Opinion on the report on the competitiveness of the European textile and clothing industry (94/C 295/03)

On 1 December 1993 the Council decided to consult the Economic and Social Committee, under Article 198 of the Treaty establishing the European Economic Community, on the report on the competitiveness of the European textile and clothing industry.

The Section for Industry, Commerce, Crafts and Services, which was responsible for preparing the Committee`s work on the subject, adopted its Opinion on 4 May. The Rapporteur was Mr Luís Morales.

At its 316th Plenary Session (meeting of 1 June 1994), the Economic and Social Committee unanimously adopted the following Opinion.

1. Introduction

1.1. The textile and clothing industry has lost about 40 % of its workforce over the last 15 years. What is even more alarming is that these losses have risen sharply since 1990.

1.1.1. While average annual job losses were running at 2.5 % between 1980 and 1988, the industry shed 434 000 jobs between 1988 and 1992 (600 000 if we include the former GDR); the job-loss rate rose from 3.1 % in 1990 to 4.3 % in 1991 and 5.4 % in 1992.

1.1.2. By way of comparison, between 1988 and 1992 the fall in employment in manufacturing was less than 0.5 %, i.e. 11 times less. Another revealing figure: nearly 75 % of the net job losses in manufacturing between 1988 and 1992 were in textiles/clothing.

1.2. The situation continued to deteriorate considerably in 1993. The provisional data available indicate that over the whole year, turnover dropped by 6.5 %, employment shrank by 170 000 and more than 1 000 firms in this sector were forced to close down.

1.3. Between 1988 and 1992, investment fell by 32 % in the textile sector and 25 % in the clothing sector (at 1992 constant prices).

1.4. Over the same period, imports from outside the Community increased on average by 8 % per annum in volume, while exports rose by 4.6 %. The share of European exports of textiles and clothing products to industrialized countries` markets has contracted overall from 12.4 % to 8.8 % in the United States and 24 % to 16.2 % in Japan.

1.5. Possible scenarios for the next ten years: four factors will have a major influence on the textile/clothing trade flows: the planned liberalization of trade (GATT agreements), China`s access to the WTO (1), agreements with the countries of eastern Europe, and growth in consumption in Asia and South America in the wake of economic development. Besides these important factors, trade flows will be affected by other, less predictable, developments: the growth of textile industries in new countries such as Vietnam, Laos, etc., the probable enlargement of NAFTA (2) and the enlargement of the European Union.

1.6. Despite some loss in competitiveness to the benefit of competitors who were able to exploit specific advantages such as low wages or low price raw materials, the European industry has fully demonstrated its determination to maintain and develop specific sectors in line with market requirements. There have been major moves to modernize the sector, which have been partly responsible for the job losses, and to restructure it.

1.6.1. The problem remains of implementing balanced rules for world trade. If this is not done, the European industry will go further into a decline since, unlike its competitors, its natural market is wide open and it is obliged to comply with the international commitments subscribed to by the European Union. The consequences of prolonging this decline would be dramatic for the economy (in terms of tax losses, peripheral activities to the textiles sector, trade balance, etc.), for employment (at least 2 million jobs are at stake), for certain 'textile specialist` regions, and for the cultural heritage and European creativity.

1.7. Improvements in the competitiveness of third countries as a straightforward consequence of the appreciation of European currencies is a major phenomenon which cannot be ignored and which, if it continues, could wholly offset improvements in European competi-tiveness achieved by measures taken by industry and government in Europe. Thus it is essential to continue to strive for exchange-rate stability.

1.7.1. For example, the Chinese industry has improved its competitiveness by more than 30 % over the period from 1986-1992 through the appreciation of European currencies.

1.8. As part of the European Union`s competition policy, the Commission should ensure that the operation of the Structural Funds and regional assistance programmes does not distort the market.

2. Reasons for the decline in the European industry

2.1. General

2.1.1. Despite considerable efforts on the part of European industry over the past ten years, which have turned it into the most modern textile industry in the world, technological progress is not sufficient to compensate for differences in wages with developing or newly industrialized countries. This is particularly the case in the clothing industry where labour costs account for 40 % of cost prices.

2.1.2. The clear advantages of those countries which have recently built up major textiles industries add to the effects of the imbalances in world trade. Certain of those imbalances, particularly those with developing countries, arise from distortions of competition described in the Commission`s report [COM(93) 525]: subsidies, dumping, pirating of intellectual property, illegal imports, closed markets in most of the exporting countries, use of forced and/or child labour, non-respect of trade union rights and minimum environmental regulations. In addition to these practices, there are problems within the European Union such as counterfeiting and black market labour, which are fairly widespread in the clothing sector.

2.2. The reasons behind the loss in competitiveness are all important to varying degrees. They should be discussed in detail.

2.2.1. Access to several major markets where European industry would have definite potential for development (middle of the range/top of the range/luxury products) is virtually impossible because of prohibitive customs duties and/or technical and administrative obstacles. This has the dual effect of keeping out European exports and making competition on these markets impossible. Unless there is a spectacular change before the WTO is set up in mid-April, this trade imbalance will preclude any chance of reversing the trends described above in points 1.1 and 1.2.

2.2.2. Subsidies, dumping: the rules on subsidies and dumping are set out under GATT, and the application of these rules is the responsibility of the Commission. Note the exemptions to the rules on subsidies which benefit the developing and State-trading countries.

2.2.3. Intellectual property: perhaps the only real competitive advantage of European industry, cancelled out by counterfeiting and copying of designs and models. The new GATT agreements include at last a chapter on intellectual property, albeit watered down by lengthy exemptions for the developing and State-trading countries; these exemptions penalize European industry all the more since textile products have a short life cycle and their originality value is limited in time.

2.2.4. Illegal imports, fraud: the TAFI (1) is welcome but the means are not commensurate with the stakes. The initiative was launched in 1993 and aims to secure more qualified staff (DG XXI), better customs coordination and an industry unit whose financing is shared equally between the Commission and industry. Results to date have been limited since the initiative has only been running for a short while and because of the difficulties inherent in stamping out the fraudulent practices encountered.

2.2.5. The lack of social protection, non-respect of trade union rights and minimum working condition rules (non-signature of and non-compliance with ILO Conventions) and forced and child labour all increase the wage gap and result in social dumping.

2.2.6. Non-compliance with (or the non-existence of) environmental regulations penalize European firms which are subject to strict legislation which is costly to implement.

2.2.7. Since 1991, the economic climate has played a part in undermining the sector and speeding up its decline.

3. Solutions

3.1. General

The reasons behind the difficulties set out above are, for the most part, not new. They have been exacerbated by the growth in world trade, the progress of newly industrialized countries, new communication techniques allowing near-instantaneous reproduction of designs and models, and latitudinarian administration of world trade regulations. However, these difficulties should, above all, be seen against the background of a particularly depressed European economy, which in 1993 triggered a decline in production and high losses in almost all sectors. The consequences of this have been drastic for employment, particularly in regions which are almost completely dependent on textile manufacturing activities.

3.2. Management and monitoring of textile agreements: the Commission must improve its performance and Member States must provide it with the means to do this. Tight management of agreements requires reliable statistics and updates, which is far from being the case today.

3.2.1. Improved performance can, however, only be achieved if the will clearly exists and is reflected in an effective Community trade policy. The will to achieve this should be reflected in more than the preparation of a formal document - which is necessary, but not immediately so. The Council of Ministers should also give the Commission more freedom of action to take anti-dumping and anti-subsidy measures and measures to protect intellectual property (designs and models, counterfeiting).

3.2.2. The Commission should be more vigilant in negotiating new textile agreements whose conditions will have a major impact on trade. This is particularly the case for agreements with China and Turkey.

3.3. Moves must be made to stamp out fraud and counterfeiting, copying and/or illegal imports, by:

3.3.1. Speeding up adoption of i) the European Directive on the protection of designs and models and ii) legislation on counterfeiting.

3.3.2. Increasing the resources available to TAFI, including reliable real-time data, and studying practical arrangements to improve customs coordination. Obtaining assurances from the Commission that, within six months and before the 1995 budget appropriations are submitted to Parliament, it will determine the financial and human resources necessary for countering fraud more effectively, including on-the-spot appointment of specialized customs staff (e.g. Hong Kong).

3.3.3. Stamping out clandestine labour in Europe: reviewing national legislation in this area, and looking into ways of reconciling different legislations.

3.4. Working conditions: as far as possible, preferential access to the European market and GSP (1) concessions should be linked to compliance with minimum social legislation. The European Union should lobby the WTO hard to ensure that a social clause - an integral part of any future trade agreements and dealing with arrangements for trade union action, safety and hygiene conditions and forced and child labour - is adopted by all parties.

3.4.1. An initiative should be taken with the social partners, based on ILO conventions, to make a proposal specific to the textiles and clothing industries, which should then be submitted to the WTO. Assurance should be obtained from the WTO that, even without rapid implementation of a social clause, Article XX(e) of the GATT basic agreements on the products of forced labour will be strictly applied (particularly with regard to China`s request to join the WTO).

3.5. Market access: moves should be made to bring down exorbitant duties rapidly, to ensure reciprocity and to dismantle non-tariff barriers.

3.5.1. Wherever possible, Article 7 of the Final Act should be used to sanction the fact that markets have not been opened up.

3.6. Environment: the European Union should continue to press for account to be taken of environment-related problems, including approaches to the WTO when it is set up. Studies carried out to date by the Danish Ad Hoc Group on Eco-labelling of Textiles and by trade bodies will provide the basis for the standards to be required of foreign suppliers in due course.

3.7. Business environment: there are several areas which are eligible for aid to support research into the competitiveness of firms in this sector.

3.7.1. Research and technological development and transfer of techniques: research coordination programmes carried out by several national and/or regional institutes; European telematics network for technical information, etc.

3.7.1.1. A committee (to be set up), comprising trade and scientific bodies and Commission representatives will, within one year (or less), finalize a proposal for a technological programme. It will be able to follow the lines of the programme between the American Textile Partnership (AMTEX) and eight US Department of Energy Research Institutes. The objectives of the programme are to improve product quality, innovation, response to the market, energy efficiency and pollution reduction. The achievement of these objectives will be based on close collaboration between industry, government and universities. Funds, which will be co-financed for the first six months, amount to $50 million.

3.7.1.2. The financing and management of the EDI (2) programme should be reviewed so as to speed up its development.

3.7.2. Training: training in new techniques, particularly computer-assisted design and production; programmes for improving know-how in design, quality control, marketing and environment; conversion programmes if necessary for staff threatened with unemployment.

3.7.3. Export promotion: market studies, co-financing of major exhibitions or demonstrations, up-grading textile representation in European trade delegations and establishing programmes to allow com-panies access (following consultation with the Chambers of Commerce and/or national institutions) in a number of particularly important countries, etc.

3.7.4. Aid for conversion and modernization: continuation, extension and increased transparency of current programmes; improvement of services and logistics (access to information, transport) with, however, the necessary condition that capacity not to be increased; establishment of a special conversion fund accessible only to firms which could justify closure of their activities and a switch to other industrial sectors, providing that jobs are maintained (affecting, for example, the acquisition of technologies, training for new jobs), and assistance for any dismantling (particularly scrapping).

3.7.5. Moves to promote SMEs and craft industries: assistance in sizing-up potential markets for firms which are often badly equipped to stand up to international competition, by rapid expansion of technical and information systems (including EDI), etc.

3.7.5.1. The Commission document refers to the use of new technologies in small and medium-sized firms. This goal only seems to be attainable by facilitating these firms` access to a reliable European information network.

3.7.6. All proposals and recommendations must be checked for compatibility with the new rules and disciplines of the WTO.

4. Conditions needed for pro-active effective assistance

4.1. Dialogue: it is vital that before decisions are taken, the European Commission and the social partners sit down and discuss the issues. The European Commission must set up a multi-service task force which in turn could set up working groups (e.g. technical, training, regional aid, etc.).

4.2. Programme: once they have been discussed, all the measures decided on must be submitted in the form of consistent, quantified projects in such a way that they can be easily submitted to the appropriate bodies for a decision.

4.2.1. These projects obviously must be assessed periodically.

4.3. Statistics: European industry is now hampered by the lack of up-to-date and accurate statistics following the cessation of data compilation by customs authorities. The Committee calls on the Member States and the Commission to act to remedy this unsatisfactory situation.

4.4. Industry: Dynamic action needs to be taken within the clothing and textile industry itself and by individual firms, as is pointed out in the Commission report. Such action is required to be taken at both the strategic and operating levels and has to take cognisance of certain irreversible structural changes and of new international trade rules.

Done at Brussels, 1 June 1994.

The Chairman

of the Economic and Social Committee

Susanne TIEMANN

(1) World Trade Organization.

(2) North American Free Trade Association.

(3) Textile Ant-Fraud Initiative.

(4) General System of Preferences.

(5) Electronic data interchange.