European Expansion

The European Union is pursuing an aggressive agenda on the trade front, seeking greater market access and positioning for 2005.<br><br><br><br>WASHINGTON — The European Union, at times a trade ally of the U.S. and at times a foe, is building a...

The European Union is pursuing an aggressive agenda on the trade front, seeking greater market access and positioning for 2005.

This story first appeared in the September 24, 2002 issue of WWD.  Subscribe Today.

WASHINGTON — The European Union, at times a trade ally of the U.S. and at times a foe, is building a trade agenda that shares many of the same tenets.

In trade negotiations, the 15-nation EU bloc and the U.S. are pushing harder for reciprocity in market access from developing countries, including India and Pakistan, and seeking to lower tariffs and non-tariff barriers.

The EU’s top trade commissioner, Pascal Lamy, has set forth an ambitious trade agenda, which often outpaces the U.S. in forging new trade pacts.

Under Lamy’s leadership, the EU will participate in a new round of global trade liberalization talks at the same time it pursues a free-trade-area pact with Brazil, Argentina, Paraguay and Uruguay, and contemplates the accession of 12 to 13 more Eastern and Central European countries into its own trade bloc.

In addition, the EU is making overtures to Latin American and Mediterranean countries and forging new bilateral agreements.

The EU’s aggressive trade agenda will likely force the European textile and apparel industries to specialize and restructure further.

Many analysts in the U.S. and abroad said the EU has a fairly liberal approach to trade, particularly in apparel and textiles, in terms of opening its own markets to imports.

However, it maintains strict rules of origin and is also one of the leaders in challenging the U.S. and filing trade disputes with the WTO.

European textile and apparel makers have been downsizing and restructuring for 10 years, mirroring consolidation in the U.S. industry.

In the early Nineties, the EU had 139,000 textile and apparel companies employing 3 million workers. The combined industries have since lost 26,000 companies and 900,000 employees, according to Francesco Marchi, director of economic affairs at Euratex, a Brussels-based alliance of all the national textile lobbying groups in the EU.

In 2001, 113,000 companies employed a total of 2.1 million workers, he said.

Franck Journoud, a representative of the Economic Strategy Institute in Washington and a former EU government affairs consultant, claimed EU textile and apparel firms cannot apply the same kind of pressure on lawmakers as U.S. lobbying groups — because it is an international organization, any one nation’s industry has comparatively less lobbying power.

“Domestic lobby pressure groups in the EU have been less successful than in the U.S. in keeping their market either closed or with high barriers,” Journoud said.

As 2005 approaches, European textile and apparel companies will face big changes in the global trading system, including the dropping of quotas among World Trade Organization nations, the possibility of tariff reductions and an expansion of their own trade bloc.

One of the biggest issues on the table during the WTO global talks, launched in Doha, Qatar, last November is tariffs.

EU import duties on apparel and textiles average 9 percent, while tariff peaks, or maximum duties, do not exceed 12 percent.

By contrast, the average duty on U.S. apparel imports is 17 percent and tariff peaks can range as high as 34 percent on wool products.

“We are facing a problem of tariff peaks in the U.S.,” Euratex’s Marchi said.

He added that Euratex sides with the American Textile Manufacturers Institute and the American Apparel & Footwear Association in supporting more market access, but his group also wants more market access in the U.S.

“Tariff peaks are the war between us and we will address that at the WTO level,” he said.

Another contentious issue in the new round of talks is the phaseout of quotas on all apparel and textiles on Dec. 31, 2004, as established during the Uruguay Round of negotiations in 1994.

Developing countries in the WTO are pressing for an acceleration of the quota phaseout or an increase in quota growth rates for the remaining 2 1/4 years, but the U.S. and EU are strongly opposed and have not yielded during negotiations, according to sources.

European companies are watching China, which is starting to pounce and post huge surges in apparel and textile imports.

Gary Hufbauer, a veteran trade analyst and senior fellow at the Institute for International Economics in Washington, said he doesn’t expect China to have as big an impact on the EU.

“The EU is more concerned about cheap imports from Russia, Eastern Europe and Turkey,” Hufbauer said.Euratex’s Marchi said 50 percent of all EU production is sourced from the Mediterranean and Eastern Europe while 40 percent is sourced in Asia.

The EU is also running a trade deficit with the world in textiles and apparel. In 2001, it imported $69.1 billion of textiles and apparel against exports of $39.8 billion, according to Marchi.

In addition, the EU is signing more reciprocal agreements where it makes concessions in market access in exchange for equal benefits.

For example, the EU signed a Memorandum of Understanding with Brazil, in which the EU agreed to lift quotas on Brazilian textile and apparel imports in exchange for a commitment by Brazil to not exceed certain maximum levels of tariffs for textiles and clothing.

Last year, it signed a similar textile and apparel agreement with Sri Lanka.

While EU manufacturers are bracing for more imports, company managers said they don’t expect to collapse in the face of new competition.

“For mills that produce mass quantity, lower quality fabrics, then there could be concern,” said Andrea Paoletti, owner of Lanificio Paoletti, a wool mill based in the Veneto region of Italy. “For us, a niche company, there’s really no threat of competition because of our kind of product. We can offer clients exclusive fabrics.”

At Star, a Como-based silk fabrics manufacturer known for its intricate prints, managing director Valentino Pasani said he believed free trade with China would help business.

“It depends on how companies take advantage of the situation,” Pasani said. “If it allows me to buy my raw materials at lower prices, then that in turn will make my product more competitive.”

For European brands currently sourcing goods from abroad, executives expect the quota elimination to change their buying patterns gradually, but not immediately.

“There is a general belief in the industry that quota elimination, tariff reductions and China’s accession to the WTO will create an almost fully liberalized, global marketplace for apparel and textiles,” said Bruce Moats, vice president of worldwide government affairs and public policy at Levi Strauss & Co., a San Francisco-based company that has an extensive EU presence. “Yet, there are many examples in the past to show that when one trade barrier is removed, governments often erect other, non-tariff barriers, and history is often prone to repeat itself.”

Some officials said the biggest advantage to the quota phaseout will be that they will no longer have to worry about the constantly changing quota charges.

“The world is getting smaller and I think the lifting of the quotas will help everyone,” said a spokesman from London-based Ted Baker. “Lifting quotas will put an end to the guessing game with suppliers and customers. At this point, suppliers can’t give you a price until you give them an order and you can’t really give them an order until you have a price. The way things work now is that suppliers try to gauge what the quota prices should be, and they go from there. But it’s not an exact science. When the quotas are lifted, business will be easier for everyone.” Still, others said they won’t be too quick to change production practices, because that could put quality levels at risk.

“The lifting of the quotas really won’t make any change to us,” said Stephen Marks, chairman and chief executive of French Connection. “Our priority is quality and the look of the fabric, rather than the price, although we do buy some of our fabric in China.”