MultiFibre Agreement Impact on the European Economy

There was an agreement among the EU states in the year 1995 to phase out the MFA over a period of ten years. Accordingly the MFA was abolished at the end of the year 2004. The removal of the protectionist measure in the form of MFA has resulted in economic advantages to certain Western European Countries. However certain other European countries like Italy, Spain, Portugal, and Greece have raised serious complaints against the removal of the quantitative restrictions on the plea that such action had largely affected their domestic textile and clothing industry and the workers in the industry. With this background this paper presents a critical assessment of the potential benefits and problems to which European Union is subjected to due to the abolition of MFA.
Before the impact of the abolition of the MFA on the European Union can be discussed it is important a background of the causes and circumstances under which MFA was entered and the immediate effect of the abolition thereof. (Jean-Pierre Lehmann)
The emergence of China as an economic power had influenced all the other countries of the world to make economic adjustments to grow at the same pace as Chinese economy developed. In the light of these changes in the world economy, the Western European countries had embarked upon an association for peace and prosperity in the form of European Union. The economic and political success of the European Union had made the Eastern European countries to request for accession to the EU. All the European countries and even China opted for accession to World Trade Organization in the wake of economic globalization. (Jean-Pierre Lehmann)
The formation of the EU and accession to the WTO had resulted in some over-regulation and un-dynamic inbuilt rigid aspects in some of the European economies especially for the protection of uncompetitive sectors. This had also restricted the provision of the conducive conditions for any creative destruction or innovation. Under these circumstances countries like the Netherlands, Britain, Ireland, Latvia and the Scandinavian countries have reformed their economic structures and adjusted themselves to the changing circumstances. However there are other larger economies like Germany, France, Italy, Spain, and Poland had become less successful due to their industrial sluggishness.
One of the anomalies of the international trading system resulted out of such un-dynamic environment basically to protect the domestic industry was to place the textiles and garment out of the General Agreement on Trade and Tariffs (GATT) rules in the Multi-Fibre Agreement (MFA) The agreement was entered into with the intense pressure from the governments of the developed countries since there was a fear in the import-competing firms in such nations that the rise in imports from the cost-competitive developing countries would eventually destroy the viability of their domestic textile and clothing industry.( (Grimwade, 1996)
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