Many of Australia's textile firms face collapse as tariffs are withdrawn - but there is little that can be done to save them the Productivity Commission has found.

In a new report, the commission says intense international competition, particularly from China, means the prospects of many textile firms is very limited.

It adds that protection through high tariffs is not the answer, and that tariffs should be reduced in 2005 and again in 2010.

Instead, the commission recommends that companies focus on niche markets where the industry can be more competitive.