Trade: Hanging by a Thread

Every morning 24-year-old Shahida Begum leaves her home in a Dhaka slum, wends her way through a posh diplomatic enclave and turns up for work at a garment factory overlooking the U.S. embassy. It's a commute she may not be making much longer. Like most of Bangladesh's 1.8 million textile workers, she has heard rumors that next year the American and European companies that buy clothes from her country will switch to Chinese manufacturers, leading to a shutdown of garment factories in Dhaka. The zero-sum math of globalization makes little sense to one of its potential victims. "How can the Chinese make clothes more cheaply than we do," asks Begum, "when I get paid so little?"

What could be impending catastrophe for Begum means relief for Susheil Joshi. Behind him in his Hong Kong office, Joshi--one of those who will help decide the fate of Begum and many like her next year--has a color-coded map of the world, with 36 countries highlighted. These are places visited each year by Joshi, who buys the merchandise that the Children's Place, a North American chain of affordable-clothing stores, sells in America.

Joshi does not enjoy his packed travel schedule. 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 every other American retailer--can't buy exclusively from the countries that make them most efficiently and cheaply, such as China, but must also order from less competitive 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 will come to an end. That's when a 1995 trade pact called the Agreement on Textiles and Clothing, signed by members of the World Trade Organization (WTO), stipulates an end to quotas--and buyers like Joshi will be free to find the best deals anywhere they can. Ghulam Faruq, a Bangladeshi textile exporter, says American and European companies that now buy from about 60 countries might source from only 20 by 2006 and fewer than 10 by 2010. China is expected to be the biggest beneficiary.

For smaller developing countries that depend heavily on textile manufacturing, 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 had leaped nearly 200% from their 2001 levels, while Sri Lanka's exports had dropped more than 50% and Bangladesh's had fallen 46%. If history repeats, 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 nations as well. On Oct. 12 a coalition of U.S. textile manufacturers and labor groups, claiming that thousands of U.S. jobs might be lost, petitioned Washington to impose trade restrictions on imports of Chinese-made trousers, cotton shirts and other goods. The government has agreed to consider the request.