Textile quotas

Jan. 1, 2005 not only marked the beginning of a new year, but also the end of the Multifiber Arrangement Act, an international trade agreement allowing countries to set quotas on textile imports. With the act's demise many observers warned that China would be the chief beneficiary -- owing to its incredibly low costs -- while other developing countries would suffer.

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An article in today's Wall Street Journal, however, seems to indicate that the impact may be not quite be what many expected. Rather than simply folding in the face of Chinese competition, other countries have sought to adapt to the changes:

When global quotas on garment exports ended Jan. 1, China was widely expected to overrun other major Asian textile producers such as Sri Lanka, Bangladesh and Cambodia. Half a year into the new order of unfettered competition, China's sales have indeed soared -- but others also are doing surprisingly well, at least for now.

China's clothing exports to the U.S. in dollar terms jumped 86% in the first five months of 2005 from the year-earlier period. But other top Asian garment makers also are enjoying double-digit growth. Bangladesh's exports to the U.S. were up 25%, Sri Lanka's rose 20%, while Cambodia's sales increased 17%.

The increased competition from China is spurring both increased specialization and efficiency:

Some Asian manufacturers also are benefiting by identifying niche products that China hasn't mastered yet. In Sri Lanka, Colombo-based MAS Holdings Ltd. is focusing on garments that require extra skill to make, such as women's intimate apparel. "We've been able to hold on to our share of the business," said MAS Chairman Mahesh Amalean, whose customers include Victoria's Secret and Banana Republic.

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...Amid competition from China's low-cost factories, prices for lower-end products in Cambodia, such as T-shirts and blue jeans, have plummeted 30% since the beginning of the year, said Cham Prasidh, Cambodia's trade minister. Mr. Prasidh said Cambodian factories will have to reduce costs and shorten delivery times if they hope to compete with China in the long run. To do so, he said, Phnom Penh is investing $10 million to streamline its customs procedures to speed delivery of its products and cut down on corruption.

Looks like another win for free trade.