statistics from the WTO show that developing countries take
55% of the global textile exports, which stood at $1.369 trillion, in 2003. Developing countries
also exported 71% of the apparel around the world in the same year. Despite import restrictions
imposed as a result of the ATC of the MFA, relative prices of textiles and apparel tend to be
higher in the U.S. than its trading partners (Cotton and Wool Situation and Outlook).

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