The EU’s aim when engaging in free trade agreement (FTA) negotiations is to offer, overall, EU companies with improved access to third countries’ internal markets that are sometimes well protected from foreign competition.
EU exports, for example, of man-made filaments and of man-made staple fibers face, on average, tariffs of 13.3 % and 12.8 %, respectively, when entering the Mercosur market. In comparison, EU import duties are 5.14 % and 5.34 %, accordingly. There are even peak tariffs of 26 % when exporting e.g. EU woven fabrics of synthetic staple fibers into Argentina. These high tariffs will be dismantled (some as soon as the FTA is implemented); creating more business opportunities for EU products since they will be become more competitive. These negotiations are, from the point of view of the man-made fibers (MMF) sector interests, categorized as “offensive” since there is much more to win than to lose.
However there are also negotiations catalogued on the contrary as “defensive”, since there is more to lose than to win from the FTAs which result from them. We believe that the European textile and apparel industry (including our MMF industry) is unlikely to benefit overall from bilateral EU FTAs with Vietnam and Indonesia, as the level of current imports from these 2 are clearly and significantly higher than the level of EU exports to both countries. Labor costs are substantially lower than in the EU and large production capacities focusing on export have been built up. This situation will most certainly worsen when the FTAs are enforced since it will bring better market access conditions for these 2 countries’ products coming into the EU market. Furthermore, it is even expected that Indonesian and Vietnamese textile and apparel exports using Chinese and/or Asian raw materials will grow, especially since Chinese investment into these industries is expanding rapidly and China and other Asian countries are becoming more expensive to produce in.
The European MMF position in all the EU FTA negotiations is built around 5 pillars:
- An entirely balanced and symmetrical agreement.
- The full and reciprocal elimination of tariff duties from the start of the FTA’s implementation.
- The elimination from the beginning of the FTA of all non-tariff barriers.
- A system whereby we constantly monitor import volumes and prices coming into the EU.
- Standard double transformation rules of origin based on manufacturing processes. This rule allows a full “textile pipeline” to be maintained in Europe by ensuring the full viability of all manufacturing stages in the value chain.
Our main request to the EU institutions is fair trade. Indeed, the EU MMF industry is struggling with huge quantities of low-priced imports coming from Asia, mainly China, which do not abide by fair trade rules. Certainly, it should be noted that in many FTAs, reciprocity is not fully reached for the MMF and textile industries to the benefit of other sectors. The practice of using the textile sector as an “exchange card” for other sectors to benefit from FTAs must be stopped.
These unfair trade rules materialize themselves in a variety of ways. The array of state-led instruments is large: access to under-market value, cheap (or even free) energy, land, raw materials and machinery; interest-free (working capital) loans and R&D funds; export subsidies etc. All these factors alter production costs and sale prices, and thus clearly distort competition by favoring domestic producers vis-à-vis foreign ones. Moreover, since these countries are still building up new production capacities, there will always continue to be a huge excess capacity to export, e.g. to the EU. Additionally, some countries which are direct EU competitors have been very active in taking regular anti-dumping or anti-subsidy actions, while launching trade defense actions in the EU has become very difficult and resulting duties are low, (e.g. for imports of high tenacity yarns of polyesters). EU import duties are 5 % on average while e.g. in the USA, where trade defense duties are regularly imposed, these can reach up to 473 % in total for e.g. polyester textured yarn imports!
These trade defense actions and the duties that result from them shield their internal markets, which has the consequence that Asian exports affected tend to end-up in the world’s most open access market: the EU. The EU MMF industry asserts the negative impact of these actions on the EU market which put additional pressure on its producers.
So, in fact, the EU MMF sector tends to win from FTAs with countries with a similar level of development (e.g. Canada, the USA, Australia, New Zealand) but to lose from FTAs with countries who do not have a fair, level playing field with the EU (e.g. Vietnam, Indonesia, India, Thailand). FTAs with these countries do not appear necessary in our sector as they increase the pressure on competitiveness and can even be considered a general threat to the European MMF industry.
Head Economics Department