The termination of over 40 years of quotas on January 1, 2005, ushered in a new era for the global trade in clothing and textiles. An ad hoc multilateral system of quotas—originally established as a short-term measure to allow the United States and western Europe to adjust to emerging competition from other parts of the world—was finally coming to an end. After 10 years of transition under the World Trade Organization's (WTO) Agreement on Textiles and Clothing (ATC), international trade for clothing and textiles among WTO members was to be no longer subject to quantity restrictions. Precisely how the end of quotas would affect U.S. clothing and textile trade was the subject of extensive research and some uncertainty. While many studies predicted a shift in clothing and textile production to quota-constrained nations (i.e., those which reached or came close to their quotas), there was disagreement on the size and pace of the production shift. Nor was there consensus on which nations would suffer a decline in their clothing and textile exports as a consequence of the end of the ATC. Despite their differences in opinion on the overall impact of the end of the ATC, most studies concurred that one of the biggest beneficiaries would be the People's Republic of China (China). With its large pool of low-cost skilled workers and abundant industrial capacity, China would be able to take advantage of the clothing and textile trade opportunities created by the removal of quotas. However, the ability of China to expand its clothing and textile exports to the United States faced some constraints. Under the terms of China's WTO accession, the United States and other WTO members retained the option to impose safeguard measures on Chinese clothing and textiles exports if they were proving "disruptive" to the domestic U.S. clothing and textile markets. Plus, if the United States could demonstrate that China's clothing and textiles exports were being subsidized in an inappropriate manner or sold below cost, the United States could impose countervailing or antidumping duties under existing U.S. trade remedy laws on Chinese exports. This report examines recent trade statistics to ascertain the initial effects of the end of quotas on U.S. clothing and textile trade with China and the rest of the world. The international trade in textiles and clothing has long been subject to various forms of trade restrictions, including quotas. Over the last 40 years, there has been a gradual reduction of these trade barriers, generally under the auspices of either the WTO, or its predecessor, the General Agreement on Trade and Tariffs (GATT). In 1974, about 40 nations became parties to the Multifibre Arrangement, or MFA, which replaced the Long Term Agreement Regarding International Trade in Cotton Textiles (LTA) signed under GATT in 1962. Originally conceived as a short-term arrangement on the road to quota-free trade for clothing and textiles, the MFA expanded the scope of the LTA to include wool and man-made fibers. However, concerns about the economic well-being of domestic clothing and textile manufacturers in both more industrialized countries (including the United States) and less industrialized countries made it difficult to negotiate an end to the MFA. As a result, the agreement was renegotiated four times over the next 20 years, continuing the history of trade restraints on clothing and textiles. In 1995, the Agreement on Textiles and Clothing (ATC) replaced the MFA, starting a 10-year process of eliminating quotas for international trade in clothing and textiles. The ATC's quota phase-out contained two concurrent mechanisms designed to gradually eliminated quantitative restrictions on clothing and textile trade. In theory, this gradual transition period would allow clothing and textile manufacturers enough time to prepare for the more competitive global market of the post-ATC era. The two concurrent mechanisms of the ATC quota phase-out involved the elimination of quotas in four stages along with the simultaneous increase in quota limits for goods still under constraint (see Table 1 ). At the start of the years 1995, 1998, 2002 and 2005, parties to the ATC would eliminate quotas for a prescribed percentage of their volume of trade in clothing and textiles. In addition, for those products still subject to quotas, parties to the ATC would increase the quotas by a prescribed percentage, thereby opening their domestic markets to more imported goods. The ATC also required that products from different categories—textiles and clothing, wool, cotton or man-made fibres, etc.—be included in each of the four stages of the quota phase-out, in part to make it more difficult to protect a particular segment of the clothing and textile industry during the transition. While the quota phase-out process appeared relatively gradual in theory, it was relatively abrupt in practice. By selecting less traded products and/or products with under-utilized quotas for integration in the first three stages, market watchers maintain the United States and other nations were able to prolong the period of protection for product categories where domestic manufacturers held a larger market share until the final stage. Industry analysts, at times, referred to the final quota phase-out on January 1, 2005, as a "cliff," when the quota on the most of the more frequently traded products and the products where existing quotas were typically fully utilized would be lifted. The creation of the supposed quota "cliff" was considered both a benefit and a problem for domestic manufacturers. If companies fully utilized the 10-year window to make their operations more competitive and cost-efficient, the maximization of the transition period would reduce the potential shock of operating in a quota-free market. However, if companies procrastinated making adjustments, the "cliff" only provided the companies with a longer period of protection, and potentially a greater shock with the quotas were lifted. The potential impact of the ATC on liberalizing clothing and textile trade is mitigated by three factors. First, the ATC was limited only to the removal of quotas; parties to the agreement could continue to impose import tariffs on clothing and textiles. If a nation set its import tariffs comparatively high, then some foreign companies may still be kept out of the nation's clothing and textile market, and the domestic manufacturers may still be protected. The current U.S. tariff rates for clothing and textiles indicate that there may be some efforts to erect import barriers on a selective basis (see Table 2 ). Within the general tariff rates for each of the 14 chapters included in clothing and textiles, there is significant variation from product to product, creating a fairly wide range of tariffs levied on clothing and textile imports. In addition, within each chapter, the United States has "peak" tariff rates that may be imposed on imports in special circumstances. For all but one of the chapters, the lowest general tariff rate levied is zero percent. However, the highest general tariff rate ranges from a 3.9% to 32.0%. In addition, the peak tariff rate varies across the chapters from 60.0% to 113.5%. These general and peak tariff rates are comparatively high for the United States, indicating a general pattern of protection for the clothing and textile market. In addition, the imposition of higher tariffs on specific items within each chapter is also indirect evidence of an effort to restrain the import of certain clothing and textile products. Second, the ATC's impact is mitigated because it does not prevent countries from utilizing "safeguard measures," as well as antidumping and countervailing duty cases, to block imports. A proposal in 2005 from 15 less industrialized countries to the WTO's Council of Trade in Goods calling for a two-year moratorium on antidumping cases after the termination of the ATC was unable to secure the needed consensus, in part due to objections from U.S. and European clothing and textile manufacturers. Third, as part of its accession to WTO membership in December 2001, China agreed to special provisions that allowed other WTO members to utilize two safeguard mechanisms against Chinese clothing and textile products if the importing country believes that the Chinese imports are causing or threatening to cause domestic "market disruption." The first safeguard mechanism is unique as it applies only to clothing and textile products; a second general safeguard mechanism applies to all Chinese exports. The clothing and textile specific safeguard mechanism can be invoked by any WTO member by requesting consultation with China. The simple act of requesting consultation immediately imposes a quota on the product equal to 6% or 7.5% more than the amount imported over the previous 12 months. Even if there is no agreement with China on the safeguard measure, the WTO member has the option to continue to enforce the import quota. There is no requirement for WTO notification; nor are there provisions for multilateral surveillance. These quotas can only be imposed for one-year without China's agreement. This safeguard mechanism is only available until December 31, 2008. Brazil, Colombia, the European Union and the United States have made use of this provision. The general safeguard mechanism is available until December 10, 2013. In this case, the WTO member must notify the WTO's Committee on Safeguards. In contrast to the first safeguard mechanism, safeguard measures may only be imposed after consultations, or in critical circumstances where provisional measures are considered justified. Also, for this category of safeguard measures, the WTO member has the option of imposing quotas, tariffs or other forms of import restrictions. Plus, whereas the clothing and textile specific measures are limited to 12 months, the general safeguard measures can be imposed for up to three years. Because of the possible utilization of various safeguard mechanisms, and the continued option to maintain tariffs and other non-tariff trade barriers, the ATC did not fully bring about "free trade" for clothing and textiles. Instead, it eliminated one mechanism—and arguably the main mechanism—whereby countries altered trade patterns for clothing and textiles.