In 2001, China was allowed to export exactly 18,039,168 coats to the European Union. They included anoraks, parkas and windbreakers, made of wool, cotton or synthetic fiber, and not knit or crocheted -- according to the definition established by the EU Trade Directorate General for "Category 21" goods. It was the last time Brussels bureaucrats set a quota for this category of merchandise.

Today, the People's Republic ships 198.7 million coats a year to Europe, more than ten times as many as three years ago. China's share of the market for Category 21 garments has jumped from 14.7 to 72 percent.

In other words, almost three-quarters of all coats purchased from overseas by Europe's boutiques and department stores are "Made in China." Already.

According to Francesco Marchi, chief economist at the European Apparel and Textile Organization (Euratex), this is only "a taste of what's to come." "The worldwide market," predicts the Brussels-based expert, "is about to be completely reshuffled."

That's because coats will soon no longer be the only apparel items for which quotas are being eliminated. Import quotas will be dropped at the beginning of 2005 for all items in the textile and clothing industry. Whether socks or silk scarves, T-shirts, sheets or brassieres -- beginning on January 1, 2005, only one law will apply to every bit of material shipped to Europe or the United States: the law of free trade.

The entire industry, valued at about $350 billion, is about to experience what may be the biggest transformation in its history. Deregulation will lead to massive shifts in global trade, and will make deep inroads into the tightly-woven system of the international distribution of labor, with grave consequences for the world's 40 million, primarily female textile workers.

Third World economies at risk

It's already clear who stands to lose the most in the big game of textile monopoly: workers in the countries of the Third World. Neil Kearney, General Secretary of the International Textile, Garment and Leather Workers Federation, fears that in Bangladesh, for example, a million jobs are at risk: "The effects will be devastating."

Textiles and clothing make up 80 percent of the exports of this developing country, which can offer little to compete with China's market strength. There is a growing, and not unjustified, fear in countries such as Bangladesh of so-called "red textiles": Most experts believe that China will literally flood the global market with inexpensive goods.

The People's Republic already dominates the industry today. Almost a quarter of the world's clothing exports come from China. And when all barriers are removed in a few weeks, this market share could quickly spike to almost 50 percent, according to World Bank estimates. "Then," says Ralf Puetmann, Director of Purchasing for the German department store chain Kaufhof AG, "China will leap into a new dimension."

The future belongs to companies like Ningbo Bridge, a Chinese textile company that employs about a thousand female workers. At the company's factory outside the Chinese port city of Ningbo, manager Shen Gongcan, 38, inspects racks of sweatshirts and sports jackets with Adidas and Reebok labels sewn to their inside back collars. The price tags dangling from zippers are denominated in either euros or US dollars, depending on the country to which they're being exported.

The company is excellently equipped to satisfy the huge upsurge in demand expected after the beginning of the year. These days, Shen is constantly playing factory tour guide for visitors from the West, including buyers for US hypermarket chain Wal-Mart and Japanese department store chain Itochu, with whom he has just negotiated agreements for their 2005 fall and winter collections. Ningbo Bridge does almost all the work for them: chemical processing of the raw wool, tailoring, and packaging.

"All you have to do is pay," says Shen, and laughs.

These are the benefits China has to offer, and Chinese companies will soon be able to use them to their full advantage. Large factories control and supervise the entire process, from cotton farming (China produces six million tons a year, making it the world's largest producer) all the way to shipping the finished goods. Some companies are already using computer-controlled tailoring machines and electronic ordering systems.

This means that low production costs -- a seamstress earns an average of $0.82 an hour -- are no longer the deciding factor. In Indonesia, a comparable worker earns only $0.24 an hour. What's more important is that China's textile industry is as productive as it is flexible.

It comes as no surprise that trading companies and fashion houses in buyer countries are shifting the bulk of their purchasing eastward. "China's share will increase," says Helmut Klier, Director of Purchasing for German department store chain Karstadt Warenhaus AG, and "mostly for basic goods."

German mail order giant Otto is also likely to "purchase more items and larger quantities in China," says Import Director Eckhardt Fechtner. "This is especially applicable to individual merchandise categories in the textile field, for which purchasing was previously limited by quotas: trousers in general, jeans, sweaters and lingerie."

Quotas didn't slow job losses

30 years ago, North America and Europe negotiated quotas with the southern countries for exports of textiles and clothing. Under the so-called Multifiber Treaty of 1974, Washington and Brussels established import quotas, down to the last unit or kilogram, for each producer country and each merchandise category.

These figures were re-negotiated each year, a practice the buyer countries attempted to use to protect their own textile industries against cheap imports and slow job loss, but which ultimately proved to be unsuccessful.

That's because the quota system produced an astonishing side effect. A textile industry suddenly developed in countries such as Bangladesh, Sri Lanka and Mauritius, which previously had no significant textile or garment trades, because these countries now had their own quotas.

It was not unusual for the textile trade to develop into a country's most important export industry, even when the country had no raw materials and was forced to import each gram of cotton and each centimeter of material.

Continue to Part Two.

It's an absurd, cumbersome and expensive system, even for dealers in buyer countries. When companies like Karstadt, Kaufhof and Otto order textiles from other countries, their buyers must first file for an import license from the Federal Office of Economics and Export Control, where 18 government employees process about 300,000 of these requests each year.

They examine whether contingents of the merchandise group in question are still available. It's a job based almost entirely on routine: 80 percent of requests are processed within one day.

Buyers can monitor their quotas online, that is, to see how far they are "run up," as it's called in textile industry jargon. When buyers go to the site they can see, for example, that Category 20/39 has been closed for some time: The licenses for all 9,342,350 kilograms of sheets and tablecloths China is permitted to supply to the EU have already been issued.

It's a pure planned economy -- and expensive: China's ministry of foreign trade allocates the quotas to the manufacturing companies, and makes sure it's paid handsomely for doing so.

According to a study conducted by US textile expert David Birnbaum, a high-quality blouse costs a Chinese producer $5.75. He pays $1.21 in customs duties, $0.55 for shipping and processing, and a $2.50 fee for the quota.

It gets even more expensive when it comes to items in high demand, such as T-shirts and jeans. Middlemen buy up quotas in order to auction them off. Individual contingents have become so valuable that they're sometimes as expensive as the merchandise itself.

No quotas mean lower prices for consumers

Thus, the collapse of this black market on January 1 will also automatically eliminate a relatively significant cost factor, so that those who probably stand to benefit the most from deregulation are consumers in the industrialized nations. Karl Gunnar Fagerlin, worldwide director of production at H & M, believes that "eliminating the quota system is very likely to lead to lower consumer prices."

The head buyers at Germany's major department store chains expect to see similar effects. "Lower purchasing prices for basic goods, that is, not high-fashion clothing, will generate competitive pressure to pass the savings on to the consumer," says Karstadt executive Klier. Pütmann, a competitor of Kaufhof, expects that in all sectors in which volume is the ultimate deciding factor, "prices will continue to decline."

In the United States, industry insiders expect to see discounts of between 5 and 20 percent. Mackey McDonald, CEO and President of VF (Lee, Wrangler), the world's largest jeans manufacturer, estimates that prices will drop by 15 percent.

Experiences with merchandise groups for which trade is already deregulated demonstrate just how much room there is for prices to drop. When the United States eliminated its quotas for textile luggage from China, the price per unit dropped from $13.71 in late 2001 to $5.23 just a few months later. During this period, China was able to up its exports of textile luggage by a factor of six, while Mexican exports were cut in half.

"It really gives you a sense of the costs of protectionism," says Ira Kalish, consumer specialist at consulting firm Deloitte Research, "and of the potential consequences of getting rid of quotas."