Quotes of the Day

Every morning, 24-year-old Shahida Begum leaves her home in one of Dhaka's slums, winds her way into a posh diplomatic enclave and turns up for work at a garment factory overlooking the U.S. embassy. She may not be making this commute much longer. Like most of Bangladesh's 1.8 million textile workers, she has heard rumors that the American and European companies that currently buy clothes from her country will switch to Chinese manufacturers next year—leading to closures of garment factories in Dhaka. The zero-sum math of globalization makes little sense to one of its victims. "I know that everything in Dhaka's markets is made in China," Begum says. "But how can the Chinese make clothes more cheaply than we do, when I get paid so little?"

What could be impending catastrophe for Begum represents relief for Susheil Joshi. In his office in Hong Kong, Joshi—the kind of person who will help decide the fate of Begum and many like her next year—has a color-coded map of the world behind him. On it, 36 countries are highlighted, places where Joshi, who oversees global sourcing at the Children's Place, a North American chain of affordable-clothing stores, visits each year to buy the merchandise his company sells in America. Joshi does not enjoy having a travel schedule as packed as Kofi Annan's. But a system of quotas, originally put in place in 1974 to regulate a $350 billion-a-year global industry, limits the number of shirts, towels and other textiles any country can export annually to the U.S. and the European Union. As a result, the Children's Place—and all other American retailers—can't buy exclusively from countries that make them most efficiently and cheaply, such as China, but must also order from less competitive factories in places such as Burma and Swaziland. "It's crazy: 80% of our clothing comes from 20% of the countries," says Joshi. "But we need to go to all these places because of the quota system."

On Dec. 31, the craziness comes to an end. That's when a 1995 trade pact called the Agreement on Textiles and Clothing, signed by the members of the World Trade Organization (WTO), stipulates an end to quotas—and buyers like Joshi are free to find the best deals anywhere they can. Ghulam Faruq, a Bangladeshi textile exporter, says American and European companies that currently buy from about 60 countries might source from as few as 20 by 2006 and less than 10 by 2010. China is expected to be the biggest beneficiary under the new regime. Most analysts expect that efficient Chinese manufacturers will be able to lower their prices and, in particular, lure American buyers.

But for smaller developing countries that depend heavily upon textile manufacturing for jobs, the end of quotas could be a dire economic blow. In 2002, for example, quotas on some items, including gloves and negligees, were lifted by the U.S. By 2003, Chinese exports of those goods leaped nearly 200% from their 2001 levels, while Sri Lanka's exports dropped more than 50% and Bangladesh's fell 46%. If history repeats itself, millions of people could be thrown out of work in some of the world's poorest and most politically volatile countries—and in the richest as well. On Oct. 12, a coalition of U.S. textile manufacturers and labor groups, claiming that thousands of American jobs might be lost after quotas are lifted, petitioned Washington to impose trade restrictions on imports of Chinese-made trousers, cotton shirts and other goods.

Shahzad Arshad, a leading apparel exporter in Pakistan, says he fears a disaster looms for his industry. Pakistan has been one of the main beneficiaries of the current system. When China and India maxed out on their annual quotas, American buyers often turned to Pakistan. Its garment industry earned two-thirds of the country's export dollars last year. But Arshad fears that at least 60% of the 2 million Pakistanis who work in the ready-made garments sector could lose their jobs in coming years. "The new regime will wipe out thousands of small and medium-size exporters," says Javed Puri, a Pakistani textile exporter.

Similar concerns are rife in Sri Lanka, where textiles and garments make up half of the country's exports, and the industry supports as many as 1 million workers. In Nepal, where more than 300,000 workers depend directly or indirectly on the garment sector for their livelihood, extending the quota system "is a matter of life or death," says Prashant Pokhrel, a Nepali exporter. Experts in Bangladesh fear that anywhere from $1.25 billion to $2.5 billion of that country's annual exports could be lost, with the shock waves rippling through the nation's banking sector and the entire economy. Some 70% of Bangladeshi garment workers are women; many come from backward rural areas. If they lose their jobs and are forced to return home, "many will have no option but to join the underground sex trade," says Nazma Akhter, president of the Bangladesh Independent Garment Workers' Union Federation.

The end of quotas may not be entirely bleak for the developing world. In Pakistan, for example, sales of some items in which the country's manufacturers are internationally competitive, such as bedsheets and towels, could jump. But only one country in South Asia truly relishes the prospect of the new regime. "After China, India will be the biggest beneficiary of the lifting of quotas," says O.P. Lohia, managing director of Indo Rama Synthetics, a New Delhi-based, leading manufacturer of synthetic fibers. India has advantages that many of its neighbors lack: it grows raw materials like cotton, has a giant manufacturing base, and is seen by foreign buyers as a counterweight to China. Chintan Parikh, former chairman of the Indian Cotton Mills' Federation, says: "No developed country would want China to get a share of global trade that is alarming." A study commissioned by the Indian Cotton Mills' Federation predicts that India's textile exports could surge from $11 billion in 2002 to $40 billion in 2010.

Although the mood in India is upbeat, Yogesh Malhotra, a textile analyst at credit-rating agency ICRA, warns that uncertainties remain. He points out that the country's textile industry is highly fragmented, made up of thousands of small manufacturers. Whether they will survive after 2005, when exporters will have to compensate for falling prices by selling more volume, is unclear. Joshi of the Children's Place adds that, unlike China, India still doesn't have many large, modern apparel factories and that its often antiquated plants might struggle to handle the flood of new orders. For India, he says, "it will be like surfing a wave for 18 months. Either the country will drown under the inflow or will learn to glide."

With time running out, South Asian countries such as Nepal and Bangladesh are warning that they could be facing disaster. On Oct. 1, they took their case to a WTO council meeting and asked for the commission of a study looking into the impact of phasing out quotas. Many South Asian countries say they're fighting unfair competition. Bangladeshi exporter Ghulam Faruq believes, like many others, that China manipulates its currency to keep it undervalued against the U.S. dollar, thereby making its exports cheaper than Bangladesh's. But even if its currency were to rise against the dollar, China would still have tremendous advantages. According to data compiled in a recent International Monetary Fund working paper, the average Chinese garment-industry worker was paid $1,600 in 2001, more than double his Indian counterpart's salary and four times what he'd make in Bangladesh. Despite the Chinese worker's higher pay, the study found his productivity was significantly higher: he adds $5,000 a year in value to the garments he processes, compared with $2,600 by his Indian equivalent and $900 by a Bangladeshi worker. The difference reflects China's greater investment in modern manufacturing equipment and in infrastructure such as transportation.

Although time is running out, South Asian nations may yet get a boost if the U.S. textile industry persuades Washington to restrict clothing imports from China for a few more years. Representatives of several Asian governments are doing their own lobbying in the U.S. capitol, hoping to gain protection for at least three more years. Without special treatment, garment industries in countries such as Nepal are likely to become a free-trade casualty, says exporter Pokhrel: "Death is the only prediction we can make."

• Aravind Adiga | New Delhi
• When the world's quotas end, South Asia's lucrative garment industry will face tough competition from China