Key developments in the EU clothing market in 2006: consolidation after the "big bang

Citation

Curran, L. (2007), "Key developments in the EU clothing market in 2006: consolidation after the "big bang", Journal of Fashion Marketing and Management, Vol. 11 No. 4. https://doi.org/10.1108/jfmm.2007.28411daf.001

Key developments in the EU clothing market in 2006: consolidation after the "big bang"

Key developments in the EU clothing market in 2006: consolidation after the "big bang"

Last year I looked in detail, in this journal, at the impacts of the liberalisation of the European Union (EU) textiles and clothing market in 2005 (Curran, 2007). In this commentary I will briefly look at what happened in the EU market in 2006, in order to gauge how the market is adjusting to liberalisation, on the one hand, and continued restrictions on China in certain categories, on the other.

The defining feature of that year’s trends was the consolidation of developments in 2005, particularly those observed in the last six months of that year, when China was restricted by export restraints. In 2006, export restraints continued to hold back Chinese exports in ten MFA categories, six of them clothing categories. This seems likely to have affected the trade outcomes for other low cost suppliers to some extent. At the end of 2007, when Chinese export restraints cease, it is likely that we will see further restructuring of the market. For the moment, the key outcome of liberalisation has been gains for many of the EU’s developing country suppliers, although there are some key losses.

I will look, as in my previous paper, at the trends for key suppliers in the developing world in general, in the EU neighbourhood and in the Asian tiger region. Almost all sources are defined by higher growth rates in 2006 than they had seen in 2005.

Developing countries in general

Figure 1 shows the changes in EU imports for the top 12 developing country exporters, by value, in clothing categories (HS 60-63) between 2005-2006 compared to comparable trends between 2004-2005. As can be seen from Figure 1, all of the top 12 developing country suppliers to the EU saw their markets expand in 2006. China saw much lower growth rates in 2006 (just over 12 per cent) than in 2005 (when growth was 45 per cent), but Bangladesh showed impressive growth of almost 30 per cent, while Vietnam’s exports increased by 45 per cent. All other suppliers saw increases.

Figure 1

Changes in EU imports from key developing country suppliers – 2005 and 2006

In most cases, these increases were sufficient to offset any losses in market share seen in 2005, bringing exports back above pre-liberalisation levels. Of the top 12 suppliers shown here, only Pakistan[1] (−5 per cent since 2004), Thailand (−2 per cent), Mauritius (−7 per cent) and the Philippines (−26 per cent) saw export figures in 2006 which were lower than those seen in 2004, before the liberalisation of the market. Myanmar has also seen major losses since liberalisation, in spite of a slight increase in 2006. With a fall of 43 per cent in exports since 2004, it is not represented in Figure 1, as it is no longer one of the top 12 suppliers (it has been replaced by Malaysia).

The overall picture which emerges since liberalisation is of gains by many developing country suppliers to the EU market, although some do seem to have lost market share overall. The fact that performances are universally better in 2006 than in 2005 seems likely to be a reflection of the continued limitations on China’s exports. It is only after these limitations cease at the end of 2007 that we will see the extent to which other suppliers can hold their market share against China in a fully liberalised market. However, for the moment, suppliers like Bangladesh, India and Vietnam are benefiting from the removal of quotas.

EU neighbouring countries

Developments in the EU’s neighbouring suppliers are similar to those for developing countries in general in that they generally saw better performances than in 2005. However growth rates are generally lower and several countries have continued to lose market share in 2006. Turkey, the EU’s second most important clothing supplier after China, has held its market share and continued to grow in 2006, although with a lower growth rate than in 2005. Romania, on the other hand, has continued to lose market share, although by less in 2006 than in 2005. Overall the country has seen their market fall by 8.5 per cent since liberalisation.

Both Maghreb suppliers, Tunisia and Morocco, increased their exports in 2006 compared to 2005, but in neither case was the increase enough to offset losses in 2005. Both have seen overall falls in exports since liberalisation (of 5 per cent and 3 per cent respectively). Switzerland, Ukraine and Croatia have also seen cumulative losses. For some smaller suppliers, however, the story is more positive, with large increases for Macedonia, Serbia and Moldova. Coming on top of increases in 2005, these gains bring the latter two countries into the top 12 neighbouring suppliers to the EU, compared to the 2005 picture presented in the previous paper (Israel and Belarus have fallen out of this category following cumulative losses).

The story for neighbouring suppliers is, therefore, rather mixed, with the key supplier, Turkey and some medium sized suppliers (Bulgaria, Egypt) doing rather well, while several important suppliers are struggling to retain market share (Romania, Tunisia, Morocco) and certain small suppliers in South East Europe seem to be taking full advantage of liberalisation (see Figure 2).

Figure 2

Changes in EU imports from neighbouring suppliers – 2005 and 2006

Asian tigers

The final group of countries that I would like to look at in depth is the Asian tigers. Here the figures in 2006 show that these suppliers universally increased their exports compared to 2005. However, for Korea, Macau and Taiwan, these increases were not enough to offset the large losses they suffered that year and cumulative losses since liberalisation remain large at 37 per cent, 12 per cent and 27.5 per cent respectively. The most significant story in this region is the large increase in exports from Hong Kong, which more than made up for losses in 2005 and brought cumulative growth rates since liberalisation up to 29 per cent. Clearly Hong Kong is benefiting significantly from the limitations on China’s exports, as it lost over half its market share in the first six months of 2005, before the restraints came into effect. It is likely that part of the explanation is the fact that many companies operate on both sides of the border, and can quickly switch production from one to the other. However more in depth work on the impacts of export restraints on this region would be very useful (see Figure 3).

Figure 3

Changes in EU imports from Asian tigers

In conclusion, in 2006 we saw a consolidation of the market trends seen in the second half of 2006, with certain countries benefiting from the MFA liberalisation and the continued limitations on China, with others struggling to maintain market share. The big winners in the EU market overall since liberalisation were China (+63 per cent), India (+44 per cent), Bangladesh (+23 per cent) and Hong Kong (+29 per cent). The main losers were Romania (−8.5 per cent), Tunisia (−5 per cent), Morocco (−3 per cent) and Pakistan (−5 per cent).

The reasons behind these differing performances are likely to be many and complex. The removal of the quota system in 2005 lifted a major distortion on trade in the sector, which had led to trade patterns that did not necessarily reflect natural competitiveness. We are now seeing a restructuring that should see trade patterns which better reflect pricing structures. However, it seems likely that the final outcomes of the MFA liberalisation on the EU market, which started back in 1995, will only be seen in 2008, with the full liberalisation of trade with China.

It should be noted that in Pakistan’s case, exports also faced a change in tariff regime between 2004, when Pakistan faced zero tariffs under the special “drugs” GSP and 2006 when it was eligible “only” for reduced tariffs under the general GSP arrangements. This is likely to have also impacted on their exports.

Louise Curran