Western European update - 1991/92 cotton production and the cotton textile industry - U.S. Dept. of Agriculture, Economic Research Service report

The European cotton textile industry is currently suffering through a recession that has led to the closure of many long-established manufacturers and a gradual decline in mill cotton consumption. According to USDA estimates, cotton consumption by European Community (EC) mills is expected to fall to 5.48 million bales in marketing year (MY) 1991/92 (August-July), well below the 6.26 million consumed in MY 1988/89. The recession is extensive and includes nearly all EC member states. According to trades sources, signs of an immediate recovery are unlikely--the decline may persist well into the second quarter of 1992. For example, the International Textile Manufacturers Federation (ITMF) European index of yarn orders in the third quarter of 1991, a leading indicator of mill activity for 1992, was 8 percent lower than a year earlier. (See Table 1 on page 16 for details on consumption trends in the EC). Increasing imports of yarn, fabric, and finished cotton goods are cited by many EC manufacturers as the source of the continued decline in mill consumption. A brief review of import statistics provided by Eurostat support the manufacturers claims--imports of textiles and apparel have increased substantially in the last decade to capture substantial market shares in many EC member states. Currently, apparel imports from non-EC member states have grown steadily from less than $1 billion in 1971 to reach over $12 billion in 1990. Yarn and fabric imports from non-EC members totaled an additional $6 billion in 1990. The primary importer among EC members is Germany, importing clothing and textiles valued at over $5 billion in 1990. The rapid increase in imports from non-EC member states is occurring despite textile and apparel quotas that are negotiated under the Multi-Fiber Arrangement (MFA). Currently, the MFA allows EC members to place quotas on imports of textiles and clothing given evidence of "market disruption." Market disruption is defined as instances of sharp import increases associated with low import prices not attributed to dumping or foreign subsidies. The quotas are specific--they limit the volume of imports of a specific category of apparel or textiles from a specific country--and are based on an annual growth rate. For many textile importing countries the quotas are not binding because the quotas are underused. Many textile trade analysts cite the rapid rise in imports from non-EC members as evidence of the MFA's inability to protect EC manufacturers from developing country imports. The MFA has been likened to a screen, rather than an outright barrier, that does not set an absolute limit on the value of imports. Although there is disagreement among textile industry analysts concerning the effectiveness of the MFA, EC textile manufacturers are united in their criticism of the recent GATT proposal that outlines the dismantling of the MFA. One of the eventual goals of the Uruguay Round negotiations is to gradually dismantle the MFA and place textile trade under the auspices of the General Agreement on Tariffs and Trade. On December 20, 1991, a proposal by the General Agreement on Tariffs and Trade Director-General Dunkel outlined a 10-year dismantling of the MFA that was poorly received by both EC and U.S. apparel and textile manufacturers. According to European organizations that include the Coordination Committee for the Textile Industries in the European Community (Commitextil), the European Clothing Association, and Europe's Largest Textile and Apparel Companies (ELTAC), the Dunkel proposal will result in severe job losses throughout the EC. While GATT negotiators agree that adjustment will be necessary and some job losses in the textile and apparel sector may result, they argue that the current proposal will allow for a gradual and orderly transition to normal GATT rules over a sufficient 10-year period. Also, they point out that broad improvements in market access that will result from a successful conclusion to the current GATT negotiation can result in significant textile and apparel export growth. The EC manufacturers prefer a 15-year phase-out of the MFA that would allow more time to prepare for job displacement and the social and economic consequences of disinvestment in the EC's textile industry. Also, the EC's textile manufacturers, (as well as their counterparts in the United States) are concerned that the MFA phase-out will clearly benefit non-GATT members, such as China. EC textile manufacturers currently are trying to marshal political support for their position on the recent proposal. Negotiations are scheduled to resume on April 15, 1992. Also of concern to some EC textile manufacturers is the Single European Act, which is scheduled to take effect January 1, 1993. While the Act is expected to increase economic growth throughout the EC by allowing greater market access by all EC members, some European textile manufacturers are concerned that the Act will allow additional textile and apparel imports from non-EC members. Current EC commission proposals would cancel all the bilaterally negotiated MFA quotas and create EC-wide MFA quotas. Many EC member states are unwilling to sacrifice their ability to bilaterally negotiate MFA quotas and are disputing the commission's proposal. Regardless of the outcome of the current MFA negotiations, the persistence of the recession in the European textile industry is reducing U.S. raw cotton exports. Currently, total U.S. export commitments to the EC are 409,000 bales, less than half of the 823,200-bale level reached at this time last year. As mentioned previously, industry analysts do not expect a turn-around in yarn production until the second or third quarter of 1992, so U.S. cotton shipments to Western Europe will likely remain depressed. Also serving to reduce U.S. exports sales and shipments are the extremely low offering prices for Central Asian cotton (from the cotton producing republics of the former Soviet Union) in Western Europe. A review of Cotton Outlook's Northern European price quotations reveals that Central Asian quotes have been the lowest quote on 125 of 129 business days since the beginning of the marketing year on August 1, 1991. Many times the Central Asian quote has been more than two cents less than the nearest competitive quote, revealing their urgent need to release excess supplies and acquire badly needed foreign exchange. In MY 1990/91, U.S. cotton exports achieved a 24-percent market share in the EC, a slight increase above the MY 1986/87--1989/90 average market share of 19 percent. Last year, U.S. cotton exports benefited from generally competitive offering prices and the political and economic turmoil in the former Soviet Union. However, in the current 1991/92 marketing year, excess Central Asian cotton supplies (from the former Soviet Union) have moved to Western Europe in greater quantities, and edged out the United States and other suppliers. U.S. exports to the EC may reach 600,000 bales in MY 1991/92, well below the 913,300 exported in MY 1990/91. This level of exports will likely drop the U.S. cotton market share to well below that reached during MY 1986/87-1989/90.

Table 1. EC Cotton Consumption Declines Steadily Since MY
         1988/89. (In 1,000-480 pound bales).
                 MY 88/89   MY89/90   MY90/91    MY91/92
Belgium/Lux         192        202      172        180
Denmark              10         10       10         10
France              647        600      530        480
Germany            1435       1435      955        950
Greece              850        780      827        800
Ireland             125        125      125         100
Italy              1424       1447     1450       1420
Netherlands          35         50       50         40
Portugal            735        826      780         650
Spain               619        685      700        700
United Kingdom      193        281      285        290
Totals             6265       6160     5600       5480
Source: USDA/FAS
February 1992

COPYRIGHT 1992 U.S. Department of Agriculture
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