Already 2005 is shaping up to be a year to remember - especially for those who like cheap underwear. In 10 days' time one of the most extraordinary changes in the world's economy takes place: the agreement on textiles and clothing expires. All quotas and restrictions on clothing imports will disappear as world trade in textiles becomes fully liberalised. It is the finale of a 40-year process which began in 1974 with the multi-fibre agreement, a system of quotas imposed on yarn, cloth and apparel manufactured in developing countries for export to the world's wealthy economies. Today, the US, Canada and members of the the European Union account for two-thirds of global clothing purchases, yet the US alone - that paragon of free trade - maintains 650 individual quotas or tariffs on textiles and clothing imports.
By the time 2005 comes around, the global market for clothing and textiles is estimated to be worth £550bn a year, according to the World Trade Organisation. Once quotas are removed, smaller producers such as Mexico, Bangladesh and the Philippines will be hit very hard. The biggest winners will be China and India, which will treble their share of the trade to the lucrative US market. In Japan and Australia, which do not impose quotas, China already supplies 70% of clothes sold. Great news for China and India, but a terrible turn of events for Bangladesh, where the industry accounts for nearly 75% of the country's export revenues. It also means tough times for textile makers in Latin America, which had a degree of preferential access to the US. Advertiser links Adventure Sports Holidays in Austria
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Free trade, we are frequently told, is a tide that raises all boats. So what is the good news? For consumers in developed countries, the brave non-quota world of 2005 should mean cheaper clothes prices and so a relative improvement in the standard of living of the less well off (who tend to spend a higher proportion of income on clothing). Inflation should fall, especially in the EU. Cheaper clothes means people will buy more - one study quoted by Fathom Economics suggests world trade in clothes will grow by 11% thanks to the end of quotas. That should be some help to struggling exporters.
But the best hope for manufacturers is that they exploit an old-fashioned concept: geography. When successful retailers such as Spain's Zara increasingly rely on super-fast turnaround in designs and stocks, they cannot afford to source from Asia, because of the time to get from A to B. This means that the likes of Hungary, Turkey or Mexico, on the doorstep of larger markets, can use their proximity to nimbly supply the next big thing.
