Effects of Quantitative Restrictions on U.S. Textile and Apparel Imports over 1995-2010: An Analysis using Gravity Models

The purpose of this study is to examine the effects on U.S. textile and apparel imports of the quantitative restrictions imposed under the Agreement on Textiles and Clothing (ATC) (1995-2005), the post-ATC U.S. safeguard quotas on 21 categories of Chinese textile and apparel products (2006-2008), and no quantitative restrictions on U.S. textile and apparel imports (2009-2010).

Data were sourced from the Office of Textiles and Apparel (OTEXA) in the U.S. Department of Commerce, the GeoDist dataset from the Centre d'Etudes Prospectives et d'Informations Internationales (CEPII), and the United Nations Commodity Trade (U.N. Comtrade) database.

In this research, three gravity equations were developed and estimated based on the existing gravity model. The first gravity equation was estimated to assess the effects of the independent variables commonly included in gravity models on the total value of U.S. textile and apparel imports from 187 exporting countries with a scaled dependent variable and from 177 without it. The result of the first gravity equation indicated that distance and the per capita GDPs of the exporting countries, exchange rates, and the total GDPs of the exporting countries are statistically significant and have the expected signs in the model with the scaled dependent variable. The second gravity equation was estimated to access the overall effect of the presence or absence of quotas and VERs on U.S. textile and apparel import quantity from the 187 exporting countries. The results from the second gravity model showed that the presence or absence of quotas or VERs is significant and has an unexpected positive sign because the United States tended to impose quotas and VERs on textile and apparel products that it imported in large amounts. The third gravity equation was estimated to assess trade creation and trade diversion effect of the quota and VER levels of U.S. textile and apparel imports with separate equations by product types considering the endogeneity by applying instrumental variables. The result from the third gravity equation showed that the quota and VER level is significant for fabric, apparel, and made-up products with expected signs but the variable is not significant for yarn products. These findings suggest that U.S. textile and apparel imports from the exporting countries limited by quotas and VERs on U.S. textile and apparel imports increased more than rest of world (ROW) imports from those countries as the quota and VER levels on U.S textile and apparel imports increased. Therefore, trade creation occurred between the United States and the exporting countries as the total SME quota or VER levels on those imports increased during the ATC and safeguard period. However, these findings show the demand of yarn as intermediates does not increase much in the United States; therefore, the increase of the total yarn quota or VER level has less of an effect on the yarn imports than other product types.