Two convictions stemming from Operation Q-tip, the U.S. Customs Service's high-profile investigation into illegal textile and apparel imports, have been set aside by a U.S. District Court in Manhattan.

In a decision handed down last month, Judge John F. Keenan ruled that the jury in the July Q-tip trial had been given a document containing information that may have prejudiced them against the defendants. The judge made his decision on recommendation by both prosecutors and defense attorneys.At issue was the phrase "importer on sanction list" in a key piece of evidence.

Prosecutors and defense attorneys had agreed when the document was first introduced to the court that the phrase should be deleted.

However, the phrase appeared in the copy that was given to jury members during their deliberations.

Federal prosecutors must now decide whether they want to retry defendants Chinatex America Inc., the U.S. affiliate of major Chinese textile corporation, and Gu Shi Qiang, a sales manager for Chinatex America, on conspiracy and fraud charges. A third defendant in that trial was acquitted and will not be involved in any new trial.

Prosecutors from the U.S. Attorney's office would not comment on the case or say whether they would seek a new trial.

The decision to set aside the verdicts also renews old doubts about the special Customs investigation.

Critics charge that Operation Q-tip, which became public in September 1991 when Customs agents swooped down on dozens of New York area textile and apparel importers, has been largely a bust.

One of the most vocal critics of the operation has been the U.S. Association of Importers of Textiles & Apparel in New York.

"We think that the American people would be horrified to find out that their government is spending millions of dollars tracing the movement of bras and underpants from one place to another," executive director Laura Jones said.

The goal of Q-tip, which stands for "quota transshipment importation practices," is to block what the U.S. government claims is as much as $4 billion in textile goods illegally imported into the United States each year through third countries.

Q-tip investigators have targeted China, the largest single supplier of textiles and apparel to the U.S. market. The United States claims that China alone is responsible for an estimated $2 billion in illegal transshipments annually.

However, textile-producing countries and U.S. importers say that the U.S. transshipment estimates are highly exaggerated and that the United States has presented no proof.

Q-tip was supposed to be that proof.

More than 15 indictments have been handed down and two trials have taken place so far. But with the verdicts from one of the trials now overturned, the results are mixed: four convictions and two acquittals. Two other individuals have entered guilty pleas in Q-tip cases.

None of the convictions has come on a transshipment charge. The sole individual charged with conspiring to illegally transship Chinese-made garments into the United States was acquitted.

"We don't condone transshipment," Ms. Jones of the importers association said. "But we haven't seen anything to prove what the government says. We're still waiting for a conviction on transshipment."

Customs officials involved with Operation Q-tip were not immediately available for comment.

The United States has made transshipment a major issue in negotiations to renew its bilateral textile agreements with textile-exporting countries.

The United States wants to insert a transshipment clause into the new bilaterals that, among other things, would triple the current penalty for countries suspected of transshipping.

Textile trade issues are highly politicized in the United States with lobbyists for the domestic textile and apparel industry among the most powerful in Washington.

According to industry figures, the U.S. textile industry employs about 2 million people, but the number is shrinking.

The U.S. deficit in textile and apparel trade reached $14 billion in the first half of the year out of a total U.S. trade deficit of $47.6 billion in the period.