Trade: Hanging by a Thread

(2 of 3)

Shahzad Arshad, a leading apparel exporter in Pakistan, says he fears that disaster looms for his industry. Pakistan has been a main beneficiary of the current system as American buyers often turned to this country when China and India maxed out on their annual quotas. The garment industry earned two-thirds of Pakistan's export dollars last year. Arshad is worried 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 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.

Only one country in South Asia seems to relish 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 New Delhi--based Indo Rama Synthetics, a 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." With the lifting of quotas, India's textile exports could surge from $11 billion in 2002 to $40 billion in 2010, predicts a study commissioned by the federation.

But even India has cause for concern, according to Yogesh Malhotra, a textile analyst at credit-rating agency ICRA. He points out that the local industry is highly fragmented. Whether the thousands of small manufacturers 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 notes that, unlike China, India still doesn't have many large, modern apparel factories and that its often antiquated plants might find themselves struggling 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."