Questionable trade quotas

Last fall, while the public eye was turned on President Reagan and his performance at the Cancun ''North-South'' summit, the real action in relations between the developed and developing countries took place quietly in Geneva and in national capitals. The renegotiation of the Multifiber Arrangement (MFA), the complex set of quantitative controls (quotas) that regulate industrial-country imports of textiles and clothing manufactured in the third world, was completed shortly before Christmas, and was far from a gift to third world exporters.

The MFA is perhaps the worst departure from the post-World War II trend toward more liberalized trade, not only because it deviates from the principle of most-favored-nation treatment in trade matters, but more so because it explicitly discriminates against the nations of the third world. To add injury to insult, while the MFA may be prudent politics, it makes little if any long-term economic sense. Nevertheless, the recently negotiated agreement could turn out to be even more restrictive than its predecessors.

The MFA dates back to 1962, when it was felt that imports of cotton goods (primarily from Japan) were seriously injuring domestic textile industries in the United States and Europe. The first formal MFA was entered into in 1974 and included products made of wool and synthetic fibers as well as cotton. The basic objective of the MFA was to provide the world economy with an orderly trade framework which permitted growth in developing-country exports while avoiding the disruptive effects of sharp rises in imports in the developed countries. Hence, while it represented a compromise between producers in developed and developing countries, the MFA amounted to nothing more than negotiated protectionism.

The MFA was intended to be temporary in duration, to give industrial-country producers ''time to adjust'' to international competition. It limited imports of affected items to a 6 percent annual growth rate. This is on top of an already high tariff -- US tariff on imports of apparel are about 25 percent (compared with the average US tariff of about 8 percent).

In practice, protectionism tends to breed even more protectionism. When the MFA was renegotiated in 1977 (instead of phased out as originally planned), the developing countries were forced to accept the doctrine of ''reasonable departures'' from previously agreed-upon rules. This permitted the industrial countries to adopt more restrictive policies on ''sensitive'' categories of textiles as they saw fit. The European nations quickly became more protectionist , and the US eventually followed suit. In its efforts to secure congressional passage of the Tokyo Round trade bill, the administration tightened up US controls on textile imports.

The basic cost of import restrictions is inflation and loss of efficiency. A study conducted by the now-defunct Council on Wage and Price Stability found that quotas and tariffs on textile and apparel goods cost US consumers about $2. 7 billion per year. Moreover, the cost to consumers of saving jobs in the apparel industry by reducing the rate of growth in imports to 3 percent could be as high as $81,000 per job. This is not an efficient way to run the economy.

An important additional cost is the potential reduction in US exports. If developing countries cannot earn foreign exchange by exporting, then they cannot afford to puchase many of the goods and services that employ our factories and labor force in export industries.

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