Hanging by a Thread

(2 of 2)
S

imilar 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."

Many South Asian countries say they are fighting unfair competition. Bangladeshi exporter Faruq, like many others, believes that China manipulates its currency to keep it undervalued against the U.S. dollar, thereby making its exports cheaper than Bangladesh's. But even if its currency rose against the dollar, China would still have tremendous advantages, as shown by data compiled in an International Monetary Fund working paper. The average Chinese garment-industry worker was paid $1,600 in 2001, more than double his Indian counterpart's wage and four times the money earned by the Bangladeshi. Despite the higher pay, the study found, the Chinese worker's productivity was significantly higher, adding $5,000 a year in value to the garments he processed, compared with $2,600 for his Indian equivalent and $900 for the Bangladeshi. The difference reflects China's greater investment in modern manufacturing equipment and infrastructure like transportation.

South Asian nations may yet get a reprieve if the U.S. textile industry persuades Washington to restrict clothing imports from China for a few more years. Several Asian governments are lobbying the U.S. as well. Without special treatment, garment industries in countries like Nepal are likely to become a free-trade casualty. Says exporter Pokhrel: "Death is the only prediction we can make."