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Limiting China's Textile Exports: The Us's And Eu's Divergent Approaches


Code : ITF0020

Year :

Industry :General Business

Region : :USA Europe

Teaching Note: Not Available

Structured Assignment : Not Available

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The Chinese Threat Chinese economywas unshackled in 1978 after Deng Xiaoping, the then Chinese premier, liberalized its economy and foreign investment policy. Since then, China has transformed froma planned, centralized economy to a globally oriented market structure. In the early 1980s, Special Economic Zones (SEZ)15 were set up in Xiamen, Shenzen, Shentou and Zhuhai (provinces of China) to promote the growth ofmanufacturing sector and export of Chinese items worldwide. This intiativewas based on the “open door”16 policy to attract foreign investment by deregulating the government intervention and providing special concessions to themanufacturers and export based units...

Multi Fibre Agreement TheMFAwas preceded by LTA(Long TermAgreement on International Trade in cotton textile) thatwas imposed by the developed countries (led by theUS), on the textile producing developing nations. The LTAcame into effect from1962. It was devised to protect the domestic textile industry of the developed countries from the low-cost labour and mass production capacity of the developing countries, especially fromthe developing economies of EastAsia. According to the LTA, theUSgovernment imposed an import ceiling of 5%on cotton textile products fromall the developing textile-exporting countries for a period of five years...

Effect on US and its Response After joining theWTOin 2001, China’s exports to the US have increased by 125%.30 In 2002, US removed quotas on 97 textile items as per the guidelines of theAgreement on Textile andClothing (ATC).With the removal of quotas in selected apparel items, cheaper Chinese goods in those categories flooded theUSmarket. Between 2002 and 2004,China’s share in the US textilemarket increased from10%to 73%in those categories. Consequently,US textile and apparel companies, which produced the yarns and fabrics for these products incurred heavy losses and most of them had to wind up their businesses. This resulted in the loss of 50,000 US textile and apparel jobs in 2003 alone...

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Effect on EU and its Response Since the phasing out of the textile quota in 1995, EU textile imports have been steadily increasing over the years despite the quotas. In 2002, EU abolished quotas for 56 items according to the framework ofAgreement on Textile and Clothing. In all those categories the share of Chinese goods increased from 9%in 2002 to over 50%in 2003.49 By 2003, EUhad become the largestmarket for textile and clothing, accounting for 43%of the global textilemarket.However, between 1995 and 2003, EU’s textile imports increased by 40%and were valued at $91 billion...

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