Chapter_6_Non-tariff_Barriers

In 2005 chinas textile and apparel imports to the us

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In 2005, China’s textile and apparel imports to the U.S. rose by more than 40% compared to 2004. The next figure shows the change in the value of exports of textiles and apparel from different countries. The increases from China came at the expense of some higher-cost exporters, some of whose exports to the U.S. declined by 10 to 20%.
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The Multifibre Arrangement
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The Multifibre Arrangement The next figure shows the percentage change in the prices of textiles and apparel products from each country, depending on whether the products were subject to the MFA quota before January 1, 2005, or not. China had the largest drop in the prices from 2004 to 2005. Many other countries had a substantial fall in their prices due to the end of the MFA quota.
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The Multifibre Arrangement
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Import Quotas B A Quantity D Price S Price Imports M1 Foreign export supply, X* Home import demand, M P2 C No-trade equilibrium a d b+d c b (a) Home market (b) Import market Foreign export supply with quota With the Quota, the Foreign export supply becomes vertical at the quota quantity The new Export Supply curve crosses the Import Demand curve at a new price and quantity of imports At the new higher price P2, Home Supply increases to S2, Demand decreases to D2 and imports fall to M2 Always have a deadweight loss of (b+d) like the tariff Consumers loses surplus of (a+b+c+d), producers gain (a). If quota rents are earned by foreign exporting firms, Home will have a welfare cost of area (b+d+c). PW S1 S2 D2 D1 M2 c
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The Multifibre Arrangement Welfare Cost of the MFA Given the drop in prices in 2005, it is possible to estimate the welfare loss due to the MFA. Quota rents were earned by foreign exporting firms, giving a welfare loss to Home of area (b+c+d) shown in the previous figure. The welfare loss to the U.S. is estimated at $6.5 to $16.2 billion in 2005 from the MFA. Averaging out all losses and dividing among households gives an estimate of $100 per household, or 7% of total annual spending on apparel.
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China and the Multifibre Arrangement Reaction of the United States and Europe The EU threatened to impose new quotas on Chinese exports. In response, China agreed on June 11, 2005 to ”voluntarily” restrict exports limiting the growth of textile exports to about 10% per year through the end of 2008. The U.S. had the ability to negotiate a new system of quotas because China had joined the WTO in 2001. The U.S. deal limited growth to 7.5% until 2008.
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An Introduction to Export Subsidies In December 2005, representatives of the 149 countries belonging to the WTO met in Hong Kong to discuss reforms of the world trading system. The main focus of these meetings was the trade policy (tariffs and subsidies) on agricultural products. Member countries of the WTO agreed to abolish all export subsidies by the end of 2013.
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Export Subsidies An export subsidy is a payment to a firm for every unit exported.
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