Hanging by a Thread

By Aravind Adiga/New Delhi

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.

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."

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." --With reporting by Chaim Estulin/Hong Kong, Yubaraj Ghimire/Kathmandu, Ghulam Hasnain/Karachi, Saleem Samad/ Dhaka and Lasantha Wickrematunge/Colombo

With reporting by Chaim Estulin/Hong Kong; Yubaraj Ghimire/Kathmandu; Ghulam Hasnain/Karachi; Saleem Samad/ Dhaka; Lasantha Wickrematunge/Colombo