To impose quotas on clothing imports halfway through the year ignores trading patterns entirely. While UK retailers incur extra costs, European textile manufacturers will not gain business, says Richard Hyman
Peter Mandelson is not the most popular politician at the best of times, and his commercial expertise is not renowned (remember the Dome, his mortgage deals?). After the quota debacle this summer, he has now managed to alienate UK retailers. Moreover, his attempts to blame it on everyone else – European manufacturers being the latest culprits – does nothing to improve his credibility as EU trade commissioner.
The reintroduction of textile quotas in June 2005 was a typical example of European Union bureaucracy – a knee-jerk reaction to member states’ complaints: impractical, uncommercial and lacking any forethought. The abolition of the Multi Fibre Agreement in January 2005 and the freeing of international textile trade was not an overnight decision. We had been moving towards this for a decade – ever since the World Trade Organisation agreed in 1995 to a gradual liberalisation of global clothing and textile markets. This culminated in the final abolition of all quotas at the beginning of 2005.
Therefore, it should not have come as a surprise to anyone, especially to the EU trade commissioner, that imports would rise dramatically in 2005. Most European retailers have been shifting their production increasingly to countries where costs are low in order to combat the squeeze on margins from constant price deflation and competition in clothing markets.
China was bound to be a main beneficiary of the quotas abolition. It has a sophisticated, low-cost, textile manufacturing industry and was already the second-largest importer to the EU – most of these imports being clothing and textiles (along with office and telecoms equipment).
Imposing quotas halfway through the year is equivalent to shutting the stable door after the horse has bolted. And the limits the EU imposed in June – restricting growth on imports in the clothing categories (knitwear, men’s trousers, blouses, t-shirts, dresses and bras) to between eight per cent and ten per cent until 2008 – did not take into account production schedules and retail trading patterns. The second half of the year is the most important for clothes retailers. The autumn/winter season is more valuable because autumn/winter products are inherently higher priced and because people simply spend more during the Christmas season. Therefore more than 50 per cent of products are still to come by mid-year. Allowing a maximum of ten per cent more through was bound to cause problems.
Knitwear and tops are a main component of womenswear autumn ranges – and China is a major source for both. To suggest that retailers were somehow acting underhandedly by bringing in more goods than necessary to beat any quota deadline demonstrates how politicians have no concept of the clothing business. Retailers start selling autumn lines in August and the clothes start arriving in warehouses in July.
Having had a tough first half of the year, UK retailers were looking to their autumn/winter ranges to recover their performance and margins. While China is only one of a wide range of countries retailers source from, it is an important one. A few suppliers to smaller retailers and independents have the majority of their manufacturing based there.
This fiasco is bound to produce extra costs, either from re-ordering from another source, or forfeiting sales – lack of availability is a major opportunity cost, particularly in fashion. Fashion has a short shelf-life and switching to a new source has time implications.
Furthermore, the imposition of these quotas was intended to protect European textile manufacturing jobs but, with consumers not willing to accept price rises, European retailers are switching to other low-cost countries. In effect, the EU’s action is helping manufacturers in countries such as Indonesia, Vietnam, India and Turkey, not Spain, Portugal or Greece. Meanwhile, European retailers and suppliers are suffering, which could lead to job losses, and Chinese manufacturers and suppliers are losing business. The agreement helped neither the EU nor China.
The current solution – freeing half the product and counting the other half against next year’s quota – is not a solution, but a typical piece of political fudge that appears to have been produced in order to smooth Tony Blair’s visit to China. It may have solved the current problem of freeing up impounded garments, but it does not solve the issue of how the southern European textile manufacturers are going to compete in a global, free market.
The commission is just trying to stave off the inevitable and it makes one wonder why the EU agreed to the abolition of the quotas in the first place.