Faced with pressure from the domestic textile industry lobby, the US authorities have reached an agreement to limit surging imports of low-cost Vietnamese textiles and clothing. From May 1, 2003, quotas are to be imposed on 38 product categories, restricting Vietnam's apparel and textile exports to the USA. These quotas could seriously restrict the future growth of the Vietnamese textile and apparel industry at a time when other countries are having their quotas removed, according to Textile Outlook International.

Vietnam sold US$952 mn worth of textiles and clothing in the USA in 2002-almost 20 times the US$49 mn worth of sales achieved in 2001. In percentage terms, growth was a staggering 1,829%-although Vietnam still accounted for only 1.3% of total US textile and apparel imports in 2002. Furthermore, value growth was almost double that of volume, showing that Vietnamese exporters were able to extract much higher prices in 2002.

As a result of this change of fortunes, Vietnamese textile and clothing exports rose by almost 40% in 2002, from US$1.96 bn to around US$2.7 bn. Back in 1989 they were worth less than US$100 mn.

Driving Vietnamese exports to the US market is a bilateral trade agreement between the two countries which was implemented in December 2001. Prior to the agreement, Vietnamese exporters had been highly reliant on the EU and Japanese markets. Together the EU and Japan took over 60% of Vietnamese textile and clothing exports whereas the USA took a mere 2%.

But the Japanese market has been in recession in recent years. Nor has the EU market been especially dynamic. Also, Vietnamese exports to the EU have been constrained by quotas.

The bilateral trade agreement with the USA changed the industry's fortunes. But it also raised some new questions, not least whether the Vietnamese industry has the capacity to keep pace, or can undertake the necessary investment in time to maintain the momentum.

The establishment of normal trading relations (NTR) has been vital to Vietnam's success because it provides the country with access to the US market at "most favoured nation" tariff rates-the same as those afforded to World Trade Organisation (WTO) members. Prior to the establishment of NTR, Vietnam faced prohibitively high tariffs in the US market.

Improved access to the US market has prompted new investment in the Vietnamese industry-both from domestic sources and from abroad. To encourage inward investment, Vietnam's laws restricting foreign investment are being relaxed.

Buoyed by the industry's success, the Vietnamese authorities were predicting that textile and apparel exports would reach US$3.2 bn in 2003. But, as past experience has shown, the US authorities are often quick to clip the wings of new supplying countries by applying quotas as soon as they start to make serious inroads into the US domestic market. The USA did just this with Cambodia when its exports to the US market started to soar.

The new quotas could seriously restrict the future growth of the Vietnamese textile and apparel industry. Under the Agreement on Textiles and Clothing (ATC), textile and apparel export quotas are due to be eliminated on December 31, 2004. But the ATC mechanism applies only to WTO members. China joined the WTO in late 2001, and will therefore have almost a free rein after 2004-apart from temporary measures taken under the so-called safeguard clause.

But Vietnam is not a member of the WTO, which means that importing countries do not have any obligations to remove quota restrictions on Vietnamese exports.

Inevitably, the question is politically charged. Many in the USA are anxious to repair relations with Vietnam and put the past behind them. But others are less altruistic and do not see why, of all countries, Vietnam should be given special treatment.