MFA 1 : WTO 0 - back to textile quota square one

Multi-Fiber Arrangement got extended for another 3 years, effectively, as China is forced to resurrect the quota system. For 10 years of transition period the protectionists just sit there and wait for a time to renegotiate and extend it, and they succeeded. And they will succeed again after China negotiates with US, another protectionist hypocrite.

According to HK media, The new quota is expected to be sold under an auction system. The owner of the quotas can re-sell them freely. But only those with textile export license are allowed to bid (to avoid speculation and hoarding). These all make sense, as I have suggested before. However, to ensure the quotas are not wasted, a small penalty should be imposed over un-used quota (via a deposit paid on top of the auction price). The government should also help to establish a market platform for re-selling of the quota and perhaps force a fire-sales near the end of year.

This should have been implemented right after EU-China deal, but as usual, the bureaucrats are by definition myopic. So we have had 87 millions pieces at the European ports. A better transition should have force a gradual increase of quota from 2001-2004 (e.g. 50% p.a. for all countries). WTO should learn from this lesson.

Although the quotas will inevitably increase the cost for the exporter, there is no lesser evil, unless we kill the protectionists. It is better than a tariff system, and it helps to increase the value added per piece (% cost/revenue is smaller).
  • Compared to the old system, it is still a better one. If your grandpa owns a textile/garment factory in HK in 1970s, you have some US$10-20M asset (real estate) plus a few US$M/year by selling quota till 2004. The communists call all capitalists social parasites, perhaps this is where such name could sound appropriate.

For China, you have waited for 25 years already, just hold on to another 3 years. Let's look forward to 2008, when we can bury MFA for good. Let's hope for A Better tomorrow.

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