In this part of North Carolina, with its hard little towns and loblolly pines, the two textile mills in Erwin are about the only major employer. So it hurt when they automated and modernized in the early 1980s, cutting 600 jobs from the payroll.
But the modernization probably kept the mills, owned by Burlington Industries, in business. That in turn has kept 1,400 persons still employed there. Every mill job supports two or three jobs in service and supply industries outside the mills. Erwin (population 2,800) and its people would be in tough shape without them.
The situation at Erwin is typical of the American textile industry:
shrinking but still vibrant. But it is not at all typical of other American industries, many of which have collapsed or are being routed by imports.
The reason is a 24-year-old international agreement on textiles that has been widely condemned in the past as outright protectionism. The Multifiber Arrangement (MFA) allows Western governments, including the U.S. government, to set quotas on imports of low-priced textiles from the Third World.
Until recently, few persons outside the textile industry had anything good to say about the MFA. It was seen as an artificial barrier to free trade, inflationary, discriminatory toward poorer nations and an attempt to preserve an outmoded industry by hiding bad management and antiquated methods behind a wall of quotas.
But times are changing. Many industries, not all of them of the traditional or smokestack variety, say they cannot compete with the combined forces of a strong U.S. dollar, unfair Japanese competition and rock-bottom wages in the Third World.
More and more, these industries and their unions–not to mention academics and politicians who once shunned the word ”protectionism”–a re wondering whether the MFA might be the model of the future. Others, still considering the MFA too restrictive or bureaucratic, no longer condemn it out of hand.
”Certainly something like that would be of advantage to our industry,”
says Frank Luerssen, chairman of Chicago`s Inland Steel. ”The (nations of the) Pacific Rim are always going to find ways to beat us on costs–very low wages, government subsidies. Our whole standard of living is likely to fall to something between what it is now and the Pacific Rim countries.”
Luerssen thinks that any attempt to spread MFA-type nets over all threatened American industries ”could be unmanageable,” but the whole idea of managed trade ”doesn`t bother me,” he says, whether it be quotas, surcharges on imports or subsidies such as tax rebates for exports.
”There`s going to be a need to construct mechanisms to manage trade–not to stop trade but to bring order to it,” says AFL-CIO economist Mark Anderson. ”Something like the MFA, an orderly continuation of imports, to minimize disruption.”
Writer Robert Kuttner has said that theoretically the MFA, by sheltering the American textile industry from the cold winds of all-out competition, should have led to the industry`s stagnation.
”The result has been just the opposite,” Kuttner says. ”The predictability afforded by import limitation and a climate of cooperation with the two major labor unions encouraged the American textile industry to invest heavily in development of advanced technology. . . . In fact, textile
`protectionism` led neither to stagnation nor to spiraling prices.”
There have been quota agreements on some lines of textiles since 1961. The first MFA was negotiated in 1973 and has been renewed periodically ever since; negotiations on a new agreement start this summer.
Basically, the MFA is a treaty that has been forced by the richer textile-producing nations on the poorer ones. It sets an international framework within which governments negotiate specific quotas.
The MFA does not aim at choking off trade, just regulating it. In fact, new bilateral agreements reached in 1981 envisaged a steady 6 percent annual growth in textile imports into the United States.
The textile industry charges that government negotiators erred by setting limits only on certain textiles; other countries, such as Hong Kong and Taiwan, have circumvented these quotas by diversifying into other fabrics, with the result that imports have grown 19 percent a year since 1981. Textile companies such as Burlington assert that this flood of imports has hurt them so badly that 300,000 workers have been laid off in the last four years.
But an MFA that is ”properly negotiated” to ”permit a certain amount of market penetration (by imports)” would solve this problem and sustain the industry, says Don Hughes, chief financial officer of Burlington.
Without an MFA, Hughes says, the American textile industry probably would have to abandon most of the manufacturing of apparel fabrics and would become a much smaller industry specializing in carpets and other fabrics not yet imperiled by imports.
The balance sheet on the MFA, as drawn up by the industry itself, is mixed. It often is described as flawed and as a leaky sieve, but substantially better than nothing–and better than the on-and-off measures that the U.S. government regularly takes in attempts to protect steel, auto and other industries.
As it is, the U.S. textile industry, although battered, asserts it is still the nation`s biggest single industry, with 2 million employees. Moreover, it has streamlined and modernized at a $1 billion-a-year clip over the last decade.
The Erwin mills, for example, are a sharp contrast to the sweatshop conditions of the old textile industry, familiar to many Americans through the movie, ”Norma Rae.”
One room of 4.5 acres holds 345 huge automated looms. Twelve ”weavers,” each responsible for about 30 looms, run the mill using computers. Machines roll through the room sucking up loose dust. Seven other machines go back and forth plucking tufts of cotton in an operation that used to be done by hand, sort of an indoor version of cotton-picking.
”We used to have a lot of sweeping-, pushing- and pulling-type of jobs,” says Neil Yeargin, plant manager. ”Now our workers are more the technician type.”
”Our productivity is up by 300 percent,” Hughes says. ”It`s way to hell and gone ahead of the Japanese.”
Trade experts differ on the wisdom and workability of MFA, as they do on almost all forms of trade protection.
”MFA is a political necessity, given the wage-rate differentials
(between the United States and other textile-producing nations),” says Alan Wolff, a Washington attorney and former deputy U.S. trade representative. ”There has to be some degree of certainty in the industry.”
The MFA ”is not blatant protectionism,” Wolff says, adding that, without it, the government would have to impose ”much tighter restrictions” on imports that might close off the U.S. market altogether to Third World producers.
William Cline, an economist at the Institute for International Economics, calls the MFA a permanent ”fact of life,” because the industry`s huge work force casts so many votes. But he calls it a bad idea, ”a very inefficient allocation of global resources” and ”an example of how allegedly temporary protection becomes permanent.”
Cline`s argument reflects the classic objection to protectionism. This free-trade theory teaches that each country should do what it does best. If one country makes a better and cheaper mousetrap, then it deserves to supply the world`s mousetraps. All other countries will benefit from buying superior mousetraps. Countries who lose their own mousetrap industries to this competition can then devote their idle factories to producing something at which they excel.
A recent report by the General Agreement on Tariffs and Trade in Geneva, called protectionism ”an attempt to avoid the consequences of economic change . . . economic folly.” It singled out the MFA as a particularly horrible example of such protectionism, because it ”denies the poor almost the only competitive advantage they possess”–low wages.
Burlington`s Hughes calls this free-trade argument ”out of date, baloney, an anachronism, if it ever existed as a valid theory.” These low-wage exporters are de-industrializing the United States, Hughes said, and ”if you don`t look out for yourself today, you`re not going to be around tomorrow.”
Harvard Business School Prof. George Lodge argues that ”the old premise of free trade is in many ways a delusion. Governments are directly concerned with the outcomes, not just the rules of trade, and they manage their national portfolios by designing policies and institutions both to achieve competitiveness and to ease the costs of industrial transition within their borders.”
”It is absurd to let foreign mercantilists enterprise in the name of free trade,” Kuttner writes. ”The alternative is not jingoist protectionism. It is managed trade, on the model of the MFA.”
Theoretically, the MFA should have caused rising textile prices and a lack of competition. Actually, the American textile industry has more than 5,000 firms; the largest, Burlington, commands less than 10 percent of the market. Industry officials say that textile prices have risen only 90 percent since 1971, half as much as the overall U.S. industrial average.
The Federal Trade Commission, in a study published in December, studied tariffs, the MFA and other barriers protecting the steel, textile, auto and sugar industries. The study estimated that if quotas on Hong Kong textiles alone were abolished, 8,900 U.S. textile workers would lose their jobs. But, it said, each job saved costs the economy $41,800 in increased inflation and lost efficiency.
The textile industry disputes the figures, saying the Hong Kong quota costs $12,800 for each U.S.job saved, about the same as laid-off workers would draw in unemployment benefits.
The FTC study estimated that the total cost to the economy from barriers on steel, textiles, autos and sugar is $12.7 billion a year. Advocates of the quotas point out that this sum, while large, is only 0.4 percent of the U.S. gross national product and call it a price worth paying to keep the industries alive.
Michael Smith, deputy U.S. trade representative, warns that ”the price you pay for protectionism is inefficiency.”
Inland Steel`s Luerssen agrees but says that this ”is the price we have to pay to maintain our industrial base, because that industrial base is the underpinning for the whole economy.”
