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Abstract
This study analyses the impact on the US cotton industry of removal of the Multi-Fibre
Arrangement (MFA) using a multimarket displacement equilibrium model. The model captures the basic
linkages of textile products and cotton markets in the USA and in non-US markets. Different textile trade
policy reforms are simulated. Results suggest that removal of textile trade restrictions in the OECD
countries induces a decrease and structural change in the total demand for US cotton towards a larger
dependency on the world market. The decrease in total demand for US cotton has negative welfare effects
on the US cotton industry. However, the welfare loss depends on how non-US cotton exporters respond
to changes in OECD trade policy. The largest estimated loss is about $200 million. Ignoring agricultural
linkages of the textile industry in the analysis of textile trade liberalization would induce an upward bias
in estimated welfare gains for the US economy. The results suggest the likely formation of a coalition of
US cotton-textile-apparel producers to generate political pressure for more trade protection.