When the textile trade liberalises, China could be denied its riches from rags by an anti-surge device When the quota controls that govern the world's textiles trade are scrapped in 2005, China should, in theory, be the biggest winner. But post-quota 'safeguard measures' erected by the United States to prevent export 'surges' from the mainland will ensure that China's gains are limited. China is the world's biggest producer of textiles and garments. It exports more than US$50 billion annually and accounts for about 13 per cent of the world's textile trade. As agreed by World Trade Organisation member countries, the Multi-Fibre Arrangement (MFA) will be phased out by 2005, when quotas on yarn, fabric, textiles and clothing will be abolished. Developing countries are expected to gain US$40 billion to $50 billion from the liberalisation. 'The impact of the Multi-Fibre agreement on the world will be tremendous, but the impact on China will be less tremendous,' said William Fung Kwok-lun, group managing director of Li & Fung, which trades billions of HK dollars worth of textiles annually. 'The [MFA's] impact on Asian textile employment and exports may be substantial,' Kim Eng Securities wrote in a report. 'Employment in light industries in Europe and the US may fall by over 20 per cent, while corresponding employment in countries once restricted by MFA may rise by as much as 80 per cent.' Quota costs now account for up to 50 per cent of the price of garments exported from China, estimated Gordon Yen, an executive with Hong Kong-listed textile manufacturer Fountain Set (Holdings). But Mr Yen believes the winners of this liberalisation will include Indonesia, Malaysia and Cambodia rather than China. 'Many players in our industry anticipate there may be the activation of the anti-surge mechanism by the US that will limit imports from China.' The anti-surge mechanism allows the US to restrict certain imports if they exceed a specific amount over the previous year. However, countries which have been WTO members for more than five years will be exempt from the anti-surge mechanism. Mr Fung said political pressure could induce the US to impose anti-surge mechanisms on textile imports from China. A clue as to whether the US will impose these mechanisms will be found in the upcoming outcome of a petition by the American Textile Manufacturers Institute (ATMI) and other US trade associations to the Committee for the Implementation of Textile Agreements (CITA) of the US Trade Department. The petition sought to limit imports of brassieres, dressing gowns, gloves and knitted fabric from China, Mr Fung said. ATMI estimates that 630,000 textile jobs will be lost and 1,300 plants closed in the US if restrictions are not imposed on Chinese textile imports. With the removal of quotas, countries would jockey to grab market shares in the textile trade, Mr Fung said. 'There will be tremendous reshuffling of market share by country and manufacturers,' he said. Mr Yen said there would also be a consolidation of textile production in cost-effective countries such as Cambodia.