Rent-sharing in the multi-fibre
            arrangement : the case of Mexico
The author investigates market power and
            the distribution of rents in the market for Mexico's
            exports of apparel to the United States under the Multi -
            Fibre Arrangement (MFA). Conventional wisdom holds that
            voluntary restraints, such as those under the MFA, are
            superior to other kinds of trade barriers because they allow
            developing countries to receive the scarcity rents from
            quantity restriction. Recently a number of studies have
            questioned this orthodoxy. Erzan, Krishna, and Tan (1991),
            in particular, have pointed out that if market power exists
            only on the side of the importers, they can acquire some of
            the fixed rents resulting from quotas, in a form of
            "rent-sharing". In Mexico's case, rents
            resulting from MFA restrictions are probably small, since
            few of the quotas imposed are binding. And other
            institutional arrangements - such as production sharing
            under HTS 9802 and a liberal quota regime for goods made
            with U.S. inputs - further mitigate the MFA's
            restrictiveness. Mexican exporters probably receive only a
            fraction of available rents, says the author. The welfare
            implications of MFA restrictions, and of market
            imperfections that might lead to rent-sharing, are thus not
            as significant in Mexico as they might be in countries for
            which conditions are more restrictive. But even for the few
            rents generated in Mexico's case, some rent-sharing is
            taking place. The author tests the existence of perfect
            markets and rent-sharing for six groups of Mexican apparel
            exports to the United States between 1981 and 1990;
            sweaters, trousers, men's coats, women's coats,
            woven shirts, and underwear. There are consistent
            differences between the unit value of U.S. production and
            the Mexico export f.o.b. price of apparel in the U.S. market
            adjusted for tariffs and transport costs. The adjusted price
            of Mexican exports is consistently below the price for U.S.
            production, which suggests that rent-sharing may be taking
            place. Using modifications of the methods of Erzan, Krishna,
            and Tan (1991), the author tests alternative explanations
            for the price difference - differences in composition of
            Mexican exports and U.S. production, and differences in the
            quality of Mexican exports and U.S. products. The existence
            of differences in composition between Mexican exports and
            U.S. production is rejected for three of the six groups. The
            author also controls for the existence of significant
            quality differences. The results indicate that rent- sharing
            may exist for woven shirts and underwear (two of the three
            groups in the sample that are consistently quota bound).
            U.S. importers may receive up to 49 percent of available rents.