January 1, 2005. For years, that date inspired fear and dread in U.S. policymakers and textile producers, for the toll of midnight on December 31, 2004 would herald the abolition of the global quota system that regulated the international trade in textiles.

When the United States and the other members of the World Trade Organization originally pledged to eliminate the barriers to free trade in textiles, it seemed like a good idea. But then China joined the WTO. Suddenly textile producers around the world faced the threat of a Chinese behemoth that would devour their market share, uninhibited by quotas or other trade barriers.

As predicted, the end of the global quota system released a flood of Chinese textile and apparel products into the U.S. market. Imports of textiles and apparel from China soared by more than 50 percent in the first eight months of 2005, compared to the first eight months of 2004. And, China increased its market share in key textile and apparel categories. China's market share of sweaters surged from 7 to 57 percent. Other countries have experienced a similar increase in Chinese textile imports.

The results of this increased competition are clear: up to 90 percent of U.S. textile workers will lose their jobs by 2010. In order to stem the tide of imports, the United States began imposing temporary quotas on select categories of Chinese textile and apparel products in the spring of 2005. When China joined the WTO, it gave other countries, including the United States, the right to impose such quotas until 2008. Most countries have not resorted to such measures, but there is a global consensus that China's ascendancy in the textile sector needs to be properly managed.

Textile producers from more than 50 developing countries have supported the United States' imposition of quotas on Chinese imports. And, the European Union reached an agreement with China in June 2005 restricting the growth of Chinese textile imports over the next three years.

More recently, the United States and China negotiated a similar agreement that would limit imports of Chinese textile and apparel products from 2006 to 2008.

Although China has opposed the U.S. quotas, it has strongly supported the use of bilateral agreements restricting Chinese textile imports. And, why wouldn't it? By negotiating with the U.S. and EU, China can temper the imposition of new quotas, and ensure an orderly transition to the new era of free trade in textiles that China will surely dominate.

Although these agreements seem to be a win-win for all parties concerned, they set a dangerous precedent. The U.S. government's willingness to restrict Chinese textile imports will encourage other industries that have been adversely affected by Chinese imports to seek similar protectionist arrangements.

The rise of Japan in the 1980s saw a similar increase in bilateral agreements restricting the export of Japanese products to the United States. These so-called "voluntary export restraints" (VER) were gradually abandoned as the Japanese threat diminished. And, the members of the WTO later sought to prohibit the use of VERs.

It can hardly be doubted that the rise of China will cause the re-emergence of VERs or their like, now that a precedent has been set. The question is what effect these restrictive agreements will have on the U.S., and global, economy.

The VERs arguably gave certain U.S. industries, in particular automakers, the opportunity to adapt to the new competitive environment in the 1980s. More often than not, however, protectionism serves to stifle innovation rather than encourage it. And, the costs of protectionism always fall more heavily on U.S. consumers than foreign competitors.

It is worth remembering that China is far more open to foreign investment today than Japan was in the 1980s. Moreover, while foreign companies continue to have difficulties penetrating the Japanese market, many have already established profitable enterprises in China. This fact alone differentiates the present from the past, and counsels caution in proceeding down the protectionist path.

While the lure of protectionism is always strong, the success of the U.S. economy, like China and India, ultimately depends on free markets and free trade. Resort to protectionism must be limited to those instances where it is truly necessary.