Trade Policy Issues in the Asian‐Pacific Region:

Throughout the 1980s the Asian‐Pacific region (and especially fast Asian countries) has achieved rapid economic growth accompanied by drastic changes in industrial production and trade. In the textile and clothing industry (‘textile’ industry hereafter), exporting countries display the ‘flying geese’ pattern. The first‐tier exportec Japan, had retreated by the mid‐ 1970s. The second‐tier exporters, the East Asian newly industrializing economies (NIEs, consisting of South Korea, Taiwan and Hong Kong), are now being replaced by the third‐tier, ASEAN and Chinese exporters. The drastic changes in production and trade have resulted from the spread of modern textile production techniques in response to changing comparative advantage. This has been caused by increased labour costs and exchange rate alignment in the first‐and second‐tier exporters, but it has also been affected by the trade policies of industrial importer countries. The textile industry trade has been tightly managed under the Multi‐Fibre Arrangement (MFA), and individual trade flows have been restricted by quota allocation under the MFA. At the current GATT Uruguay Round negotiations the major contracting parties agreed, in the Dunkel text of December 7997, on the gradual phasing out of the MFA restrictions over ten years. How will textile industry trade develop in the absence of the MFA restrictions? This paper focuses on the trade and production of textiles and clothing, but the case of this industry exemplifies important trade policy issues arising from the rapidly changing industrial structure in the Asian‐Pacific region. In discussing textile trade policy issues, economists often focus on the MFA. However, the MFA has not produced a watertight regime. Textile production and trade have changed through product and process innovation, new management styles, and the ever‐changing tastes of consumers. The MFA restrictions have effected these innovative changes, but the policy issues need to be discussed in this context of industrial change.1