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The multi-fiber arrangement (MFA) was an agreement between the European Union (EU) and the United States of America (USA) which restricted exports on fiber goods from developing countries. This was so these nations would not overtake domestic industries in the EU and USA. The agreement was intended as a short-term tactic to preserve industry in the EU and US. It is also known as the multi-fiber agreement.
Textile industry goods were covered by the multi-fiber arrangement. Specific products included yarn, fabric, and clothing. These particular industries were targeted because they are labor-intensive. Where developing countries typically have an advantage in these industries because of their high populations and low worker salaries.
Under the multi-fiber arrangement, exports from developing countries were subject to quotas. Each country was assigned a specific allowable number of exports for each item. Only a certain percentage of goods were allowed into each developed nation per year. Once that quota was reached, the country could not export additional goods until the next calendar year.
There were some exceptions in the multi-fiber arrangement. Very poor countries, such as Bangladesh, were not subjected to restrictions as being subject to quotas would seriously affect the well-being of the nation. Countries with this advantage were able to expand their industries to such a level that new competition that resulted from the end of the MFA did not appear to harm them as they continued to have cheaper labor.
The multi-fiber arrangement was active between 1974 and 2004. It was then deemed to be against World Trade Organization (WTO) regulations. For this reason, the MFA was canceled as of January 1, 2005. Since then, developed nations have attempted to find other ways to replicate or at least approximate the effect of the multi-fiber arrangement.
Once the multi-fiber arrangement was ended, China had a sharp increase in exports. The USA and EU called upon the nation to restrict trade as was outlined in its accession agreement from the WTO. This resulted in quota restrictions for a set period of years between both USA and EU.
Post-multi-fiber arrangement restrictions on China were the cause of some controversy in the EU. When China learned of the new requirements, it increased its exports exponentially in an effort to beat the deadline before these new rules were enforced. There was so much product delivered that it eclipsed the annual quota, resulting in shipments being held at EU ports. Eventually, a diplomatic resolution was reached.