A 40-year-old agreement that allowed Western countries to limit textile imports, particularly from developing nations, expires at the end of this year. The end of the quotas is being hailed in some quarters as a major step forward for free market forces. But smaller countries worry that they will be squeezed out by manufacturing giants China and India. Correspondent Scott Bobb has been in Vietnam, where worries are high, and reports from Ho Chi Minh City.

TEXT:

/// SOUND OF SCISSORS CUTTING, FADE ///

It is a warm morning at the T.M.I. garment factory outside Ho Chi Minh City. Inside one building, under a squadron of whirring fans, hundreds of workers are cutting and stitching cloth to make sports shirts for sale in Europe and the United States.

Twenty-six workers sit at a line of sewing machines. Each one stitches a particular seam of what begins as a simple piece of cloth and within minutes emerges as a stylish polo shirt. Each line produces about 600 shirts a day and together the factory's 36 lines produce some 20-thousand shirts a day. /// END OPT ///

General manager Y.Y. Chen says his Taiwanese-owned company has several factories in China and Indonesia, and invested in Vietnam because of its labor force.

"Vietnam, we saw a potential in the wages, which are much lower as compared to China or Indonesia. Also the workers' productivity is very high."

Vietnam once was a closed economy, due to decades of war and the Communist leadership's centralized policies. But it began to open up in the 1990s and one of the major beneficiaries was its textile industry.

The industry in Vietnam earned merely 50 million dollars 10 years ago, but now produces four billion dollars worth of exports a year and employs two million workers.

Industry officials say Vietnam could export even more garments. But it is held back by international quotas enacted 40 years ago to protect other countries' domestic manufacturers. These quotas expire at the end of this year, but not for Vietnam, which is still negotiating its entry into the World Trade Organization, the body that oversees the textile quotas.

There are fears that once quotas end for bigger countries such as China, which is already in the W.T.O., Vietnam will be squeezed of its markets. Already dozens of factories have closed their doors.

Mr. Chen worries about the future of his business.

"If there's always a quota restriction in Vietnam, brand customers will most likely select other countries as their manufacturing source."

Mr. Chen's factory produces shirts under contract for Nike, the international sportswear brand.

The general manager of Nike in Vietnam, Amanda Tucker, acknowledges that the end of quotas could allow manufacturing giants China and India to take market share from smaller countries such as Vietnam.

"One thing China does offer is incredible economies of scale and a skilled workforce and a lot of available labor. But they're not the only place. Vietnam's another country like that, which is really in a position to grow."

Ms. Tucker says, however, other factors hinder Vietnam's competitiveness, such as poor roads, unreliable electricity supplies and cumbersome government regulations. She believes that the changes Vietnam will have to make to join the W.T.O. will make it more competitive.

Vietnam wants to join the W.T.O. next year. But an expert on the W.T.O. at Hanoi's Foreign Trade University, Nguyen Quang Hiep, says the talks face major hurdles.

"The major obstacle for Vietnam to join W.T.O. is law and regulation transparency."

Professor Hiep notes that Vietnam has separate laws for foreign and for domestic investors, which favor Vietnamese investors. That violates W.T.O. rules.

Foreign diplomats say the W.T.O. wants Vietnam to open up its services sector to foreign investors, in particular banking, insurance and transportation.

Trade experts say the Vietnam government is aware of the problems if faces and is gradually making the changes it needs to compete.

Le Dong Doanh (leh zong zwan), an advisor to Vietnam's Ministry of Planning and Industry, says the country's economy is in transition.

"There are many things to do, reforming legal framework, training of the civil servants and also enhancing the competitiveness of Vietnamese enterprises."

But Professor Doanh says the Vietnamese government is aware of the impediments and is responding.

"The government is preparing a new law for investment, both foreign and domestic investment, to provide a level playing (field), and also try to reduce red tape and business costs. But it's not easy."

Nike manager Amanda Tucker says that despite the challenges she is optimistic.

"This increased liberalization can be a threat for a developing country or it can be an opportunity to attract increased investment. And I think in Vietnam the government has been looking at this as an opportunity."

Analysts say there is resistance to joining the W.T.O from conservatives in the government and protectionists in state-owned businesses. And because the government traditionally acts on consensus, reforms can take a long time. But they note that once the Vietnamese leadership agrees on a new course of action, implementation is swift. And there is a new generation of entrepreneurs eagerly awaiting the signal to open factories and start exporting.