Textile makers rest hopes on swift measures against unfair competition

The Greek textile industry is anxiously awaiting strong government moves to protect it against unfair competition from cheap Chinese imports that are no longer subject to quota restrictions. Representative bodies of the industry, such as the Federation of Greek Textile Industries (SEVK) and the Hellenic Fashion Industries Association (SEPEE), consider that in 2005 they will have to face unprecedented competition from imports and want the government to act quickly «It may already be too late, at least for some enterprises,» SEVK Chairman Eleftherios Kourtalis told Kathimerini, stressing the need for coordinated action by the financial crimes squad (SDOE) to thwart illicit practices by importers. He claims that in Athens alone there are several Chinese clothing enterprises operating illegally and driving the Greek ones into extinction. «Measures for the protection of the sector should have been in place yesterday,» says SEPEE’s Chairman Telemachos Kitsikopoulos, noting that anxiety is prevalent everywhere in the European Union. «Several countries have already adopted sectoral policy measures, where the industry is important for the economy, and we should follow their example. I fear that the importance of the textile and clothing industry for Greek exports and the economy in general has not yet been fully understood. Among the support measures that the industry’s representative associations have proposed are the creation of sales networks and the subsidization of labor costs by the government. At a recent meeting with Development Minister Dimitris Sioufas there was agreement that the government must be mobilized but there seemed to be differences as to how quickly it can act. While the industry takes the view that measures are already overdue, the ministry said that measures are under examination and some initiatives are already being implemented (e.g. against illicit street trade). Kourtalis is especially worried about tenders for armed forces procurements, calling for swift and effective intervention by the government that could really save a number of companies by making sure, via legal means, that these procurements remain in Greek hands. «The Italian example is very telling: Authorities initially introduced the requirement that at least one of the manufacturing phases of the products of bidders should have taken place in Italy. This, however, contravened EU law and was later changed, forcing companies to own warehouses at the tender’s location to allow inspections. «In Britain, they publish a shortlist of companies which can participate in tenders. We could do a similar thing, by imposing our own specifications for bidding, adhering to EU law and protecting the Greek textile industry at the same time,» said Kourtalis. Joint committee The Development Ministry has recently announced the set up of a joint standing committee with officials from the Economy Ministry and the industry’s representative bodies that is to look into problems. It also said the Hellenic Organization for Small and Medium-Sized Enterprises and Handicrafts (EOMMEX) will cooperate with the technological development departments of the leather and textile industries to support relevant programs. Furthermore, it said checks would be intensified at customs posts to counter the extent of illegal imports and street trading; measures of aggressive and defensive trade policy are envisaged, as well as a re-designation of industrial policy for the sector with emphasis on technological innovation and the addressing of any weaknesses in state procurements. Kitsikopoulos noted Sioufas’s interest and said he is eagerly awaiting the implementation of the announcements. Despite difficulties, a number of textile and clothing enterprises are projected to report positive results for 2004, partly due to falling cotton prices in the last quarter of the year. Kourtalis, however, forecasts that 2005 will be a very difficult year. The new development law does not provide for those incentives that will allow the growth of investment dynamics in our country,» he complains. The corporate tax rate, he notes, even after a reduction by 2.5 percent to 32.5 percent, cannot be compared with Cyprus’s (10 percent) or Ireland’s (15 percent). «The sector needs a shock at this stage if we want it to survive,» he said, adding that at least for illicit street trade it is too late as Chinese entrepreneurs have multiplied in the past year and their activity has spread across Greece. Kourtalis takes the view that difficulties will last three years at most, and that, in the meantime, a new equilibrium will develop in world trade and the influence of the so-called «China syndrome» will be minimized. The issue, nevertheless, is how many enterprises will survive this period and how many jobs will be lost. He recalls another two difficult past conjunctures, the first in 1993, with the signing of the GATT agreement and the entrance of developing countries into world trade, and in 1997 with Turkey’s customs agreement with the European Union. In both cases, the sector came under pressure from new and competitive markets and not only managed to survive but showed positive performance until mid-2003. It was then that the situation started becoming difficult for most enterprises and can now be described as dramatic, with few exceptions. According to a recent report by management consulting firm McKinsey in the USA, the imposition of strict measures against Chinese imports in Europe and America in response to sectoral demands would not have any significant effect on them. In fact, it is India that is foreseen as reaping strong benefits from the abolition of quota restrictions and the competition among Asian countries for larger global market shares. India seems to possess important comparative advantages – low labor costs, abundant raw materials (the third largest cotton producer in the world), a large textile production capacity and competent designers. According to McKinsey, there are two scenarios for world exports of apparel until 2008. The first foresees rapid liberalization, with China emerging as the absolute victor, increasing its market share from 22 percent today to 50 percent, and with the rest of the Asian countries seeing their share decline from 32 percent to 21 percent, and the rest of the world falling from 46 percent to 29 percent. The USA and the EU are seen as sustaining 10 percent and 20 percent cuts in their domestic production according to this scenario. The second scenario is based on the assumption that textile trade liberalization will be milder and the USA and EU will not allow their production levels to fall below their historical lows. As a result, China is seen as boosting its share in world exports to 31 percent by 2008, the other Asian countries falling to 29 percent and the rest of the world to 40 percent. McKinsey’s analysts argue that productivity, labor costs and quality – in the upmarket segment – will decide the winners in this world market race. For India to tap its competitive advantages, its government needs to speed up the implementation of structural reforms and local producers to further improve their productivity. If the necessary changes are fully implemented, the analysts expect an annual growth rate in Indian apparel exports of 15-18 percent. This would allow it to increase its global market share by 5 percent by 2008. Even with a less aggressive export policy, India is seen as commanding an average annual export growth rate of 8 percent.