MFA worked by creating quotas that restricted the competition posed by imports irrespective of the benefits of price considerations (Isenheim, 2007 p6). Quotas helped remove some part of the incentives offered to foreign suppliers unlike quantitative restrictions that totally eliminate prices and costs from the transaction. In essence, the MFA set up quotas that restricted the amount of textile products that each country could export to another per year. when this threshold was reached, they had to wait for another calendar year to resume exporting to those countries under the MFA (Isenheim, 2007 p7). The MFA agreement covered specific products, not only those made from cotton, but also from wool and chemical fibre (Isenheim, 2007 p7).
The quotas were provided or created through bilateral trade agreements and their implementation through unilateral measures in the event of “severe market disruptions or proof of an existing threat thereof” (Isenheim, 2007 p7). Poor developing countries were put in an advantageous position by the MFA since it allowed their products to compete on a level ground with cheap imports from developed countries. Developing countries like Bangladesh, which had readily available cheap labour, were as able to expand its textile industry to a stage where even after the abolishment of MFA, they were hardly affected, and it saw their revenues from the textile industry increase. This was because even after the MFA was done away with, they still had the largest pool of cheap labour compared to developed countries. This applies to all developing countries because they are characterised by the same conditions present in Bangladesh.
The economic impact of MFA on developing countries was greater than its effect, in developed countries.