The New Year will bring an end to the Agreement, Multi-Fiber Arrangement (MFA), which at present is governing the world trade in textiles and clothing. It is likely to have huge implications for the global trade system and affect both the developing and developed world in different proportions. Some of the nations standing to lose from the deal appealed to the World Trade Organization in Geneva to launch an emergency process to stop or delay the removal of quotas. However, China wants to bid goodbye to the MFA as it is likely to benefit the most from this.

Multi-Fiber Arrangement, agreed in 1974, is a special protocol agreed by members of GATT as derogation from normal GATT rules. It permits members to establish quotas restricting textile and clothing trade, which applied to specific supplying countries. Normal GATT rules insist that all GATT parties are to be treated equally. Under this deal, the US imposes numerical limits on the amount of textile goods Americans can import from each of as many as 58 nations. It covers some 2,400 specific products.

The end of the Agreement could result in retrenchment of millions of workers, a large number of whom are women. Their jobs are likely to be transferred to China, as the garment business would pick up in that country. These concerns are not limited to only poor countries. Even the domestic textile manufacturers in the United States are expecting a similar challenge with the end of quotas and the likelihood of a new flood of inexpensive imports. It is expected that the US would lose about half a million jobs because of this. Since January 2001, the nation has lost 344,300 textile and apparel workers. Just a year ago, Pillowtex went bankrupt, laying off 4,800 workers in North Carolina.

The end of MFA might have implications for the November elections. Most remaining textile firms are located in North and South Carolina, Tennessee, Georgia, and Virginia, states that President Bush would like to win. The American manufactures want at least the end of quotas to be delayed. They want Republicans to address this issue. Textile firms have been distributing to their employees the positions on trade issues taken by the presidential candidates and their local congressmen and urging them to register and vote. More than 100 textile CEOs and their lobbyists in July sought congressional help in persuading the administration to limit the growth in Chinese textile imports. It was said to be the industry's biggest lobbying effort in 15 years.

The textile exporting countries accuse China of being unethical. They say that China's ability to win contracts hangs on a currency that is 45 percent undervalued. This permits China to sell its textiles cheaply. They are cheaper even in comparison to those countries where wages are 20 to 30 percent lower than Chinese wages. This is because wage costs are usually only 10 percent of the cost of a garment. So that wage advantage can't overcome the currency disadvantage. American manufactures also accuse China of unfair and illegal practices in its textile operations, of blocking some textile imports itself, such as upholstery materials, and of stealing designs and copying them.

But in the case of America, there is another group, which is happy at the prospect of the end of the quota system. At present, the US imports textiles and clothing worth $83 billion. Out of which about $77 billion comes under Multi-Fiber Arrangement. They think that the end of the quota system will be a big windfall for American consumers. They predict a fall in clothing prices from 11 to 20 percent. In recent years, the U.S. has lifted quotas on about 1,400 types of products, mostly lower-volume goods or goods not made in America. In these areas, China's share of the U.S. market jumped from about 9 percent on average at the start of 2002 to 65 percent last March. China now provides 95 percent of cotton handkerchiefs, 98 percent of men's silk shirts. Some 90 percent of apparel sold in the US is sewn outside the country.

Earlier, when the American textile industry sought to limit imported goods, it was often in conflict with textile and garment producers in developing countries. But, now both sides want to stop China from taking over the world's textile business. The US trade officials face a difficult situation. They do not want to be seen either supporting or opposing the WTO initiative. Opposing the lifting of MFA regime openly will harm their reputation as advocates of free trade. But the textile manufacturers around the world know that without real restraint on China's exports, their industries will be in tatters.