Unit 15 - Background & Issues

Trade liberalization in textiles and agriculture are in part a stalking horse to bring us back to the idea of trade law’s hidden link to ideas about economic development, and differing country perspectives.  At the same time, they constitute a bridge to the political economy of traditional industries, and what might be considered the law of unintended consequences.  Pre-1994, textiles and agriculture as sensitive areas were subject to special regimes under the GATT.  As a result, intended trade liberalization under the 1994 WTO Agreement and in the Doha Round was to be phased in over time under transitional regimes.  But there have been some bumps in the road.

The first was China’s 2001 accession to the WTO, which introduced a classic 800-pound textile sector gorilla to upend the traditional order premised on quotas being phased out theretofore available to a wide range of developing WTO member countries under the Multifiber Agreement in force 1974-2004.  The major textile competitor member country was subject to some temporary restraints under China’s accession agreement to the WTO, but in the longer term the majority of former quota-holding developing countries found themselves no longer to be internationally competitive in the textile sector.  

The second is vaguely perceived in its early stages as complications presented by climate change’s on-coming effects on agriculture.  They are anticipated to be negative in the form of lowered agricultural productivity in traditional growing areas (as ambient temperatures and/or water scarcity increase, looking to 2050 versus 2100, etc.), plus access issues as industrializing countries’ growing middle classes seek to improve their diet via increased protein intake.  Dairy and livestock demand increases, may cause either strain on resources like water and cereal supplies in conjunction with animal husbandry, or changing to vegetarian protein sources (meaning a mooted transition to “fake” meat, or the Beyond Burger phenomenon, which in turn threatens established industries).

Concerning textiles, along with other light industries like shoes (often athletic, check where your sneakers were made), textiles are ubiquitous.  Textiles are probably best recognized in development economics as a “starter industry” on an economic development ladder commencing with light industries, running through consumer electronics, then to advanced manufacturing like chip fabrication and pharmaceuticals.  Textiles has been paired with clothing aka “garment assembly” as an automation-resistant industry until very recently.  So “textiles” and “clothing” are not exactly the same thing in trade economic terms.  

Meanwhile, creation of a robotic seamstress long remained one of the Holy Grails for factory automation, with the result that garment assembly traditionally followed ideas about cheap laborer and comparative advantage.  So textiles themselves have traditionally been subject to automation concerns reaching back to the steam-powered loom and spinning jenny during the original nineteenth century industrial revolution.  Meanwhile, garment assembly largely remained a human enterprise, although technological advances have seemingly brought that successful robotic seamstress ever closer.  

The Southeastern textile industry itself presented a case study under NAFTA 1.0 post 1994.   Marketing and design typically stayed in the US, meanwhile high-quality local inputs (Southern and Sea Island cotton) often were shipped south to Mexico to take advantage of changed circumstances (under NAFTA 1.0’s yarn-forward rules of origin or ROO).  Factories moved to Mexico implemented automation and newer textile looms, since US producers had been discouraged from continued investment by the Multifiber Agreement’s quota structure (so maybe NAFTA as such was not wholly responsible for textile mill closings in small Southern towns).  In parallel, US FTAs with smaller Caribbean and Central American countries created an entirely new garment-assembly industry structure (in an effort to provide economic opportunity in neighboring countries and discourage drug trafficking south of the border).  

Businessmen in SE Asia tell me that Asian textile entrepreneurs looked seriously at acquiring some of those closed Southern textile mills, except if they do purchase any they would invest heavily in automation so that not that many jobs might accompany “repatriation” of said textile mills.  And if the engineers finally can design a workable robotic seamstress (meaning can recreate all the abilities of the human hand for sewing clothing), the same might be said for garment assembly.

The issue on the food security side is similarly complex and overlaps with development concerns mostly related in some way to climate change.  On the one hand, much of the developing world lies close to the equator, where the effects of climate change will be greatest.  Also, the traditional development strategy was to pursue industrialization and export-led development (of goods), which approach was successfully pursued by many Asian countries over 50 years.  One hidden problem is that industrialization traditionally is associated with increased energy usage, and so is a proxy for increasing carbon generation.  (That is the broader problem whether industrialization as development strategy currently will still work in the face of climate change concerns.)  Expanding use of renewable energy and green technology might help, but then you face a technology transfer and presumably a TRIPs issue in trade law terms.  There is some lip service paid to “sustainable development,” but thus far the concept seems more a political than legal concept in the trade context, even while increasing in importance in the international environmental law or climate change context.

Agriculture in most of the developing world traditionally involved smallholder, if not subsistence level farming.  Rural to urban migration has been a fixture of ideas about modernization and economic development since the 1950s, and the factories underpinning “export-led development” were to be staffed by those rural-urban migrants to the mega-cities of the developing world.  Sometimes the problem has involved a conscious if often unspoken policy in developing countries of keeping food prices low, which favors urban workers over rural farmers (a political choice, but a problematic one for local agriculture).  Other times the problem has been that to increase agricultural output, productivity and efficiency must improve, typically via consolidation.  At that point former smallholder farmers may be forced into urban migration if mechanized agriculture results in a surplus of agricultural workers, because increased productivity means you simply do not need as many workers.  The US is itself an example in terms of low agricultural employment versus high agricultural output following mechanization and consolidation of agricultural land (meaning larger sized farms run as commercial enterprises).  Of course, this involves effectively remaking societies beyond simple trade law choices.

Concerns about “food security” predate concerns about climate change.  In the trade law context there was a long-running dispute about whether the creation of free agricultural markets under agricultural trade liberalization was actually necessary to real food security.  That raised the problem that food security on an individual and country basis represented more a problem of the unequal distribution of resources than absolute availability.  In turn, it came to be recognized that agriculture tended to be heavily protected and subsidized in the developed world (US farm support programs and the Common Agricultural Policy or CAP as the original political bedrock supporting EU political cohesion).

The assumption, based upon traditional ideas about comparative advantage, was that (often tropical) developing countries had cheap land and lots of sunshine, which should enable them to be efficient agricultural producers.  However, the problem was that their smaller farmers typically could not compete with the efficient, yet subsidized quasi-industrial agriculture of the developed world, at which point concerns were raised about food security (meaning if developing countries imported too much “cheap” subsidized food, they would become too dependent on the charity of strangers, assuming their own inefficient and so “uncompetitive” agriculture declined).  There was a similar pattern visible in discussions of subsidized fisheries.  Ultimately, the problem was simply that not all developing countries were anticipated to benefit from agricultural trade liberalization so that it was repeatedly discussed, but consensus has never been achieved, even while major agricultural producing countries have been pushing agricultural trade liberalization hard.

Now, climate change has added an additional level of complexity, because its greatest effects are projected to be experienced close to the equator and outside temperate zones.  In practical terms, that means the most negative effects would likely be experienced in developing countries, mostly clustered on the equator.  The combination of rising temperatures over time and more weather variation is projected to lower agricultural productivity and arguably engender conflict.  So it may be time to pay attention to those IPCC Reports, at least in the longer term, also in conjunction with discussions of sectoral trade liberalization in agriculture, although textiles may largely represent water under the bridge.  This is now the background against which discussions of economic development, textiles, food security, and climate change may take place, so matters have moved far beyond a discussion solely about trade law.  In the alternative, this may reflect the overlap of trade, environmental and economic development concerns as a matter of  trade law from a technical perspective, or that traditional trade policy narratives like “free trade” versus “protectionism” hardly capture the real interests at stake any more.