Opinion of the Economic and Social Committee on the 'Communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions on the Competitiveness of subcontracting in the textile and clothing industry in the European Union` (97/C 66/06)

On 30 May 1996 the Commission decided to consult the Economic and Social Committee, under Article 198 of the Treaty establishing the European Community, on the above-mentioned communication.

The Section for Industry, Commerce, Crafts and Services, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 6 November. The rapporteur was Mr Malosse.

At its 340th Plenary Session (meeting of 27 November 1996) the Economic and Social Committee adopted the following opinion by 105 votes in favour, with one dissenting vote and five abstentions.

1. Introduction

1.1. The Commission's Communication, is in line with the action programme to promote the competitiveness of European industry (COM(94) 319 final), and was drawn up in response to a request from the Industry Council on 28 March 1996. It was a wise choice to address this field since, by virtue of the number of jobs it provides, the textile and clothing industry is one of the most important industrial sectors in the EU and one which is particularly affected by the problem of loss of competitiveness. It is estimated that the EU shed over 800 000 jobs between 1988 and 1995 in this sector, according to the ETCO (European Textile and Clothing Observatory).

1.2. In this sector subcontracting plays a major role. It is perfectly appropriate to attach special importance to subcontracting as it mainly involves small businesses and cottage industries which are a major source of employment. The Commission estimates at 650 000 the number of people working in subcontracting in the textile and clothing industry, to which should be added approximately 150 000 undeclared workers (probably a considerable underestimate of the true figures).

1.3. Subcontracting has an important role to play in the textile and clothing industry as it makes it possible to achieve the necessary flexibility. Attention should be drawn to the differences between the textile industry and the clothing industry; in the case of the former industry, subcontracting work may involve high technology, whereas the latter industry mainly entails making-up garments, an activity traditionally carried out by workers. A further point to be mentioned is that subcontracting work in the textile and clothing industry is often concentrated in upland areas, rural areas or depressed urban areas. The gradual disappearance of such activities would only aggravate the problems existing in the field of land-use planning and economic and social cohesion.

1.4. At a time when the sector is largely characterized by relocation and globalization, it must be remembered that subcontracting is of key importance in preserving a complete, structured industry. The chain begins with product processing, including processing raw materials (natural materials such as cotton, wool, and linen, etc.) then come spinning, weaving and bleaching, and processing of man-made fibres (synthetic and artificial), which brings in the textile machinery sector; finally there is the immensely varied clothing industry, ranging from fashion to haute couture, and mass to cottage-scale production, and, last of all, the distribution branch.

1.5. Throughout the whole sector, there is growing evidence of a feeling of 'solidarity` between the various players - including specialist distributors - who feel that there comes a point where relocation and globalization must be checked, and that if a 'link in the chain` disappears from Europe, it could be to the detriment of the sector as a whole.

1.6. Eighty per cent of workers engaged in subcontracting activities in the clothing industry in the EU are women and the crisis facing this sector has particularly serious social consequences for the female workforce.

1.7. In this connection, the contribution of the Economic and Social Committee could serve as a guide for the Commission, Council, European Parliament, Committee of the Regions and the 'competitiveness` working party set up by the EC Commission on the occasion of the textile and clothing forum held on 19 June 1996. The survival of this sector in the EU is in the balance; the considerable social and industrial implications of this situation make it an issue of vital importance to society.

2. Appraisal of the Commission proposals

2.1. Analysis of the situation

2.1.1. The analysis presented by the Commission broadly coincides with the views of the members of the Committee; attention is drawn in particular to the following phenomena: the internalization of production, relocation to low-wage countries, the increased power of major distributors, the impact of computerization and undeclared work.

2.1.2. In the Committee's view, however, a number of other points should be added to the Commission's appraisal:

a) a high level of inter-dependence between subcontracting and the sector as a whole. A global strategy for the whole sector is essential;

b) a distinction should be drawn between subcontracting in the textile industry, which is frequently efficient and capital-intensive, and subcontracting in the clothing industry, which is labour-intensive and still very slow in taking on board technical progress;

c) the widespread difficulties encountered by this sector in endeavouring to gain access to non-EU markets, whereas EU markets, for their part, are to a very large extent open markets;

d) A more detailed analysis of the size-related problems facing small and medium-sized enterprises (e.g. access to training or information);

e) An analysis of trends in the sector's inward and outward processing traffic, and the lessons to be learned from this.

2.2. Subcontractors' operating strategies

2.2.1. In the light of the abovementioned realities, the Commission identifies several types of operating strategies, namely the following rationales: response and flexibility; expertise and know-how; services; and costs.

2.2.2. The Committee does not believe that there are grounds for opposing the above-mentioned rationales. The rationales should complement each other; the costs rationale - particularly in the field of subcontracting - is one of the inescapable economic laws albeit not the only one. In the Committee's view, subcontractors are endeavouring to adopt these rationales; a genuine European strategy should ensure that they are provided with the best possible conditions for succeeding in this venture.

2.2.3. With regard to the 'costs` rationale, the Committee considers that the EU should carry out a root-and-branch appraisal with a view to ensuring that its workforce is competitive. It is a fact that, at the present time, in the majority of the EU Member States taxes and social charges are brought to bear mainly on the labour factor, thereby penalizing employment and enterprises and encouraging the use of undeclared workers often under unacceptable working conditions. Fiscal measures designed to promote corporate investment in training and qualification, particularly for women workers, would, on the other hand, help to improve the competitiveness of European industry and to curb the trend towards the relocation of industry. At European level, in the sectors concerned, including SMEs, measures to promote a flexible reorganization of working hours (e.g. methods of calculating working hours) would also help to boost competitiveness.

2.3. Factors for improving competitiveness

2.3.1. In its Communication the Commission rightly insists on innovation, information, know-how and cooperation between firms as factors in boosting competitiveness.

2.3.2. The Committee wishes to highlight in particular the following factors:

a) securing improved qualifications, upgrade the skills of those involved in the sector: employees, heads of enterprises, craftworkers and the self-employed, by providing easier access to training and information programmes;

b) improved access to technical progress and modern means of communications, e.g. in the field of teleworking, in order to enable workers to continue to work at home or in small units based in regions which are not readily accessible;

c) diversification, which gives further added value to production; diversification could be carried so far as to include the making-up of finished products, using methods such as franchising to acquire access to designs or brand names, thereby making it possible to market the product;

d) sectoral measures applied on a voluntary basis and in a spirit of cooperation, which involve small and medium-sized distributors. These measures include a pricing policy designed to enable these distributors to compete with their large rivals;

e) measures to promote quality control and make expertise available which, when combined with the skills of their labour force, may help European subcontractors to offer considerable 'cost-quality` advantages over their competitors in developing countries where these standards are frequently less high;

f) measures to strengthen the partnership between subcontractors, in order to promote regrouping and the exchange of know-how and products. This partnership should include middle-men, who in some Member States play a vital role, so as to raise the profile of subcontractors' work in their dealings with the manufacturer. In addition, provision should be made for subcontracting grants;

g) encouraging manufacturers to establish a more balanced relationship with subcontractors, in a spirit of partnership. This relationship should be underpinned by a set of criteria, ensuring a more level playing field for the partners, and include a code of conduct covering payment deadlines, the duration of contracts, the provision of training for men and women, and exchanges of know-how, in return for commitments by subcontractors in respect of quality and delivery dates. This set of criteria could draw on existing or future national legislation and preferably be rooted in voluntary professional agreements;

h) there is a need to provide greater access for EU products to the markets of non-EU states; this raises the issue of the consistency of the EU's external policy with its policy on industrial competitiveness. In view of the fact that the EU generally adopts a more open approach to external trade than is the case with its main trading partners, the Committee takes the view that the EU could legitimately give greater priority in future trade negotiations to the opening-up of the markets of non-EU states than to opening-up its own markets. The Committee wishes the mechanism for monitoring trade agreements to be implemented effectively, and EU small and medium-sized enterprises to be provided with easier access to trade-defence arrangements, including the possibility of introducing more automatic sanctions in the event of infringements;

i) greater attention should be paid in the multilateral context of the WTO to measures to combat: fraud; dumping; the production of counterfeit goods; and the import of goods produced under conditions which flout EU social and moral principles and International Labour Organization regulations, e.g. with regard to forced labour in prisons, the exploitation of children, the lack of freedom to joint a trade union, and non-compliance with the basic rules governing the protection of the environment. The production of goods under such circumstances is a scourge on the sector as a whole and sub-contracting in particular;

j) undeclared work should be curbed by upgrading jobs and qualifications.

2.4. Action to promote competitiveness

2.4.1. In the first section of this chapter of its Communication, the Commission lists the instruments at its disposal (the Structural funds and training programmes) and which do not specifically apply to the textile/clothing sector. The Committee would point out that, generally speaking, these instruments are not readily available to SMEs and they lack transparency. The Committee deplores, for example, the fact that it is so difficult to make use of EU training measures - a key element in ensuring the competitiveness of this sector. The Committee also notes that the Commission is unable to identify the support earmarked for the textile/clothing sector under these funding provisions.

2.4.2. The Committee takes the view that the action programme to assist SMEs, managed by DG XXIII, could play a very useful role in meeting the requirements which have been defined, e.g. as regards cooperation between SMEs in the single market. It would, however, express its concern at the possibility of cuts being made to the - already modest - allocations set aside for this programme in the period 1997-1999 (ECU 180 million). In the Committee's view, the proposed pilot scheme, set out in the second integrated programme, for financing joint ventures between SMEs in the EU, is an interesting development. The Committee calls for priority to be given to the textile/clothing industry when determining the eligibility of industries to take part in this pilot scheme.

2.4.3. In the second section of this chapter of its Communication, the Commission sets out the instruments specifically designed to assist subcontractors in the textile/clothing industry. The Committee recognizes the importance of the proposed measures in areas such as promotion (fairs and trade shows), training, and cooperation between manufacturers and subcontractors. The proposed budget for these measures is very small (ECU 150 000 in 1996, plus ECU 32 000 to cover meetings expenses); in the light of this and bearing in mind the need to respect the principle of subsidiarity in this field, the Committee calls upon the Commission to provide it with a more detailed programme setting out:

a) a three or four year timetable detailing the measures to be achieved;

b) further details with regard to the way in which these measures are to be financed (which could include participation by the Member States and the subcontractors themselves);

c) supporting innovatory measures, which could be financed from the funds available under existing programmes; examples of such measures are the interlinking at EU level of technical centres for providing information on new techniques, and joint campaigns aimed at growth markets such as Japan, the US and the Gulf States;

d) measures to provide back-up for cooperation among SMEs (e.g. pilot projects to establish joint fashion design structures, and distribution methods ensuring greater added value).

3. Resolutions and conclusions

3.1. Recognizing the importance for the EU to continue to have a successful textile and clothing industry which generates both wealth and employment;

3.2. recognizing the role played by subcontracting in the EU, which is a source of flexibility and an essential component of the sector, besides providing an alternative to relocation outside the EU;

3.3. recognizing the key importance of textile and clothing subcontracting in the social and economic fabric of many EU countries, by virtue of its role in land-use planning, and of the tens of thousands of one-man businesses and cottage-scale firms involved in the sector;

3.4. recognizing the major assets possessed by EU industries: the quality of the labour force, creativity, innovation and technological performance and the high reputation of European fashion;

3.5. recognizing the imbalance in subcontractor-manufacturer relations, to the former's disadvantage;

3.6. the Committee acknowledges the justification for a Commission Communication on the competitiveness of subcontracting in the textile and clothing industry;

3.7. the Committee is, however, concerned about the lack of ambition displayed by the Commission in its Communication, which fails to draw the logical conclusions from its observations, namely the need to:

3.7.1. have the EU and its Member States carry out an appraisal of the necessity to cease the practice of imposing the lion's share of taxation and social charges on employment;

3.7.2. revise the goals of external trade policy in order to make the opening-up of the markets of non-EU states the first priority before consideration is given to any further opening-up of EU markets;

3.7.3. ensure that, in accordance with the stipulations of the WTO and ILO, international trade is indeed governed by international rules outlawing dumping, the production of counterfeit goods and the exploitation of children and prisoners, the lack of trade-union freedoms and non-compliance with regulations governing the protection of the environment; these rules should also be backed up by effective monitoring and sanctions;

3.7.4. enforce Community trade safeguards effectively by introducing simplified access procedures for SMEs and a system of automatic penalties for offenders;

3.7.5. reorganize subcontracting relations to strengthen the SMEs' position vis-à-vis manufacturers;

3.7.6. encourage cooperation among SMEs, including small traders, so as to promote liaison between the conduits of European fashion and, where appropriate through a policy of offering high quality products at competitive prices, enable SMEs to compete more effectively with imports and defend their interests vis-à-vis major retail chains;

3.7.7. put forward a costed plan of action, backed up by a multi-year timetable and pilot schemes at EU and national levels, with a view to improving the qualifications of the workforce, speeding up the introduction of new technology, in particular information technology, and facilitating cooperation between SMEs, including retail outlets, and relations between manufacturers and subcontractors;

3.7.8. ask the EU Council to further the priority given to SMEs by providing the programmes specifically targeted at SMEs with the necessary funds to enable them to have a real, rather than symbolic, impact;

3.7.9. give real priority to SMEs in the operation of the EU structural instruments (e.g. the European Social Fund) by giving management responsibilities to professional organizations or chambers of commerce in touch with enterprises and their needs, in particular through the global grant procedure;

3.7.10. provide the European Union with a proper financial instrument, as suggested in the second integrated programme for promoting partnership between small and medium-sized enterprises within the EU; it should be noted that such instruments exist for partnership arrangements with third countries (ECIP, JOP).

3.8. The Committee welcomes the proposal to set up a group on subcontracting in the textile and clothing industry, bringing together European and national representatives of the industry and trade unions. The Committee will contribute in its capacity as permanent monitor of the European internal market. Part of the group's remit could be to work out improved contractual relations within the sector. The Committee is in favour of enlarging this group in the light of the matter under discussion, to include representatives of the parties concerned, such as distributors or consumer associations.

Brussels, 27 November 1996.

The President of the Economic and Social Committee

Tom JENKINS