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Europe's Textile and Clothing Industry warns of China Challenge - Address to Press Conference on January 14th 2004 by Mr. Filiep Libeert - President of Euratex.

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14th January 2004 – Press Conference

EUROPE’s TEXTILE AND CLOTHING INDUSTRY

WARNS OF CHINA CHALLENGE


ADDRESS TO PRESS CONFERENCE ON JANUARY 14th 2004
FILIEP LIBEERT
President of EURATEX



Ladies and Gentlemen,

Good afternoon and thank you for attending this EURATEX press conference devoted to China. I will begin by making an introductory statement, following which there will be an opportunity for you to ask any questions you may have.

BACKGROUND

I do wish to remind you first of all of what EURATEX represents. Our mission is to defend the interests of the whole of the textile and clothing industry in the European Union, in the new member-states and in our partner-countries of the Pan Euro Mediterranean rim, of which Turkey is by far the largest. I think that it is worthwhile noting that as of May 1st 2004 the EU textile and clothing industry will have a turnover of some €227 billion, employing 2.7 million workers across the 25 member-states of the enlarged Union.

As President it is my responsibility to draw attention to the concern of our members in relation to China.

China became a full member of WTO at the end of 2001, following the WTO Ministerial Conference in Doha, Qatar in November 2001. Membership of a rules-based organisation such as the World Trade Organisation imposes obligations, but also gives rights.


As of January 1st 2002, China benefited from the same quota removals as was the case for other countries in membership of WTO. This meant in effect that a number of categories of textiles or clothing products were no longer subject to quantitative limitation. This process will be completed as of December 31st 2004, which is the date upon which, as you know, all remaining quotas will be removed.

Europe’s textile and clothing industry accepted the 10 year phase-out of those quotas as an integral part of the Uruguay Round. At that time it hardly expected the unprecedented impact that China’s membership of WTO would have on textile and clothing trade.

CHINA’S ACCESSION TO WTO

The accession of China to WTO was by definition an important event. It brought a giant economy of the near future and today’s largest textile and clothing manufacturer into the rules-based international trading system. It opened the Chinese market to exports from other countries, and thus offered genuine growth potential for EU exporters of textiles and clothing products. These exports already amounted to € 416 million in 2002. We expect that figures for the whole of 2003 will show that amount to have grown to €450 million.

If that figure is to continue to grow in the longer term, it will be crucial that WTO and the EU ensure that China fully implements its commitments in joining WTO where tariff reductions and the removal of non-tariff barriers are concerned. China has to date respected its commitments in respect of tariff reductions. But a number of other barriers still existed into 2003.

For example, members have reported lengthy customs clearance procedures, lacking in transparency; high reference prices for imported goods which arbitrarily increase the duty to be paid; discriminatory application of V.A.T; costly and complex standards and quality controls which are more stringent than for domestic products; export and other subsidies; problems in distributing goods around the country; reluctance of foreign companies to take part in investment projects for fear of lack of protection of their investment. We expect the Commission and member-states to ensure that these barriers are permanently removed by the end of this year.

It is just as important that the Chinese authorities should themselves take all appropriate action to stamp out any breaches of intellectual property rights in the country. Not only is it essential that Chinese legislation should conform to Article 25.2 of the TRIPs agreement, relating to textile designs and models, but at the same time there should be in China a genuine will to apply such legislation everywhere. Infringements in the recent past which EURATEX has been called upon to deal with have demonstrated that this is far from being the case. We have seen examples of counterfeit goods where the name of the producer, the country of manufacture, the product design and brand, including the packaging itself have all been copied by Chinese companies. This cannot go on, and here too we count upon our authorities. I should add that the removal of such practises will prove to be just as beneficial to bona fides Chinese companies as it is to their competitors here in Europe.

QUOTA LIBERALISATION

I mentioned earlier that a number of quotas had been liberalised as of January 2002. It might be worthwhile before looking at these to see what has happened in other industries, and what the percentage of the import market held by China was in 2002:


• Shoes – 35%
• Video Games – 35% (second behind Japan)
• Toys – 57%
• Electric lighting – 61%
• Christmas decorations – 85%

These few examples show that over a range of light industry products China holds the lion’s share of the EU import market.

A meaningful comparison with textiles and clothing as a whole is not possible because of the quotas which will remain until the end of this year. It is a fact however that China has rapidly become the EU’s No.1 supplier of textiles and clothing, with exports which by the end of 2003 will have amounted to close to €13 billion. This is 29 times greater than European exports to China.

What then are the elements which have contributed so much to the success of China as an exporter of manufactured goods? Most economists believe, as I do, that the renmimbi is vastly undervalued. Bank lending rates too are understood to be as low as 1.1%, at least in those cases where the borrowed money is ever likely to need to be reimbursed. We have been unable to determine to what extent the banks themselves are solvent, and what the role of the state is. There can however be no dispute as to the fact that in many areas of spinning and weaving machinery China has invested the most in the most modern machinery in recent years. The % of total world investments by China in 2000, 2001 and 2002 is impressive to say the least. No one of course can be criticised for investing in the most modern machinery. One may however ask how it is being paid for.

If we look at the results in a range of liberalised textile or clothing categories for just the year ending 31st December 2002 the following developments in China’s share of imports from outside the EU are to be seen:

• Gloves and mittens – from 17 to 35%
• Woven underwear etc – from 16 to 33%
• Anoraks – from 15 to 55%
• Artificial fibre fabrics – 20 to 28%
• Babies clothes – from 32 to 50%
• Track suits – from 18 to 51%
• Workwear – from 17 to 27%

I find it difficult to believe that all of this growth can be ascribed to the above elements alone, nor to the disappearance of quota rents important as they have undoubtedly been, otherwise India and others would have benefited to a similar extent.

It is important here to note that China’s growth in market share can only be to the detriment of other exporters. As smaller suppliers, often greatly dependent upon export revenue from textiles and clothing, they are under considerable threat. If the EU genuinely believes in sustainable development and sustainable trade, China’s recent performances must be of serious concern.

It seems then entirely fair to say that the sharp unit price drops and the expansion of market share, which in some individual categories has multiplied several times over with average unit price reductions of up to 75% deserve scrutiny as to the conditions under which such performance has been achieved. In case you feel that I am exaggerating here, this last sentence is in fact a verbatim quote from the Communication of the Commission to the Council dated October 29th 2003. (pp30/31).
Presumably these elements will be taken into consideration too when the EU takes a view on the Chinese request to its WTO partners for market economy status.

Expressed in graphic form across all of the categories concerned, we see an exponential growth in import volumes, accompanied by a plummeting of unit values. It will be clear that when one views this in the light of the 24 product categories due for elimination on January 1st of next year, in which China manages today to fill its quotas by more than 95%, similar developments in Chinese exports to the EU could cause extremely serious damage. As things stand today, we have no reason to believe that they will turn out any differently.

SAFEGUARD CLAUSES

This leads me to mention in the first instance the American safeguard clause, about which so much has been written in the past two months. It will be clear that the situation in the United States is never identical to that of the European Union. In both cases, however, the EU and the USA may opt for the textile safeguard clause – this is the basis of present US measures – and its duration initially is only of 12 months maximum. They may also opt for the so called “horizontal” safeguard clause which may be implemented for four years. But the major differences are in the quantity of information which is required from industry; the EU requires complainants to prepare what equates to a doctoral thesis; and also in the decision-making process, whereby instead of one administration only, the EU has the Commission plus 15 member-states, becoming 25 as from 1st May 2004. Anyone who has followed EU anti-dumping procedures will be familiar with this process.

What we do expect, at such time as complaints are officially filed with the Commission, is that the European authorities should give industry a clear and unambiguous answer as to what its intentions are. The first test will be in the next few days in the case of filament fabrics of Category 35. We believe that this is an obvious case for prompt action by the EU. We also expect our authorities to clamp down hard on fraudulent imports - synthetic fabrics under quota described as filament fabrics (no quota); the use of S. Korea as a change of origin staging post; excessively low prices for filament fabrics.

In the wider scheme of things, faced with this phenomenon, which the Commission clearly recognises, European authorities are confronted with a stark choice.
They either take whatever steps are appropriate to persuade the Chinese to limit their appetite for the EU market or they bear the heavy responsibility of further factory closures, rising unemployment, and the resultant impact on tax and social security revenues. These are decisions which they have to make.

IN CONCLUSION

Where our exports are concerned we need our authorities to make absolutely sure that when we have the right product at the right price, we will be able to sell it without hindrance and uncopied on the Chinese market. Anything less would be unacceptable.
On the other side of the coin, it surely cannot be in the interests of EU manufacturing nor indeed of the least developed and most vulnerable exporters for one country to take over such a large share of imports in such a short space of time. It makes complete nonsense of all the EU’s efforts in relation to sustainable trade, and help to those most in need.
The Commission and member-states must determine what it is they intend to do and make it known to China and to the EU industry well in advance of January 1st 2005. The responsibility is clearly theirs. For our part, we are ready to engage in any constructive and meaningful dialogue with all concerned to define the most appropriate solutions.

About Euratex

Euratex, the European Apparel and Textile Organisation, represents the interests of Europe's textile and clothing industry. It expresses the views of that industry to the European Commission and to the European Parliament on behalf of 114,000 companies in the European Union which employed close to 2.2 million workers in 2001. Today, Euratex concerns itself principally with external trade, intellectual property, the environment and R & D. In addition to its members in the EU, Euratex also has members in Norway, Switzerland, Turkey and a majority of CEEC candidate countries. The current President of Euratex is Filiep Libeert (Belgium).

For further information, contact:

William LAKIN                                                            Francesco MARCHI
Director General                                                         Director Economic Affairs
Phone : 32.2.285.48.82                                                32.2.285.48.92
William.lakin@euratex.org                                       Francesco.marchi@euratex.org