The European Commission has unveiled a number of measures it believes will help protect the European textiles and clothing industry against the expiry of WTO quotas at the end of 2004. Although not yet formally approved, the proposals could lead to a huge shake-up of the sector.

The 15-nation strong European Union is already the world's largest exporter of textiles and the second-largest exporter of clothing after China. Its textile and clothing sector consists of 177,000 companies and reported a combined turnover of 200 billion euros in 2002.

But despite its size and status, a slowdown in economic activity has also led to falls in both production and employment, with nearly a million jobs being lost between 1990 and 2000.

In 2002, the EU exported textiles and clothing worth a total 43.8 billion euros - although soaring imports meant that in real terms it achieved a negative balance of 27.8 billion euros; in clothing there was a shortfall of 36.7 billion euros, while the textiles trade recorded a positive balance of 8.9 billion euros.

In common with many other countries and regions attempting to counter the expected rise in textile imports after restrictions are lifted on 1 January 2005, a lot is at stake over the next couple of years.

The EU is now facing up to the challenge of how to maintain its share of the world market for textiles and clothing after this deadline. In a paper published last week on 'The future of the textiles and clothing sector in the enlarged European Union,' Brussels says it wants to see the EU compete on a level international playing field.

A future in Europe
According to EU Trade Commissioner Pascal Lamy, the textiles and clothing sector most definitely has a future in Europe, adding that its "interests are high on the EU's trade agenda. In 2005 import quotas will have gone, but not our interest in the industry: we need to create trading conditions and opportunities so that the European industry can compete internationally."

Driving this initiative is the elimination of import quotas in line with WTO rules from the beginning of 2005, which means that for the first time in 40 years EU textiles and clothing will be subject to the same trade and import rules as any other industrial sector. This will certainly lead to increased competitive pressure from other major textile and clothing producing countries, such as China, India and Pakistan.

Dovetailing with this are two other factors that will inevitably impact on the EU's competitive position. The first is the elimination of all non-tariff barriers under the WTO's Doha Development Agenda.

The second is EU enlargement, with ten countries (Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia) set to join the EU next year creating a zone with a population of 450 million people representing one quarter of the world's GDP. Enlargement will also increase the EU textiles and clothing workforce by almost a third, bringing it to over 2.5 million people - and making an even more pressing need to shore up the sector.

These newcomers are likely to experience huge costs in meeting new environmental protection and health and safety requirements, while competitive pressures after enlargement will come from low-price imports from Asia which will erode the acceding countries' low labour costs.

After import quotas are scrapped, the EU market will still be protected by tariffs averaging 9 per cent. This, it points out, is just a fraction of the tariffs imposed by some of its main competitors, many of which exceed 30 per cent.

The EU is also entitled to use anti-dumping measures against imports it judges harm its own industry by being sold at unfairly low prices.

Chinese threat
China is singled out as a particular threat since almost half of Chinese textile and clothing imports are currently still under quota - many of which are more than 90 per cent utilised. The "very substantial rise in the market share of Chinese products" after 2005 outlined in the report may be something of an understatement. The Commission can legally impose special "safeguard" tariffs on imports from China if they increase sharply.

To help protect the interests of the current 15 member states, as well as the ten new members set to join in May 2004, the Commission is calling for a significant reduction and harmonisation of customs duties to enhance market access, and the elimination of all non-tariff barriers.

"The EU will not make further reductions in its already fairly low customs duties if they are not matched by equivalent access to external markets," it argues.

Euro-Mediterranean area
It also wants to see completion of the Euro-Mediterranean area by 2005, which will include Southern Mediterranean countries such as Turkey, Tunisia, Egypt and Morocco; and a concentration of its trade preferences on the poorest countries. These poorest countries could be provided with an option to source the various components needed for the manufacture of garments which can be exported to the EU without losing trade preferences.

Pascal Lamy says: "Textiles are hugely important for developing countries. We need to ensure that the new trading conditions for textiles are to the benefit of all poor countries and in particular the poorest and most vulnerable ones." New recommendations include a new GSP regime that should apply after 2006 to limit the preferences to more vulnerable countries.

The need for action to enforce intellectual property rights and to fight against fraud and counterfeiting is also high on the agenda, along with increased vigilance to counter unfair trading practices. Despite Community protection of both trademarks and designs, some 4.7 million items of clothing and clothing accessories were seized by customs at the EU's external borders in 2001, and half of all EU customs procedures for 2001 concerned textile and clothing products.

In a move likely to anger many developing countries, the Commission is also considering the introduction of special labelling schemes for imports from those countries it believes meet environmental and labour standards. "They could be used as a first step to grant such products better conditions of market access under the future GSP regime," the document says.

The Commission said it would also consider introducing a "Made in Europe" label to cash in on the reputation of European fashion and textile manufacturers, as well as labelling of origin for textiles and clothing products marketed in the EU. This would need to be done in a non-discriminatory way it added.

Industrial policy
As far as industrial policy is concerned, several measures are proposed to promote the competitiveness of the textile and clothing sector. More research and development into new materials (including technical textiles) and production processes; education and training to improve SME's access to existing funding opportunities; and special programmes and initiatives for regions particularly dependent on textiles.

In a statement, EU Enterprise Commissioner Erkki Liikanen said: "The European textiles and clothing industry is focusing on innovation, research, quality and creation related competitive advantages. We need to provide it with the adequate framework conditions in order to enhance the capacity it has shown as an industry with a future in the enlarged Europe."

The next stage is to discuss all these measures with interested parties. In addition, the Commission is proposing to set up an action group made up of representatives from the European Commission, Member States and stakeholders to explore initiatives and to make recommendations to EU and national policy makers on these issues.

The results will be reported in spring 2005 and again by the end of 2006.

By Leonie Barrie.

For a copy of the policy proposals made in "The future of the textiles and clothing sector in the enlarged Europe," click here.