The Application of the MFA by the EC

The MFA is the most important trade policy for the Community on the textile and clothing sector. The Community signed the MFA in 1974/^ The management of the MFA is based on Regulation 3059/78 on common rules for imports of certain textile products originating in third co u n tries.R eg u latio n 3059/78 provides rules for the supervision of quotas, the levels of various quotas, the internal procedure for withdrawal from the basket, more stringent rules for prevention of fraud, the treatment of flexibility request from third countries and also criteria for the division of the quotas between the Member States. Regulation 369/92^' contains more stringent rules for the prevention of fraud. A theoretical economic spread of imports ‘ burden sharing ’ was agreed upon by the Member States. Quotas, were fixed by country, to take account of this economic spread. The burden-sharing formula is Germany 25.5%; UK 21%; France 16.5%; Italy 13.5%; Benelux 9.5%; Spain 7.5%; Denmark 2.7%; Greece 1.5%; Portugal 1.5% and Ireland 0.8%. The Community quota, divided into national sub-quotas, is therefore more often seen as an effective instrument of protection for twelve national markets separately and operated accordingly. However, national or regional quotas run the risk of segmentation of EC market.

According to Regulation 3059/78, the distribution of imports among supplier countries is based on five criteria: (1) imports achieved in 1976; (2) quotas fixed for 1976; (3) the penetration rate on the Community market; (4) the economic situation in the supplier country; and (5) preferential links that may exist with the Community. The first two criteria served as the basic level for fixing the quotas. The third criteria was used to make certain adjustments slanted against the major suppliers (Hong Kong, South Korea) to ensure a more equitable distribution of quotas. In case of certain highly sensitive products, these suppliers had to accept a number of reductions in the 1978 quota compared to the 1976 level. The criteria of the economic situation in the supplier country

^^Dec.74/214 concluding the Arrangement regarding International Trade in Textiles, OJ 1974, L118/1. The latest legislation see Dec.94/268, OJ 1994, LI 24/11..

^°OJ 1978, L365/1, as amended by Reg.3589/82 (OJ 1982, L374/106); Reg.4136/86 (OJ 1986, L387/42); and Reg.369/92 (OJ 1992, L45/1); and Reg.3030/93 (OJ 1993, L275/1).

^^Reg.369/92 amending Regulation 4136/86 on common rules for imports o f certain textile products originating in third countries, OJ 1992, L45/1.

was clearly applied in favour of the poorest countries which were treated more flexibility. Such special treatment was allowed under Article 6 of the MFA IV. However, the Article could permit certain countries, which would not normally be competitive in textiles and clothing sector, to obtain a share of markets in importing countries. It therefore encourages a shift in imports from high competitive textiles to low competitive products. It also created a positive discrimination among exporting countries.

The determination of sensitivity of textile products is also a main objective in the implementation of MFA by the Community. The first group comprises extra-sensitive products. Their penetration rate is extremely high and attempts have been made to stabilize it in order to protect the corresponding European industry which is seriously threatened. In other words, the annual quota growth rate was calculated in such a way that the import growth rate of these products overall did not exceed that of domestic consumption; this was fixed at between 1-2%. This Group I has been divided into eight categories: cotton yams, cotton fabrics, fabrics of synthetic fibres, T-shirts, pullovers, trousers and ladies’ and men’s shirts. The Community has fixed import quantities within the global ceiling. Group II also comprises products that are very sensitive having a penetration rate of over 20%; the growth rates for the whole of this group was fixed at around 4%. The growth rates for Group III and IV are between 5% and 6%. In this connection, the total average growth rate fixed by the Community is actually far below 6% prescribed by Annex B of the MFA.^^

Under the MFA Ilf^, the Community concluded 27 separate bilateral agreements and one with China, which were essentially all similar in context.^"^ In 1986 some 70% of Community imports of textiles and clothing from third countries were covered by these bilateral textiles agreements. All the bilateral agreements negotiated under the MFA in 1993 will remain in force until the end of 1994, with the option of automatic renewal for

^^Englert, Michel. Internationa! trade in textiles: The policy of the European Community (1981), at 13.

^^Dec.82/179 concerning the conclusion of the Protocol extending the Arrangement regarding international trade in textiles, OJ 1982, L83/8.

^^The Agreement with China see Reg.2072/84 on Common rules for imports of certain textile products originating in the People’s Republic of China, OJ 1984, LI 98/1.

a further year/^ In 1993, the EC concluded bilateral agreements with the following countries: Argentina, Bangladesh, Brazil, China, Columbia, Guatemala, Hong Kong, India, Indonesia, Macao, Malaysia, Mexico, Pakistan, Peru, Philippines, Singapore, South Korea, Sri Lanka, Thailand, and Uruguay. The EC also concluded the agreement with Viet Nam and the textiles protocols to the Europe Agreements with Poland and Hungary. New agreements have concluded in 1994 with 12 Independent States of the former Soviet Union (Belarus, Ukraine, Moldova, Uzbekistan, Russia, Tadjikistan, Armenia, Azerbaijan, Kyrgyzstan, Turkmenistan, Georgin and Kazakhstan), and with Latvia, Lithuania, Albania, Mongolia and Slovenia.^^

The EC textile regime is essentially a managed trade and involves a complex administrative system. Regulation 3059/78 establishes a textile committee which is responsible for the administration of textile regime and is composed of representatives of the Member States, under the chairmanship of the Commission. The Textile Committee meets once a week and constitutes the framework for the regular examination with experts from the Member States of the various problems arisen from management of the bilateral agreements. The administration involves the establishment and rapid transfer of statistical data; constant monitoring of quotas, licences, the product origin and classification; examination of Member States’ request for new restrictions and subsequent negotiations; and examination of requests from third countries for transfers or quota modifications and subsequent negotiations. Moreover, a system of dual control, by both the EC and exporting countries, was established.^^ This further places an extra burden on exporting countries to manage their textile exports.

Article XIX of the GATT and Article 115:3 of the EEC Treaty allow the use of tariff as a means of trade protection. In practice, the EC safeguard actions rely mainly on’ quantitative restrictions. GATT safeguard measures are required on a temporary and non- discriminatory basis. The MFA, however, enables the EC to manage trade in textile bilaterally or even unilaterally. The vast majority of the EC textiles restrictions then jis

^^27th General Report EC. point 890.

^^Dec.94/277, OJ 1994, L123/1.

^ COM (80) 438 final. Report on Two Years’ Operation of the Multilateral Arrangement by Reference to the Textile Policy Objectives Established by the Community in 1977. Brussels, 17th July 1980, at 23 and 24.

applied to some selective developing countries. Regulation 3589/82 introduced the anti­ surge clause by the EC to prevent an excessively sharp increase in imports. The anti-surge procedure would deny access rights, and mean nothing but cutbacks.^® It was incompatible with Article 5 of the MFA which referred specially to full utilization of q u o t a s . B y creating uncertainty in access rights this anti-surge procedure would have disruptive effects on exporting countries. It was negative to the objectives of the MFA.^ The EC argued that many developing countries have apparently benefited from increased export possibilities under the MFA bilateral agreements. This increase, however, was criticized as only to be decided on an unilateral basis by the EC and not in the MFA as a right.^' The operation of the textile regime by the EC has therefore tended to be more restrictive.^^