NEW YORK (CNN/Money) - Buying clothes is likely to become a little cheaper early next year.

Come Jan. 1, apparel quotas that have limited U.S. imports of sweaters, coats, shirts and pants from countries such as China, India, Pakistan and Bangladesh -- and have allowed retailers to inflate their sales price -- will be eliminated.

"From a very simplistic point of view, consumers will probably start to see better prices and better quality of goods," said Howard Davidowitz, chairman of retail consultancy Davidowitz & Associates. "When the quality and price is right, consumers shop more frequently and they buy more."

Frank Badillo, senior retail economist with Retail Forward, said he expects prices could come down by as much as 5 percent "when the full impact is felt."

"It could be a little worse or a little better. It's still difficult to predict right now," he said. "But it's clear that for anyone selling apparel, they will have to redo their strategy."

Indeed, some observers point out that a marked drop in prices means merchants will need to sell more units of the same product to offset price declines.

Peter McGrath, chairman of J.C. Penney (JCP: Research, Estimates)'s purchasing division, anticipates apparel prices to drop by as much as 8 to 18 percent in 2005-2006. At the same time, he believes that the quotas elimination will benefit the big players -- the discount and department store chains -- more than the specialty clothiers in terms of shrinking costs and improving operational efficiencies.

'[Inventory] sourcing strategies will change dramatically in a quota-free world," said McGrath. "J.C. Penney will reduce our vendors by one-third during the first 18 months. We will do business with fewer suppliers, and operate in fewer factories, and these factories will become larger in scale."

Added McGrath, "The drive for greater efficiencies means the major importers will also reduce the number of countries where merchandise is being produced."

In other words, China, could become the biggest beneficiary when the quotas are lifted.

The removal of the quotas is part of a 10-year phaseout, with a final deadline that was set for the end of this year.

Once the barrier is removed, McGrath expects the "law of the jungle" to take over. Countries, in theory, will have free access to the U.S. market, and they will compete globally on price for a greater chunk of the pie.

Industry watchers are betting China will outmuscle the competition to become the supplier of choice.

"If the quotas are eliminated, we expect a large shift in textiles and apparel production to China," Merrill Lynch analyst Daniel Barry wrote in a recent note. In fact, China could take as much as 70 percent of the U.S. market for apparel and textiles, according to the American Textile Manufacturer's Institute (ATMI).

In 2003, China's share of the U.S. import market in textiles and apparel rose to about 20 percent from 13 percent in 2002, according to the Department of Commerce (DOC).

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Said Barry, "There have been many retailers that have already begun to move orders to China in preparation. We believe that most retailers would lower prices, particularly the mass merchandisers such as Wal-Mart (WMT: Research, Estimates) and Target (TGT: Research, Estimates), to provide customers with the best product at the lowest cost possible."

"Specialty retailers, and those at the upper end of the spectrum, such as Nordstrom (JWN: Research, Estimates), Neiman Marcus (NMGS: Research, Estimates) and Saks (SKS: Research, Estimates), might be able to maintain their current prices but provide customers with higher quality private label merchandise, which could offset the negative impact," Barry added.

At the same time, observers point out that the quotas issue is fraught with political minefields, particularly in an election year. Domestic manufacturers have accused Chinese companies in the past of "dumping" -- or selling below fair market price -- in the United States.

According to Barry, if the pressure at home mounts, the U.S. still has safeguards in place that would allow it to keep China under quota for five more years.

"It will be interesting to see how consumers respond to falling prices," said Retail Forward's Badillo. "With price-cutting in the past, consumers traded up to higher quality products which they could not afford before. Discounters could also sell more higher-quality products such as cashmere clothing at Wal-Mart and Target."

Penney's McGrath, agreed.

"We would never sell 400 thread-count (better) sheets earlier because they were too expensive. But when prices fell, instead of 250 thread-count sheets, we could now give our customers more quality," said McGrath."It's the same thing with leather handbags, which we can now sell at $39.99. We couldn't have done that a couple of years ago."

"For us, the quotas elimination would make us more competitive in sourcing rather than on price," said Lee Antonio, spokeswoman for department store chain Sears, Roebuck & Co (S: Research, Estimates). "It gives us the ability to source goods where we think we'll get the best quality and value for our customers. So our customers potentially will get better quality goods at better prices."

Wal-Mart and Target could not be reached for comment.