The Liberalization of Trade in Textiles and Clothing: China’s impact on the ASEAN economies

On January 1, 2005, quotas on textile and clothing trade were lifted. With this, US and EU pricecompetitive clothing imports from China soared. Recent talk of quota safeguards notwithstanding, this has development implications for other, relatively uncompetitive, countries—especially those heavily reliant on textile and clothing exports. This study examines the effect that China will have on the Southeast Asian countries, as part of a bigger picture of economic competition and cooperation within Asia. The Southeast Asian countries are found to have a more competitive than complementary relationship with China in this sector. Using a constant elasticity of substitution model, this paper then finds a significant negative effect of quota-abolition on the Southeast Asian countries. However, a paradox is found. Though China should out-compete all the Southeast Asian countries based on supply-side competition, this is not reflected in actual growth patterns, where some Southeast Asian countries see robust growth in the US market, as well as the Japanese non-quota market. This could be due to ongoing expansion of the import markets, as well as other supply-side trends such as changes in comparative advantage. The outlook for the Southeast Asian countries is thus less bleak than most predict.