Economic Impacts Of Phasing-out MFA On China Cotton Industry Under Market Integration

With the new round of market-oriented reform on cotton ciuculation institutuion and China's accession to WTO, domestic cotton market has made a great change. The theory and methdology of market integration have been adopted to test the efficiency of the cotton market in China. In order to describe and check up the degree of the market margin of China cotton, the Augmented Duckey-Fuller Test, Cointegration Test, Granger Casualty Test, and Error Correction Model will help verify the relationship between China Mainland and International Market. The result of our research shows that there exist long and casualty relationship between China and world markets. As the more important role in international cotton trade, China especially the main provinces of consumption take more effect on the fluctuation of world cotton price. When the shock on the demand or supply occurs, the regression to the equilibrium price is more quickly than before. Furthermore, some factors, such as administration intervention, construction of communication etc also were exposed to affect the efficiency of cotton market,.With the phasing-out of Multi-Fiber Arrangement (MFA), the existing quota was eliminated completely on January 1st 2005. The debates and concerns on the trade situation of textiles and apparels have been growing. The objective of this study is to examine the impacts of phasing out of MFA and alternative policies on world economy and Chinese cotton industry. Based on a general equilibrium model of the Global Trade Analysis Project (GTAP), study shows that China and World will significantly benefits from eliminating trade quota and further trade liberalization of the textiles and apparels. However, the gains from trade would be largely offset, if USA, EU and Canada would convert the currently trade barriers to other non-tariff barriers to restrict import. Totally, the increase of export of clothing and appreals will promote the supply of domestic cotton. After estimation of the elasticity of supply, we estimate the impacts on the cotton industries in different region of China after cancellation of quotas under MFA. Based on the above analysis, some policy implications are discussed.