The remaining garment and textile quotas will be lifted in 2005. Suppliers in China are gearing up for the expected surge in demand by expanding their capacities and upgrading equipment. They are also preparing for the inevitable cutthroat competition that will ensue.

Japan is currently China's largest importer, absorbing close to US$2.5 billion worth of T-shirts and polo-shirts from January 2003 to September 2004. Combined imports to the European Union amounted to US$559 million in the same period. Shipments to the United States, however, totaled only US$268 million, but this is expected to increase significantly next year.

This is despite the possible safeguards the US and EU might impose on imports of polo shirts and T-shirts from China. Such restrictions are possible because prior to China's accession to the World Trade Organization in 2001, the US signed a bilateral agreement with the country, under which the US can reimpose quotas on China's garments and textiles if a significant increase in imports is proven to harm local industries.

There is at least one precedent to this. In November 2003, the US capped imports of China-made dressing gowns, knit fabrics and brassieres
garment and textile categories with quotas lifted in 2002
to 7.5 percent growth.

This year
even before quotas are lifted
the American Manufacturing Trade Action Coalition has filed 10 safeguard petitions against imports of China's garments and textiles, including cotton knit shirts.

Regardless of whether safeguards will be imposed or not, China suppliers are preparing for a post-quota exports surge. Many companies are constructing additional factories and purchasing more sewing machines in order to raise production capacities by at least 20 percent.

Suppliers are also gearing up for intense competition in the quota-free era. Without quotas, some China makers that rely primarily on quotas as their competitive edge will lose to suppliers that offer better-quality polo-shirts and T-shirts at competitive prices. As such, suppliers are improving manufacturing capability and product quality while cutting costs to boost their competitiveness in the quota-free market.

Apart from the anticipated post-quota price competition, makers have had to deal with rising production costs as a result of the labor shortage, power rationing, and the spiraling prices of chemical and synthetic fibers. Most suppliers are, therefore, increasing R&D expenditure substantially in order to come up with more effective means of reducing costs. Some makers are finding new ways of reducing fabric wastage. Cutting fabrics following CAD patterns instead of hand-drawn outlines has enabled makers to effectively reduce wastage by at least 2 percent.

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