PORTUGAL'S TEXTILE AND APPAREL SECTOR

UNCLAS LISBON 002201

SIPDIS

SIPDIS

STATE FOR EB/TPP/ABT THOMAS LERSTEN
COMMERCE FOR ITA/OTEXA MARIA D'ANDREA
STATE PASS TO USTR FOR ABIOLA HEYLIGER

E.O. 12958: N/A
TAGS: ECON ETRD KTEX PO
SUBJECT: PORTUGAL'S TEXTILE AND APPAREL SECTOR

REF: STATE 138090

INDUSTRY OVERVIEW
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1. In 2005, the textile/apparel sector represented Portugal's
largest industrial sector, accounting for approx. 20% of
industrial GDP and 20% of all exports, primarily to Spain,
Italy, France, Germany and the United Kingdom.
Textile/apparel manufacturers are concentrated in the north
of the country and employ almost 25% of the national
industrial labor force or approx. 210,000 laborers. Over the
last decade, the industry has seen a steady decline in
production and employment due to global competition and trade
liberalization within the European Union (EU) in which
Portugal is a member. The 2005 unemployment rate in the
industry was 6.6%, up 15% from 5.7% in 2004. END SUMMARY.

ECONOMIC STRUCTURE / STATISTICS AND PROJECTIONS
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2.

- 2005 GDP in USD: $183.5 billion

- Total industrial production in USD: $27.5 billion

- Total Textiles/Apparel production in USD: $5.1 billion

- Exports in Textiles/Apparel to the U.S. in USD: $300 million

- 2005 Labor Force: 5.4 million

- Total manufacturing employment: 850,000

- Total Textiles/Apparel employment: 210,000

- Principal destinations of textile/apparel exports in 2005:
All EU 79%, (Spain 14%, France 25%, Germany 14%, UK 10%,
Italy 6%, Other EU 10%),and US 4%.

- Principal origins of textile/apparel imports in 2005: All
EU 74% (Spain 30%, Germany 14%, France 9%, Italy 5%, UK 5%,
Other EU 11%),and US 2%.

- Principal exports in 2005: textiles and apparel 20%,
machinery and equipment 19%, transport goods 13%, and
agricultural products 9%.

- Principal imports in 2005 (excluding energy): Machinery and
equipment 27%, agricultural products 17%, transport goods
16%, and pharmaceuticals 5%.

- Breakdown of GDP 2005: Services 74%, Industry 15%,
Construction 5%, Agriculture 3%, and Electricity 3%.

SOURCES: The 2006 Economist Intelligence Unit Report; the
Federation of International Trade Associations; Associacao
Textil e Vestuario de Portugal (the Textile and Apparel
Association of Portugal); Instituto Nacional de Estatistica
Portugal (Portugal's National Institute of Statistics);
EURATEX; the European Technology Platform for the Future of
Textiles and Clothing; The Portuguese Textile and Clothing
Industry Federation; the Ministry of Economy and Innovation -
Cabinet of Strategic Studies; and the World Trade
Organization.

ADDITIONAL INFORMATION
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3. Question: Are host country producers receiving lower
prices due to heightened international competition?

Answer: The affects of global trade liberalization have taken
a toll on the industry. When worldwide textile quotas came
down on January 1, 2005, a wave of low-quality and
counterfeit Asian imports hit the EU market and crippled
Portugal's competitive edge. Over 10,000 textile/apparel
labor positions were lost in 2005 and over 50 small and
medium-sized Portuguese manufacturers were forced to close
their operations or relocate to lower-wage economies in
Eastern Europe. Despite this, manufacturers are not receiving
lower prices on the EU market, according to the Ministry of
Economy and Innovation - Cabinet of Strategic Studies.


4. Question: Have U.S. and EU restrictions on certain exports
of textiles and apparel from China, effective through 2008,
affected export prospects for host country manufacturers?
Answer: In April 2006, the European Commission adopted a
provisional anti-dumping measure that imposed high duties on
select Chinese imports, including textiles, while allowing
other products to remain duty-free. Initially, Portugal's
textile/apparel manufacturers believed that this measure
would even the playing field or give them a competitive
advantage. However, Portuguese and other EU manufacturers
complained that Chinese exporters were avoiding these duties
by purposely mislabeling shipments.

The April provision is scheduled to expire in October 2006.
Portugal and other major EU textile/apparel producers are
fighting to make the provision definitive and inclusive of
products previously excluded from duties. If the members do
not agree on a definitive measure, no punitive duties will be
imposed on Chinese and Vietnamese imports starting in 2007.


5. Question: Has increased global competition affected local
labor conditions by causing employers to reduce wages, seek
flexibility from government required minimum wages, or
adversely affected union organizing?

Answer: Increased global competition, especially from China,
has affected local labor conditions in Portugal. Though
Portugal's labor market is among the lowest paid in the EU
with the average worker receiving about $500/month,
Portugal's textile/apparel labor force is finding it
increasingly difficult to compete with Chinese imports whose
laborers earn $65/month.

The Portuguese government and textile/apparel manufacturers
want to revise the country's rigid and out-dated labor laws
but face numerous obstacles from unions who want to increase
salaries and benefits. Current labor laws provide provisions
barring employers from altering employment terms such as
working hours and fining employers for dismissing laborers.
The dismissal process can also be costly, bureaucratic and
lengthy.


6. Question: Have manufacturers received more, less, or the
same number of orders as in years past?

Answer: Though manufacturers are not receiving lower prices
on the EU market, the number of orders for Portuguese
manufacturers continues to decrease yearly. Since 2000,
Portugal has lost over 50,000 textile/apparel laborers and a
growing number of Portuguese producers have been forced to
close down their shops or relocate manufacturing to
lower-wage economies in Eastern Europe. The industry lost
over 10,000 textile/apparel labor positions last year.


7. Question: Has the host government or private industry
taken action to increase the country's competitiveness, such
as improving infrastructure, reducing bureaucratic
requirements, developing the textiles (fabric production)
industry, moving to higher value-added goods, or identifying
niche markets?

Answer: Portugal is trying to improve the country's overall
competitiveness, including efforts to reduce bureaucracy, but
Post is unaware of any programs specifically targeting the
textile/apparel industry. About ten percent of manufacturers
has begun to adjust production to make better quality goods,
an area in which China is weak. These manufacturers are
targeting upscale and top-of-the-line retailers in the EU and
US.


8. Question: Does post think that the host government or
private industry's strategy will be successful?

Answer: No longer able to compete based on relatively cheap
labor in a quota-free world, textile manufacturers must work
to make labor laws more flexible in addition to employing
innovative technology and creative marketing to carve out
niche-markets. Post predicts that the textile sector will
continue to shrink in the near to mid-term.

Hoffman