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China and India to Benefit from New Trade Rules in January

On January 1 the huge global trade in textiles and clothing will be freed from the complex web of quotas and regulations imposed by many industrial countries over the past 50 years. The biggest winners from global deregulation are expected to be China and India.

There are dire predictions about dislocations in the textile and apparel industries both in rich and poor countries. Here in the United States, dozens of clothing plants have closed in recent months and that trend could accelerate over the next year. Gary Hufbauer, a trade specialist at Washington's Institute for International Economics, says the end of what is called the multi-fiber arrangement (MFA) is a profoundly important development.

"It will be quite an earthquake," he said. "In fact I think it will be the biggest event in trade in 2005 and quite possibly 2006. Will it be the end of the (world textile) industry as we know it? By no means. But it will be a very big change in a lot of countries."

The lifting of global textile and apparel quotas is a result of a decision made nearly a decade ago by the World Trade Organization, the WTO. The poorest developing countries, which were the biggest advocates of ending regulation, now are having second thoughts. That, says Mr. Hufbauer, is because they didn't foresee China becoming a member of the WTO and the world's foremost textile and apparel exporter. Experts believe those hardest hit by an end to quotas will be relatively poor countries like Indonesia, Egypt and Sri Lanka, whose textile industries are not protected by free trade agreements with either Europe or Japan.

Mr. Hufbauer says the full impact of the adjustment is yet to be felt, as companies have been holding back on closing many less profitable operations. "No, it has not yet been felt because the quotas are still very much in effect. And also there are a lot of legal actions being prepared even as we speak to delay, we could say, the onslaught of competition from China and India," he said.

Mr. Hufbauer expects Europe and the United States will impose short-term protective measures that will limit imports.

The world textile and apparel industry employs directly and indirectly up to 30-million people. China is the world's acknowledged lowest cost producer. Consumers worldwide should benefit from the lower prices that are expected to accompany the end of textile quotas.