January 1, 2005 marked the end of textile quotas in the amount of textiles that North American countries and Europe can purchase from a single country, as per World Trade Organization agreements. This frees trade worth about $300 billion and throws open the lucrative Western markets. The complex 40 year old Multifibre Agreement (MFA) capped the textile exports of developing countries to resource rich nations. These were self defeating in their purpose and limited textile growth and competition. The challenges introduced, however, have far reaching implications.

Large textile producers like India and China have the most to gain, while smaller, yet significant producers such as Bangladesh and the Phillipines could see a big hit in their revenues from textile sales. A number of textile workers in these smaller countries have already lost their jobs,

Officially, India is aiming at a target of $50 billion in annual textile exports by 2010, about four times the current figure of $14 billion a year. Commerce minister Kamal Nath expects a 50 per cent growth in exports to the freed US and the European Union markets in the very first year. Textile minister Shankarsinh Vaghela projects India's apparel exports to double in the next two years.

China has even larger aspirations, thanks to greater economies of scale. While most economic numbers out of the official Chinese apparatus are somewhat questionable, as proved by the Economist in 2003, there is no doubt that for much of the world's retailers, China has become the back end of the global supply chain. Chinese textile sales to the US alone rose 30% in 2004

As far as labor costs go, as a proportion of the total cost, the labor cost in India is only 6%, compared to 10% in China, 19% in Mexico, 22% in Thailand, 29% in Turkey, 51% in South Korea and 69% in Germany. Only Indonesia has a lower labour cost of 5%. India has a capital cost advantage as well. The proportion of capital costs to gross output is 6.7% in India in the textile industry and 7.8% in garment making, while those in China are 12.2% and 12%, respectively.