ITALY: APPAREL AND TEXTILES STATISTICS AND

UNCLAS SECTION 01 OF 02 ROME 003228

SIPDIS

SIPDIS

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

E.O. 12958: N/A
TAGS: ECON ETRD KTEX CH IT
SUBJECT: ITALY: APPAREL AND TEXTILES STATISTICS AND
PROJECTION OF FUTURE COMPETITIVENESS

REF: STATE 138090

Summary
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1. The textile and apparel industries are a small, but
high-profile, part of Italy's industrial base. Although
textiles and apparel accounted for only nine percent of
industrial production and eleven percent of Italy's total
exports and imports in 2005, names such as Dolce and Gabbana,
Versace, and Valentino are synonymous world-wide with "Made
in Italy." Despite widespread name recognition and a
reputation for high-quality products, the Italian textile and
apparel industries face mounting competition from low-cost
manufacturers, especially from China, and a continuing flow
of counterfeit goods. At this time, it is unclear whether
the Italian textile and apparel industries can rise to the
challenge of foreign competition, or if high labor costs and
labor market rigidities, low productivity, minimal research
and development and innovation, and stifling bureaucracy
associated with doing business in Italy will mean a continued
decline of these industries. End summary.


2. Italy is the largest EU manufacturer of textiles and
apparel, accounting for almost a quarter of total EU textiles
and apparel production. In fiscal year 2005, Italian
industrial production was valued at 333.8 billion dollars.
Textiles and apparel products made up 51.3 billion dollars
(15.4 percent) of Italy's total industrial production, and
nine percent of Italy's total exports. Of the 32.3 billion
dollars of textile and apparel goods exported in 2005, 2.4
billion dollars (7.4 percent) was exported to the United
States. In the first half of 2006, 1.05 billion dollars of
textiles and apparel was exported from Italy to the United
States, 6.5 percent of Italy's total textiles and apparel
exports. The textile and apparel industries employ 573,500
people, twelve percent of the 4.8 million people employed by
Italian manufacturers.

The Impact of Chinese Imports
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3. Italian apparel and textile manufacturers face increasing
competition from low-cost manufacturers in Asia, especially
China. The Italian Trade Ministry reports Italy's apparel
and textiles output dropped 11.5 percent 2004-2005, due to
the EU decision in 2005 to open EU markets to textiles and
apparel from China. In the first nine months of 2006,
textile and apparel sector production was down 3.1 percent
over the same period in 2005. As for external (trade)
accounts, Italian imports of Chinese textiles and apparel
increased from one billion euros in the first half of 2004 to
1.64 billion euros in the same period in 2006.


4. Since 2005, the value of Chinese apparel and textiles
exports to the EU has increased 41 percent, with some sectors
(T-shirts, sweaters, women's clothing, and trousers)
registering increases of as much as 250 percent. While EU
ceilings on the import of certain Chinese apparel and textile
goods theoretically increase opportunities for the sale of
Italian goods, Italian apparel and textiles exports to other
EU countries have fallen consistently since 2000, probably
because of increased imports from China.


5. While the textile and apparel industries continue to face
a significant challenge from foreign manufacturers, the
effects of foreign competition may be abating. During a
recent visit to Modena, where the textile and apparel
industries have a large presence, Consulate Florence officers
learned textiles and apparel production in the first six
months of 2006 was only 0.2 percent lower than production in
the corresponding period of 2005. Over the same time period,
sales increased 2.8 percent, exports decreased by only 0.4
percent, and employment increased 1.4 percent. Modena
Confindustria, the Italian Industrialists Association, sees
these figures as marking a turning point from previous
years, more dramatic declines. Confindustria forecasts
increased domestic sales in the second half of 2006.

Trade Policy
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6. Italian trade policy is coordinated with other European
Union members through the European Commission. The GOI has
not implemented safeguards or other measures, but has worked

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with the EU to ensure that Chinese imports stay under the
EU-China cap.

The Business Environment and Role of Labor
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7. There is widespread recognition that Italian industry is
not as competitive as it once was. The draft 2007 budget
contains few measures to spur growth, and new taxes will add
a hefty burden to business. In addition, the high national
debt (106 percent of GDP at end 2005) and a high deficit
(four percent of GDP in 2006) limit GOI discretionary
spending. (Italy is obliged to keep its deficit/GDP ratio
below three percent under the terms of agreement with the
European Monetary Union, but has had difficulty doing so.)


8. The high cost of labor also hampers the competitiveness
of Italy's textile and apparel industries. Skilled textiles
workers in Italy earn as much as 25 dollars per hour,
compared to wages in China of as low as one dollar per hour.
Italy's strong unions make it highly unlikely Italian wages
will decline soon, though the GOI may announce plans to
reduce social security contributions, a step to lower labor
costs and raise take-home pay. The GOI, workers, and unions
are discussing new measures to raise labor competitiveness,
including lowering the cost of labor, increasing flexibility
of work hours, reducing bureaucratic hurdles to investment,
promoting research and development, and raising the
retirement age. Some speculate the future of the Italian
textile and apparel industries lies in the high-end of the
market, where Italian firms can charge a premium for brand
names, innovative fabrics, and design.

Looking to the Future
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9. Political/business leaders in Modena and Prato told
Consulate Florence officers the future of the textile and
apparels industries lies in improved quality, not in price
competition with foreign producers. The textile and apparel
industries' lobbying efforts reflect this, and focus on
urging the government to increase customs controls to reduce
unfair competition from China, including counterfeiting, and
urging the EU to introduce improved labeling, indicating
clearly the real geographical origin of a product, as well as
stiffening penalties for false labeling.
SPOGLI