Textile and Apparel Barriers and Rules of Origin in a Post-ATC World

Although textile and apparel imports from most countries entered the United States quota free after the expiration of the Agreement on Textiles and Clothing on January 1, 2005, substantial quantitative restraints remained for Chinese and Vietnamese imports. These countries were respectively the first and eighth largest exporters of textiles and apparel to the United States, so these quantitative restraints remain important barriers to U.S. imports. This paper uses the USAGE– ITC model to estimate U.S. welfare gains and sectoral impacts of removing the remaining restraints on textiles and apparel imports. This analysis includes a new and detailed examination of textile and apparel preferential rules of origin. The shocks applied in the simulation include large declines in foreign demand for U.S. textile inputs in sectors in which U.S. exports are currently driven by rules of origin, and export price reductions that would accompany the elimination of rule-of-origin compliance costs in these sectors. Liberalization of textile and apparel barriers and rules of origin is estimated to increase U.S. welfare by $3.4 billion (net) while decreasing U.S. textile and apparel output by $11.0 billion. Eliminating only quantitative restraints provides over half of the welfare gain but causes less than 2 percent of the output loss, with a large decline only in the sock sector. Tariff elimination provides about one quarter of the welfare gain at a cost of 13.3 percent of the output loss, while elimination of rules of origin accounts for the remaining 23.3 percent of increased welfare and 84.9 percent of the overall output reduction.