India's apparel-export industry is facing a moment of truth. The removal of world trade quota restrictions in January 2005 could bring a huge increase in India's annual exports and make it the big winner in the global market, after China. This breakthrough will occur, however, onlyif the government accelerates the pace of reform and local manufacturers adopt measures to improve their competitiveness, a study shows.1
Productivity, labor costs, and quality, at least for higher-end goods, will determine which countries win or lose once the Arrangement on Textiles and Clothing (ATC) quota restrictions on apparel exports expire. China is likely to capture almost all of the resulting growth in global exports. Regardless of whether the United States and the European Union allow brand owners and retailers to buy freely or impose transitional safeguard mechanisms and increase duties, Asian countries that want to increase exports will have to take market share from one another and from countries outside Asia (exhibit).
India's garment industry has many advantages in this fight for market share: competitive labor costs, abundant raw materials (India is the world's third-largest producer of raw cotton), local textile production,...