## IMF Survey: End of Quotas Hits African Textiles

_IMF News, July 5, 2007_

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**Canonical URL:** [IMF Survey: End of Quotas Hits African Textiles](https://www.imf.org/en/news/articles/2015/09/28/04/53/sonew075a)

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## Bibliographic details
- Authors: Thomson Fontaine IMF African Department July
- Published: July 5, 2007

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### Background and timeline
- Multifiber Arrangement (MFA) negotiated under GATT came into force at the start of 1974, permitting bilateral quota restrictions on textile imports.
- The Agreement on Textiles and Clothing (ATC), reached in 1995, stipulated phasing out MFA quotas over 10 years ending on January 1, 2005.
- Quotas were phased out on January 1, 2005; consequences began to manifest immediately and continued through 2006 and beyond.
- The U.S. African Growth and Opportunity Act (AGOA) from 2001 granted duty-free access to the United States and included a "third-country fabric provision" for least developed countries.

### Export performance and employment impacts
- Between 2000 and 2004, textile exports from Swaziland, Lesotho, and Madagascar increased from $444.0 million to $1,063.5 million.
- For Lesotho:
  - Textile exports represented about 75 percent of total exports.
  - Number of factories rose from 21 to 47.
  - More than 50,000 workers were employed in the sector.
- For Swaziland:
  - More than 32,000 workers found employment in newly opened factories.
- Post-quota phaseout impacts:
  - Textile exports from the three countries dipped an average of 12 percent during 2005 from the previous year's level and fell again by 6 percent in 2006.
  - In Swaziland, more than half of those employed in the textile sector lost their jobs.
  - In Lesotho, about 15,000 of the 50,000 workers employed in that sector lost their jobs.
  - About one-fourth of factories in Lesotho shut down.
- Madagascar:
  - Only 3 firms out of 124 shut down.
  - Impact mitigated by investment in quality and reorientation of export destinations from the U.S. to the EU market.

### Causes and competitive pressures
- Largely Asian-owned textile companies relocated operations back to their countries of origin once quotas were removed.
- Significant currency appreciation hurt competitiveness:
  - The South African rand (to which Lesotho and Swaziland peg their currencies) appreciated from R 12 to $1 (around 2003) to about R 7.3 to $1 by the time of reporting.
  - Since the second half of 2006, Madagascar's currency appreciated substantially.
- Additional competitive challenges:
  - Rampant expansion of Chinese exports to U.S. and EU markets, especially after 2008 when bilateral agreements restricting Chinese exports expire.
  - Unit labor costs in Swaziland, Lesotho, and Madagascar are higher than in Asian textile-producing countries.
  - Possible reductions in most-favored-nation tariffs under the Doha Round could reduce preference margins for African exports.
  - No guarantee AGOA benefits will last beyond 2012; third-country fabric provision was recently extended to 2012 instead of expiring in September 2007.

### Government and market responses
- Lesotho measures:
  - Granting rebates of import duties on imported raw materials.
  - Initiating discussions with major U.S. buyers such as The Gap and Levi Strauss on doing business in Lesotho.
- Swaziland measures:
  - Vigorous efforts to safeguard the remaining sector and to attract new investment.
- Madagascar measures:
  - Prospect of greater access to the South African market through the Southern African Development Community (SADC) Free Trade Area (FTA) scheduled to be implemented later in 2007 prompted new investment.
  - Four new textiles and clothing firms were created in the export processing zone in 2006.
- International policy development:
  - The U.S. government extended the third-country fabric provision under AGOA to 2012.

### Policy implications and recommendations
- Key policy aims to mitigate quota removal effects:
  - Increase worker productivity.
  - Address labor skills.
  - Facilitate increased trade within the SADC FTA and with the EU.
- Strategic focus:
  - Investment in quality and market reorientation (as in Madagascar) can limit job and firm losses.
  - Maintaining and negotiating trade preferences and rules of origin remains critical given higher unit labor costs.
  - Engagement with major buyers and targeted incentives (e.g., duty rebates) can help retain and attract textile investment.

*Source: IMF Survey: End of Quotas Hits African Textiles*

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [In The News](https://www.imf.org/en/news/search)
- [Swaziland and the IMF](http://www.imf.org/external/country/SWZ/index.htm)
- [Lesotho and the IMF](http://www.imf.org/external/country/LSO/index.htm)
- [Madagascar and the IMF](http://www.imf.org/external/country/MDG/index.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/sonew075a_