Trade Policy and Its Implications for Sourcing Fashion Goods

Trade Policy and Its Implications for Sourcing Fashion Goods

Louise Curran (Toulouse Business School, France)
DOI: 10.4018/978-1-5225-0110-7.ch006
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Abstract

This chapter builds on trade data and a wide range of existing research in the Global Value Chain (GVC) and international economics literature, to highlight the importance of trade policy to sourcing decisions in the fashion sector. Using the EU as an example, it highlights how preferential access through unilateral or bilateral trade regimes, provides incentives to source fashion goods in certain countries and how the conditions attached to market access can impact, both on sourcing and on governance in producing countries. Finally, the issue of anti-dumping action and its actual and potential impacts on the fashion sector is explored. The chapter concludes with some observations on the growing importance of effective oversight of supply chains, in a context where retailers are increasingly being called to account for the impacts of their sourcing choices.
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Background

Trade policy has historically had a strong impact on the fashion sector, especially the clothing industry (Abernathy, Volpe & Weil, 2006; Gereffi, 1999; Spinanger, 1998). The links between trade policy and trade flows in the sector have been quite extensively studied and the chapter will draw on this work. Early work tended to focus on the impact of the quota system which restricted trade under the Multi Fibers Arrangement (MFA) and the ensuing Agreement on Textiles and Clothing (ATC), under which trade was slowly liberalized (Gereffi, 1999), as well as the likely impacts of that liberalization (Curran, 2008). The MFA established quota limits on imports to key markets from a number of suppliers and distorted trade in clothing extensively for many years. The objective of the system was to protect the domestic clothing and textile manufacturers of the key world markets – mainly the US and the EU – by limiting imports of certain products from the most competitive exporters. Retailers, whose traditional sources were constrained by quota, looked to new low cost suppliers to fulfil their requirements. As these new suppliers became more important, they in turn began to be constrained by quota limitations. Thus, over time the number of products and exporters covered by the system expanded, as the industry spread across an ever wider range of countries (Gereffi, 1999).

Key Terms in this Chapter

Least Developed Countries (LDCs): A list of the poorest and most disadvantaged countries in the world defined by the UN each year. Under WTO rules, LDCs can be accorded better market access than other developing countries.

African Growth and Opportunity Act (AGOA): US market access scheme for certain African countries, which includes preferential access to the US market for ‘lesser developed’ countries, often with liberal ROO.

Rules of Origin (ROO): The detailed definitions of the requirements for goods to be classified by the customs authorities as being ‘made in’ a given country. Although ROO also exist for non-preferential trade, their impacts on trade flows are mainly in relation to preferential market access.

Everything But Arms (EBA): Preferential EU market access scheme for LDCs. Provides duty and quota free access to all LDC goods, except armaments, to the EU market, providing they fulfil the ROO.

Global Value Chains (GVCs): A term applied to production networks for goods which cross one or several borders.

Multi-Fibers Arrangement (MFA): A derogation from the usual global trade rules, which allowed developed countries to protect their clothing and textile markets through quota limitations on exports from their key suppliers. Negotiations led to the gradual removal of quotas, until they completely disappeared in 2008.

Free Trade Agreement (FTA): An agreement between two or more countries to eliminate tariffs on trade between them, for the majority of goods.

Preferential Market Access: Refers to the fact that certain exporters pay lower or no tariffs on their exports to a given market, either because their country of origin has an FTA with the importing country, or because the latter has accorded them special access by virtue of their country’s low level of development and/or their adoption of certain policies to support more sustainable development.

Tariffs: A tax on imports, usually based on a percentage of the import value of the goods.

Anti-Dumping (AD): Action taken by the local authorities to remedy prices considered to be too low, usually by imposing new taxes at the border on the goods judged to be dumped.

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