Two key developments provide a foretaste of the impact that quota elimination is likely to have on the global textile and clothing industry in 2005 and beyond, according to a report in the latest issue of Textile Outlook International.

One development, notes the report, is a meteoric 994% increase in 2002 in the volume of US textile and clothing imports from Vietnam. This increase stemmed from a reduction in US duties following the US administration's decision to grant Vietnam most favoured nation (MFN) status. But it also reflects the fact that imports from Vietnam were able last year to enter the USA quota free.

The other development is a dramatic 125% rise in the volume of US imports from China. The increase followed China's accession to the World Trade Organisation (WTO), which resulted in the immediate elimination of quotas that had previously restricted a wide range of Chinese export items.

Under the Agreement on Textiles and Clothing (ATC), all quotas restricting textile and clothing trade between WTO members will be eliminated by December 31, 2004. To achieve this, quotas are being enlarged each year so that they become less and less restrictive. Also, the process of quota integration is freeing whole batches of products from quota restrictions. Once integrated, such products become subject to the WTO's normal rules of world trade.

Under the ATC, it was agreed that quotas would be phased out gradually over ten years. The aim was to minimise shocks to the world trading system and reduce the possibility of imports flooding into developed countries and devastating their textile and clothing industries.

However, the ATC has a number of flaws. Importing countries have been able to choose the products for integration. Also, they have been free to integrate products which have never been subject to quotas. Not surprisingly, both the USA and the EU have elected to leave integration of the most sensitive products until later in the phase-out process. In fact the bulk of quotas will not be integrated until December 31, 2004.

Another flaw, Textile Outlook International points out, is that no provision was made in the ATC for countries which joined the phase-out process after it had started. For small suppliers this is not of great importance. But China joined the WTO with only three years of the ten year phase-out period remaining, and the effect has been overwhelming.

China became a member of the WTO on December 11, 2001. Soon afterwards, on January 1, 2002, Taiwan also became a member. As far as the phase-out process is concerned, both China and Taiwan benefited from seven years of derestriction on one day-January 1, 2002.

But whereas China swept the board in 2002, Taiwan's progress has been mixed. In the US market, for example, textile and clothing imports from Taiwan grew in volume by less than 14%. By contrast, US imports from China rose in volume by 125%. As a result, China became the USA's leading supplier in volume terms, having ranked third in 2001.

Trends are also dramatic in the value of imports. In 2002 US textile and clothing imports from all sources grew in terms of US dollars by less than 3%. Those from Taiwan actually fell by 11%. But imports from China soared in value by almost 34%.

Admittedly, China's accession to the WTO was a one-off occurrence. But what was most important about events in 2002, says Textile Outlook International, was that China demonstrated its capacity to more than double the volume of its exports to the world's biggest importer in only one year.

Few expect the growth to be maintained in 2003. But in the first five months of the year US imports from China continued to soar. In volume terms they more than doubled.

Paradoxically, much of China's additional capacity is the result of inward capital flows from competing countries. Investment from Taiwan, for example, grew by a massive 261% between 2000 and 2002. And in 2002 alone, China accounted for 82% of Taiwanese outward investment in textiles and clothing.

China's apparent ability to suddenly swamp markets has caused alarm among the world's leading textile and apparel producing countries. Even companies in India, whose labour costs are among the lowest in the world, are feeling the need to implement survival strategies for 2005 and beyond.

Meanwhile, attempts by the Vietnamese industry to increase its modest share of the US market have been cut short. In April 2003, in an attempt to curb imports from Vietnam, the US administration imposed quotas on the country's textile and clothing shipments.

Ironically, companies in developing countries are starting to look at the same strategies for survival as those being employed by companies in advanced economies as competition from China gets tougher. Some Indian companies, for example, are moving up the value chain by diversifying their product ranges, exporting high value apparel, and improving their design capabilities.

This could have serious consequences for the textile and clothing industries in the industrialised world. Producers in richer countries have always assumed that investment in the manufacture of high value-added and high-tech products would provide them with rather more than a basis for short-term survival.