Are Apparel Trade Restrictions Regressive?

Article excerpt

Since the Multi-Fiber Arrangement in 1974, the textile and apparel industry has received more comprehensive and persistent protection than any other industrial sector (Cline 1990). According to Hufbauer and Elliott (1994), tariffs and quantitative import restrictions in place in 1990 cost American consumers about $70 billion, more than 1 percent of Gross Domestic Product (GDP). More than a third, $24 billion, of these consumer costs were attributable to textiles and apparel alone (Hufbauer and Elliott 1994).

Currently, trade liberalization programs are underway. The World Trade Organization (WTO) Agreement on Textiles and Clothing provides for the phased liberalization and elimination over the transition period of quotas on textiles and apparel imported from WTO member countries. This agreement was approved as part of the Uruguay Round Agreements Act by the U.S. Congress in December, 1994, and went into effect on January l, 1995. Also, the North American Free Trade Agreement (NAFTA) has created new opportunities for United States' textile and clothing market.

Despite this trend toward free trade, the U.S. Committee for the Implementation of Textiles and Apparel (CITA) notified the Dominican Republic, Colombia, Costa Rica, El Salvador, Honduras, Thailand, and Turkey that their exports of underwear to the U.S. have been protested by U.S. manufacturers (Turck 1995). This move is considered to be a prelude to negotiation for reductions of such imports, which increased nearly 90 percent during 1992-1994. The U.S. also notified Jamaica, Honduras, and El Salvador that it plans to limit their exports of nightwear (Turck 1995). Vosko (1993) examined the extent to which trade between Canada and the U.S. was liberalized in textiles and apparel goods under the NAFTA and demonstrated that while moderate liberalization was achieved in textile trade, protectionism was increased in apparel trade.

Restrictions of the supply of imports tend to raise their prices, and as the prices of imports rise, the prices of competing domestic goods tend to rise in response (Cline 1990; Dardis 1988; Scott and Lee 1996). It is well known that such price increases cause losses in consumer welfare. Past studies have assessed aggregate consumer welfare loss due to trade restrictions in the apparel industry. Clearly, trade restrictions reduce the efficiency of the economy. As Smith (1998, 441) and others have pointed out, however, equity may also be an important goal in assessing policies. Smith (1998, 441) lists three specific equity goals: equalizing the distribution of power, altering income distribution, and reducing uncertainty. Various interest groups, such as labor unions, use equity concerns to argue against trade liberalization (AFL-CIO 1996; Burtless 1995; Freeman 1995, 17).

In terms of equity, the question of which consumer groups stiffer more welfare loss should also be of interest, especially the relative impact on different income groups. There are at least two reasons to believe that the welfare loss is different for different income groups. First, it is suggested in past literature that the price of low-value apparel products tends to be affected more by apparel trade restrictions than high-value apparel products (Bergsten 1972; Christerson 1994; Christerson and Appelbaum 1995). Because low-income consumers are usually buyers of low-value apparel products, they are likely to be affected more by apparel trade restrictions. Second, because consumers with different levels of income respond to price changes in apparel differently, consumer welfare loss due to the same apparel price increase can also vary across consumers with different income levels.

While it is self-evident that low-income households get hurt more by the greater increase in low-value apparel products caused by apparel trade restrictions, it is not obvious how consumer welfare loss differs between low- and high-income consumers due to their different responses to price changes. …