An agreement that for more than 30 years allowed wealthy countries to limit textile imports, particularly from developing nations, expires in 2005. Free trade advocates hail the end of the national textile quotas as a step toward a free world market. But there are fears that without quotas, large garment exporters in China and India will expand, forcing factories out of business in smaller countries.
Across Southeast Asia, millions of workers spend their days in factory sewing lines like this one, producing clothing for export to Europe and the United States.
The workers are mainly women and unskilled rural residents, and they generate billions of dollars in earnings for governments in the region.
But the industry is about to undergo a major shake-up. Rules that allow wealthy nations to place quotas on textile imports from poor countries expire at the start of the new year.
An official with the Thailand Garment Manufacturers Association, Suchart Chantaranakaracha, says that means buyers will be able to purchase from just one or two countries, instead of using factories in several nations.
"In the past, buyers have diversified because of the quota issue. But now since quota is not an issue, the buyers are going to short-list," he said.
He says buyers will be able to work closely with a few suppliers to produce better quality garments at lower prices. This is expected to favor large companies in China and India. The World Bank estimates that China's share of the world textile market will triple to 45 percent within a few years.
An economics professor at Bangkok's Chulalongkorn University, Somphob Manarangsan, says hardest-hit will be factories producing garments for less expensive markets, such as discount stores. Profits for that market already are extremely thin.
"For the lower market, I think that they are going to face tougher and fiercer competition and become much more difficult to survive within the existing situation," he added.
The garment industry is a major source of jobs, export earnings and tax revenue for Thailand, Vietnam, Indonesia and Cambodia. In Cambodia and Laos, it provides up to 90 percent of export earnings.
The Nike sports brand buys from factories in several countries. The head of Nike in Vietnam, Amanda Tucker, predicts there will be an adjustment after quotas expire, but says her company will continue to diversify its sources.
"Countries that have really not invested in their industries may find that they're losing to players such as China that have economies of scale," she noted. "But it doesn't necessarily mean that a brand such as Nike would all of a sudden concentrate everything in one source."
Vietnam faces a particular challenge. Because it is not a member of the World Trade Organization, its exports will remain restricted by quotas.
Vietnam hopes to join the WTO by the end of next year, but some factory operators worry they may not survive until then.
The less developed economies of Cambodia and Laos face other challenges.
They must import the cloth needed to make garments. And they have high utility and transportation costs, because of their poor infrastructure. In many countries, official corruption also inflates production costs.
Producers know competition will intensify next year and are adopting new strategies to address it. The general manager of a factory in Vietnam, Y.Y. Chen, plans to raise productivity by investing in new equipment, re-training employees and adopting creative management techniques.
"It depends a lot on how you can plan ahead, or transfer the orders to another subsidiary country," he said.
Cambodia is lobbying the U.S. government to suspend import tariffs on its garments to help it survive the transition.
Mr. Suchart at the Thai garment makers association says Thailand's industry will group factories that make cloth and those that make garments together to streamline production.
The Thai government also has introduced a campaign to establish Thai brand names in the high-fashion market.
"At the end of the day, by improving productivity, by giving better services, and by giving the buyer better goods and novelty items, I believe Thailand can compete with China," he added.
Nevertheless, the prospect of a major contraction in the industry costing hundreds of thousands of jobs worries union leaders and social workers. They say any economic downturn will hurt the most vulnerable groups in Southeast Asia and fear that a prolonged crisis in the poorest countries could lead to social and political unrest.