Even India, Pakistan and Bangladesh are likely to lose market share to China, although both India and Pakistan are expected to make good their losses by grabbing market share from the smaller supplying countries, including Sri Lanka.
These are the views of the European textile and clothing industry, retail trade, and EU trade officials. They were obtained by economists from two Brussels-based think tanks as part of a study commissioned by the German government, textile and chemical industries and trade unions. The two organisations, EPPA and the Centre for European Policy Studies (CEPS), were asked to report on the effects on the German textile industry of the ending of the ATC on December 31, 2004.
With the disappearance of quotas, European retailers and importers will look for the most efficient suppliers, according to Philip von Schppenthau, one of the authors of the study. And while all the major Asian exporters are busy gearing up for the free-for-all that some believe will take place after December 31, 2004, China is expected to increase its lead over the others when it comes to reliability and speed of delivery. India and Pakistan may well have plans to restructure their industries, but expert opinion here is that they will have difficulty carrying them out.
But not to worry. European retailers and importers do not anticipate a surge in EU imports after the ATC expires and the consequent fall in prices.
Any rise in imports, and fall in prices, will be limited to the lower end of the market, and will not be particularly significant, in their view. In other words, price is only one of the factors, which influence European demand for textile and clothing products. This is not to say that the German industry will not be affected by the removal of import quotas.
Output of textiles is forecast to fall by 4.4 per cent and of clothing by 6.4 per cent over a period of around seven years, following the disappearance of quotas. As regards the textile industry in particular, different sub-sectors have been restructured in different ways and at different speeds in preparation for the disappearance of quotas.
Manufacturers of non-woven fabrics, home textiles and knitted fabrics increased their turnover between 1997 and 2000. Cotton spinners and weavers, however, have largely failed to take advantage of the existing import quotas to make the necessary structural adjustments, according to the EPPA/CEPS study. The study urges them to take the necessary measures quickly.
They must either abandon the mass production of standard quality products and/or relocate production in the Central and East European countries (CEECs), for example. Relocating production will make it easier for the German mills in question to follow their customers, clothing manufacturers in particular, who have already relocated production in the CEECs.
Cotton spinners and weavers are also urged to produce smaller quantities, in order to be able to respond quickly to changes in demand for yarns and fabrics.
The study notes that roughly half of the fall in German textile output would be due to the disappearance of import quotas on clothing in the EU, and to the knock-on effect their disappearance would have on exports to countries that use German textiles to produce clothing for the German market.
Nearly half of German textile exports went to the CEECs, and almost one quarter of German clothing imports came from these countries in 2000. Germany is much more heavily involved with the CEECs than other EU countries, for reasons of geography as well as history. But this interdependence between the German textile and clothing industry, and the industry in the CEECs, has been encouraged by the EUs free trade agreements with the CEECs.
Under the rules of origin set out in these agreements, clothing produced in the CEECs from German textiles enjoys preferential entry into the EU single market. (This is true of textiles imported from any EU country) This situation will change, however, with the entry of several of the CEECs into the EU within two years.
Once these countries are part and parcel of the EU, German textile and clothing firms will find it simpler to relocate production in these countries. However, as their production costs rise, German firms could well shift production even further to the East, to countries such as Romania and Byelorussia and to China.
Relocation is only part of the answer, however. The German textile industry is estimated to employ some 60,000 people abroad, as compared to just over 120,000 people within Germany itself. The EPPA/CEPS study notes that the industry is still highly dependent on the German market, even though this market is shrinking. It believes that given the falling turnover on domestic market and increased competition through imports, increased exports are not just a matter of necessity but a question of survival for many Germany companies.