The Asian countries have remained a dominant source of supply of affordable and quality apparel for the inhabitants of North America and Europe for past three decades.

The reliance on the Asian garment producers resulted into their lion's share of international trade in textiles and garments which was to be kept checked by the developed world. The textiles and garment industries in developed countries were highly protected by import quotas on various garment exporting countries.

In addition, textile industries in developed countries are often subsidized in the form of special incentives, such as tariff advantages, which apply to garment manufacturers in developing countries which buy textiles from developed countries (such as under the USTDA programme).

The textile trade became the focal point for development of a system that would regulate discriminatory trade. The quota system covering about 2,400 specific products or two-thirds of all varieties of clothes, yarns, fabrics and household linen in its current form to an international agreement, called the 'multi-fiber arrangement' (MFA).

Geographically, it extends to 58 countries, ranging, from very poor nations like Cambodia and Bangladesh to large middle-income countries such as China and Korea. No quotas apply to any rich economy other than the Hong Kong.

Operationally, it works by dividing textile and clothing products into large groups by basic material and type of good. There are 147 such groups, each including anywhere from ten to several dozen products.

The first, category number 200, covers sewing thread and includes 18 different products. The last, number 899, includes 34 miscellaneous goods made of silk and linen. In between come 145 other categories for such products as nylon and linen yarns* cotton, silk and wool cloths- bras, jeans, gloves and coats- pillowcases, bed sheets, fabric-covered luggage, curtains, rugs and many more.

Countries with garment industries that, due to higher cost structures, are currently dependent on favourable quota allocations compared to other countries will be significantly disadvantaged.

The current system of a complex web of trade quotas and tariffs permits a broad range of countries to produce textiles and garments, including those which are otherwise not competitive in this industry.

This is largely because the most competitive producers are restricted by quotas, and most garment exporting countries are subject to at least some quotas, thereby creating an opportunity for less competitive producers to participate in garment manufacturing.

When most of the quotas and tariffs are eliminated in 2005, exports from the most competitive producers are expected to increase significantly., thereby displacing smaller and less competitive producers.

However, even after liberalization of textile and clothing trade beginning in 2005, developed countries like the US, EU and Canada may enact other instruments of trade protection to maintain restrictions on textile and clothing imports.

In the garment industry, China is most at risk, due to its high level of competitiveness and its large size as an exporter. It is also possible that anti-dumping measures could be imposed against textile and garments exports from developing countries at some point in the future.

In November 2003, the US government has already announced its intention to apply special safeguards on China for three categories; knit fabric, bras and dressing gowns. European Union made its intentions very clear when they imposed anti-dumping duties on bed linen exports from Pakistan in February 2004.

The abolition of the quota in textile and clothing is a key victory for efficient exporters of textile and clothing like Pakistan. Pakistan and other major developing countries exporters have been seeking the abolition of quota for a long time.

Finally, beginning from January 2005 we will be entering into a quota free regime. This will intensify competition in this sector but at the same time it will provide greater opportunity for longer term growth and development.

Whether Pakistan will be better-off or worse-off will depend on the extent to which exports from Pakistan are restricted relative to exports from other suppliers, the strength of the competitive relationship between suppliers and the extent of complementarities associated with global production sharing.

We have many challenges before us to compete with other suppliers in global market. The most formidable challenge will be improving the efficiency of our textile and clothing sector.

This is important for two reasons. First, the rewards for undertaking, reforms that improve productivity will be much greater. Second, the cost of failing to undertake reforms will be much greater because of the greatly increased competition.

Therefore, raising productivity, either by improving the efficiency of the production process or the range and the quality of the products produced, is the key to reap the benefits from the abolition of the MFA.

Given Pakistan's strength in textile and clothing there is every reason to expect Pakistan to gain from the quota free regime in the longer term. The quota free world offers tremendous opportunities for efficient producers like Pakistan but at the same time it poses serious challenges for producers of the textile products. Pakistan ranks 9th in textile exports and 20th among exporters of ready-made garments which is not a mean achievement.

However, if we look at the history, it is interesting to note that in 1965, the value of exports of manufactured products from Pakistan was more than the collective exports of such products from Thailand, Indonesia and Turkey, and now in 2003, the manufactured exports from these countries individually surpass exports from Pakistan by a fair margin.

Today, Pakistan should have been among top five textile exporters of the world. Pakistan's textile industry has grown over the years and there is a shift from primary commodities exporting country to that of manufactured goods exporting country.

There is a general feeling in developed countries that elimination of quotas in 2005 will probably result in a shift of garment production out of the developed countries to countries which are more competitive in the manufacturing of garments.

There is also expected to be a shift in textile production towards developing countries, since demand for raw textiles will increasingly be concentrated in those countries.

The net impact will be positive for developing countries as a whole. This has strong evidence which shows that during the 20 years since the MFA was established (1974) the industrialized countries (ICs) lost as much on market shares as the listed developed countries (DCs) gained (ICs lost 17.7 percentage points. DCs gained 16.7 percentage points).

This shows that a reallocation took place between the listed developed and developing countries. Major shifts took place between ICs and DCs as well as between those countries listed and those not listed.

Whereas the ICs had a 50 per cent higher share in 1973 than DCs (or a 300 per cent higher share in 1965), by 1983 they had fallen 20 per cent below DCs. The competitiveness of the countries like Pakistan viz-a-viz other developing and developed countries is often derived from a combination of several key factors like:

i. an optimal tradeoff of low labour costs and high labour productivity, since garment manufacturing has a significant labour component;

ii. lower overhead costs resulting from an optimal mix of competent managers and administrative personnel, combined with relatively low salaries for them; and

iii. several garment manufacturing clusters, which result in better infrastructure and lower costs for garment manufacturing and associated processes (including transportation and customs costs).

Whether Pakistan will be better-off or worse-off will depend on the extent to which exports from Pakistan are restricted relative to exports from other suppliers, the strength of the competitive relationship between suppliers and the extent of complementarities associated with global production sharing.

In this regard capacity building, both in terms of human resource development and infrastructure should immediately be taken up. The important weaponry to cope with intense competition include- low costs, good infrastructure, tariff advantages, location, skilled work-force and raw material base.

Pakistan's industry should review its strength on these counts. Compliance to various social and environmental aspects should be adhered to, to meet the demands of the buyers.

Simultaneously, efforts should be intensified to cut down lead time through provision of easy accessibility to fabrics and yarn. Developed countries should come forward to support capacity building process in developing countries.

Given Pakistan's strength in textile and clothing there is every reason to expect Pakistan to gain from the quota free regime in the longer term. Government on its part should make every effort to help the industry by providing an enabling environment and export-oriented policies to groom the industry for competition with fairness in global market.