Regionalization of Textile Trade: Evidence from the EU, NAFTA, AFTA, and SAPTA

Abstract

This study examines the integration effects of four regional trading agreements (RTAs) respectively the EU, NAFTA, AFTA, and SAPTA on textile fabric trade from 1990–2005. A modified gravity model for analyzing textile trade was first generated by the fixed-effects method. Regional dummy variables were then used to identify trade creation and trade diversion effects arising from the RTAs. The results indicated that neither trade creation nor trade diversion effects existed in the EU textile trade. Trade creation in terms of imports was identified in NAFTA and SAPTA. There is no indication of shifting textiles trade from the rest of the world to the member countries with the implementation of these two free trade areas (FTAs). On the contrary, trade diversion was recognised some years after AFTA's enactment. It represents a movement towards free trade and is beneficial for the welfare of the world. This article provides empirical evidence on how textiles trade influenced by the formation of RTAs and elimination of quotas on textiles products.

ACKNOWLEDGMENTS

The authors would like to thank The Hong Kong Polytechnic University for providing studentship to fund this study.

Notes

¹Membership of the RTAs.

EU    France, Germany, Italy, Belgium, Luxembourg, The Netherlands, Denmark, Ireland, the United Kingdom, Greece, Spain, Portugal, Austria, Finland, Sweden, Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia, Bulgaria, Romania

NAFTA  United States, Canada, and Mexico

AFTA   Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam, Laos, Myanmar, and Cambodia

SAPTA  Bangladesh, Bhutan India, Maldives, Nepal, Pakistan, Sri Lanka

Source: From wikipedia.org website

²Import penetration is defined as the share of extra-EU imports in total consumption within the EU.

³Based on economic theory, it is necessary to include as many relevant variables as possible for developing a general unrestricted model. After that, the regression was refined by eliminating one variable at a time with an insignificant coefficient.

Report from the Trilateral Working Group on Textiles and Apparel to the NAFTA Free Trade Commission, March 7, 2005.

Additional information

Notes on contributors

Vivian Wai-Yan Tsang

Vivian Wai-Yan Tsang received a Bachelor of Arts (Honors) degree in Scheme in Fashion and Textiles, and Master's of Philosophy degree in Marketing, Retailing and Management from the Hong Kong Polytechnic University.

Kin-Fan Au

Dr. Kin-Fan Au is a Fellow of the Textile Institute, a senior member of the American Institute of Industrial Engineers (USA) and a member of the British Institute of Management (UK).