From the Sector

• Potential loss of competitiveness, caused by the EU’s inaction of the energy crisis, and Chinese and US subsidies to domestic industry

Following yesterday’s European Council summit and its conclusions on the measures to tackle the energy crisis, the European textiles industry is extremely concerned about the fast loss of competitiveness of Europe and demands urgent action to save the industry.

The chain of factors determining this sharp decline in competitiveness is twofold. First, the energy cost in Europe is more than 6 times higher than in the US, China, and neighbouring countries. This factor alone has almost erased the business case for producing in the EU. At present, many textiles and clothing companies are producing at net loss or have shut down production. The industrial conditions have worsened in such a way that there is no business case to invest in Europe or buy products produced or processed in the EU. It is only the sense of responsibility of the entrepreneurs towards the European society that is keeping the plants and production running.

Secondly, while the EU is passive and extremely slow in articulating a credible and effective response to the energy crisis, the main international competitors and trade partners (China, India and the US respectively) have developed comprehensive state-aid frameworks for their domestic industry despite not being affected by this crisis at all. The latest example is the 369-billion-dollar scheme of the Inflation Reduction Act rolled out by the Biden administration.

Recent trade data  already indicate a loss of global competitiveness: imports to the EU have grown tremendously in 2022 (+35% year-to-date). It is also evident that the surge in imports goes in parallel with the surge of natural gas price. It is expected that energy prices will remain high and volatile, opening the door for imports to gain substantial market shares in the EU.

The chart indicates the development of the Title Transfer Facility (TTF) until September 2022 since Eurostat data for Q4 2022 has not been published yet. Euratex is aware that the market situation has eased somewhat since in the past months, but the crisis remains because gas prices are still extremely high in comparison to last year. This suggests that the current loss of competitiveness of the EU manufacturing will not be recovered even with lower energy prices, unless measures are taken to correct the unlevel playing field on which the EU industry has to operate in the international markets. Only with an ambitious and comprehensive relaunch plan at EU level, Europe will be able to restore its credibility as a global manufacturing powerhouse and investments.

If the status quo is maintained, not only the EU will not be able to recover its competitive position on the global business stage, but it will also fail its plans to reach zero-net emissions and achieve circularity. It is evident that these ambitions - that the industry is passionately supporting - need massive capital investments. However, in the current scenario an investments diversion can only be expected to markets where governments are actively supporting those investments and energy costs are much lower – regardless of their fossil- or non-fossil origin.

The European textiles industry – the whole value chain, from fibres, nonwoven, to fabrics, clothing manufacturers - are facing unprecedented pressure deriving from the current geopolitical situation, the new macroeconomic conditions and unfair competition from third states. The situation is going to worsen if no emergency action is taken, especially because a recession is expected in the coming months.

The main structural component of the EU manufacturing are SMEs: these are economic actors that are particularly exposed to the current crisis as they do not have the financial leverage to absorb the impact of energy prices for much longer. Urgent EU action is needed to ensure their survival.

EURATEX calls on the EU political leaders in the Commission, in the European Council and in the national capitals to:

1. Raise the ambition and adopt a comprehensive approach at EU level: energy, state-aid and trade policy must be brought together in a single strategy with concrete emergency solutions and with a clear SME dimension;
    
2. Let all hesitations aside and adopt a meaningful price cap on natural gas wholesales, that should be ideally no higher than 80 euro/MWh. In parallel, it should also be ensured that electricity prices are brought to a sustainable price level;
    
3. Change the European posture on state-aid, even temporarily. An ambitious plan of investments and state-aid in green technologies to support the industrial transition should be rolled out.

Such a plan, however, should not be conceived as a retaliation against our most necessary and like-minded trade partners. Access to finance and markets must be safeguarded for all those actors who are capable and willing to invest in Europe, on the basis of reciprocity. In   these challenging times for geopolitical stability, ensuring strong trade ties with our traditional allies and partners is of utmost importance. The roll-out of an investment and state aid plan should not interfere, but rather support, the dialogue with the US (and other partners) and the deepening of our trade and investment partnership. Such a dialogue should be accelerated in the context of the TTC as well as at WTO level.

The plan of the European Commission to propose a price cap on wholesale gas price at 275€/MWh would be a bitter disappointment for the European textiles and clothing manufacturers, said EURATEX.

November 22nd, EURATEX stated in a letter to EC President, Ursula von der Leyen, that any price cap above the level of 80€euro/MWh would not help the EU industry – the textile sector in particular – to survive the current crisis. Indeed as early as July 2021, the wholesale gas price in the EU was below 30€/MWh. Now, the EU industry is facing gas and energy prices that have exceeded any coping capacity: from the record-high 320€/MWh last August, the price has reached to 127€/MWh today. Still, it is more than 300% than the business as usual prices.

The very existence of the European industry is at stake and with it the European sustainability agenda – and Europe’s capacity to implement it. Furthermore, Europe will lose its strategic autonomy, which guarantees essential goods and services are made available on the European Internal Market. If we continue on this path, the EU will soon become totally dependent on foreign imports with no leverage to implement its sustainability agenda, let alone lead the transition to a circular economy on the international stage.

At present, the EU industry is facing a dire international competition with the industry in China, India and the US working at energy prices of around 10$/MWh. In addition, these competitors are benefitting of sky-high subsidies from their own governments: the rollout of the US $369bln industrial subsidy scheme is just the latest example.

EURATEX Director General, Dirk Vantyghem, believes that “while the EU Industry is under immense, unprecedented pressure, a price cap at 275€/MWh would be meaningless: the European industry will be permanently pushed out on the market. The industry is at the heart of the European way of life and the fundament of our social market economy. The EU must save its industry to save Europe. The moment to act is now.”

• Lenzing becomes partner company of CISUTAC
• New project CISUTAC, co-funded by the EU, shall remove barriers to circularity in the textile industry
• Lenzing will make a contribution in cellulose recycling

The Lenzing Group, a leading provider of specialty fibers for the textile and nonwoven industries, is reinforcing its commitment to circularity by becoming a partner in the CISUTAC (Circular and Sustainable Textile and Clothing) project that is co-funded by the EU. The new consortium was established to support the transition to a circular and sustainable textile sector and, as well as Lenzing, the 27 consortium members include the industry association Euratex, textile company Inditex, PVH, Decathlon and non-governmental organization Oxfam. For its part, Lenzing is focusing on the development of recycling processes for cellulose.
 
CISUTAC aims to remove current bottlenecks in order to enhance textile circularity in Europe. Its goal is to minimize the sector’s total environmental impact by developing sustainable, novel and inclusive large-scale European value chains.

• More ambition and joint European efforts needed

On Friday 30 September, the EU Energy ministers approved a Council Regulation proposal to address high energy prices. The Regulation focusses on the electricity prices and electricity demand reduction, on a solidarity levy from the fossil fuel sector and a retail levy for SMEs. While these initiatives are driven by goodwill, they miss the point of bringing gas prices down – the one measure that would bring the biggest impact on European industry.

EURATEX – as the voice of the European apparel and textiles manufacturers – regrets this lack of ambition: the Regulation does not foresee any meaningful action to directly support the European industry. This can accelerate the de-industrialisation of Europe and loss of industrial capacity to secure the European standard of living and implementing the Green Deal.

“We call on the EU and Member States to pursue our common European interests. The hesitation to adopt a European price cap on natural gas, accompanied by massive national spending programs to subsidise domestic gas consumption, is a dereliction of duty”, said Director General Dirk Vantyghem.

Triggering competition among Member States rather than promoting cooperation in bringing gas prices down for all European companies will also prove ineffective: indeed, the industrial structure in the European Union is fully integrated. Once a segment of the value chain perishes because of the crisis in one country, all companies based in the EU will suffer its negative effect, driving prices up in the supply chain and adding further strain to our operations. The European industry will be saved as a unified industry, or it will not be saved at all. Fragmenting the internal market will not protect any Member State’s domestic manufacturing.

In addition to a EU-wide price cap on gas, EURATEX calls on the European Commission to swiftly amend the Temporary Crisis Framework, making sure the criteria and thresholds applied do not exclude vulnerable companies from possible support (e.g. in textile finishing and services). Euratex also encourages the European Commission to revise the ETS Indirect Carbon Leakage mechanism and include the man-made fibres, non-wovens, spinning and weaving sectors.

It is high time now for the European Union, said the association – in particular for Member States and the Commission – to step up their ambition and adopt a European vision: a chaotic and fragmented approach will not mitigate the crisis but accelerate it.

• European Textile Industry calls for immediate action to tackle the energy crisis;

The European textile & fashion in Europe, represented by EURATEX, calls for a single European strategy to tackle this energy crisis. To safeguard the future of the industry, a revision of the electricity price mechanism is necessary and an EU wide cap on gas prices at 80€/MWh. Special company support needs to be granted to avoid bankruptcy and relocation of textile production outside Europe.

Gas and electricity prices have reached unprecedented levels in Europe. Due to severe global competition in the market that characterizes the European textile & clothing industry, these cost increases are impossible to pass on to customers. This has already led to capacity reductions and production stops. Closures and the shift of production outside Europe are being forecasted should the current situation persist, leading to further de-industrialization of our continent and increased dependency on external suppliers.

Specific segments of the textile industry are particularly vulnerable. The man-made fibres (MMF), synthetic and cellulose-based fibres, industry for instance is an energy intensive sector and a major consumer of natural gas in the manufacturing of its fibres. The disappearance of European fibre products would have immediate consequences for the textile industry and for society at large. The activities of textile dyeing and finishing are also relatively intensive in energy. These activities are essential in the textile value chain in order to give the textile products and garments added value through colour and special functionalities (e.g. for medical applications).

The European textile industry calls for an EU-wide cap on gas prices at €80/Mwh, and a revision of the price mechanism for the electricity market, to reduce the huge price gaps with our foreign competitors.

Governments should ensure that critical industries, such textiles and all its segments, are able to ensure gas and electricity contracts towards the end of the year at an affordable price. Stable and predictable energy supply is of the utmost importance. Gas restrictions and rationing must only be used as a last resort. No mandatory consumption cuts should be foreseen.

In addition to these measures under discussion, currently a proliferation of contradictory, uncoordinated national initiatives to tackle the energy crisis is observed. This has led to a de facto fragmentation of the Single Market, resulting in a chaotic policy and regulatory environment that adds a further strain on our supply chain, which is fully integrated at European level. Measures that guarantee a level playing field in the EU are utmost important.

EURATEX President Alberto Paccanelli explained: “Given the current situation, a scenario where entire segments of the textiles industry will disappear can no longer be excluded. This would lead to the loss of thousands of companies and tens of thousands of European jobs and would further aggravate the dependency of Europe to foreign sources of essential goods. This applies specifically to SMEs who need temporary support measures (e.g. state aids, tax relieves, energy price cap) to survive the current crisis and to prepare for the green transition in the longer run.”

The ReHubs initiative brings together key European and world players to solve the European textile waste problem by transforming “waste” into a resource, and to boost textile circular business model at large scale.

This collaboration is set to turn the societal textile waste issue into a business opportunity and to fulfil the EU ambitions of the Green Deal, of the mandatory texile waste collection by end 2024 and the transition into Circular Economy.

In 2020 EURATEX launched the ReHubs initiative to promote collaboration across the extended textile value chain and considering all perspectives on chemicals, fibers making, textiles making, garments production, retail and distribution, textiles waste collection, sorting and recycling.

In June 2022 ReHubs completes a Techno Economic master Study (TES) which researches critical information on the feedstock (textile waste) data, on technology, organizational and financial needs to recycle 2.5 million tons of textile waste by 2030 and to effectively launch the ReHubs.

EURATEX’s ReHubs initiative plans to pursue fiber-to-fiber recycling for 2.5 million tons of textile waste by 2030
According ReHubs Techno Economic Master Study (TES), the textile recycling industry could generate in Europe around 15,000 direct new jobs by 2030, and increase need for nearshoring and reshoring of textile manufacturing.

The textile recycling industry in Europe could reach economic, social and environmental benefits for €3.5 billion to €4.5 billion by 2030
“Transform Waste into Feedstock” announced as first project supported by the ReHubs, and aiming at building up a first 50,000 tons capacity facility by 2024.

Europe has a 7-7.5 million tons textile waste problem, of which only 30-35% is collected today.  

Based on the ambitious European Waste law, all EU Member States must separately collect the textile waste in 2 years and half. While some countries are designing schemes to face the waste collection challenge, currently no large-scale plan exist to process the waste.

The largest source of textile waste (85%) comes from private households and approximately 99% of the textile waste was made using virgin fibers.

Euratex  assesses that to reach a fiber-to-fiber recycling rate of around 18 to 26 percent by 2030, a capital expenditure investment in the range of 6 billion € to 7 billion € will be needed, particularly to scale up sufficient sorting and processing infrastructure. The economic, social, and environmental value which could be realized, potentially total an annual impact of €3.5-4.5 billion by 2030.

Once matured and scaled, the textile recycling industry could become a profitable industry with a total market size of 6-8 billion € and around 15,000 direct new jobs by 2030.

Next steps of the ReHubs initiative

• A European textile recycling roadmap proposing Objectives and Key Results to recycle fiber-to-fiber 2.5 million of textile waste by 2030
• A leading collaboration hub with large players and SMEs from across an extended European textile recycling value chain
• A first concrete portfolio of 4 launching projects:
  - Transform textile waste into feedstock
  - Increase the adoption of mechanically recycled fibers in the value chain
  - Expand capacity by solving technical challenges for thermo-mechanical textiles recycling
  - Create capsule collection with post-consumer recycled products

The 1^st project addresses current sorting technologies which have limits to identify materials with sufficient accuracy for the subsequent circular recycling processes. The “Transform Waste into Feedstock” project will focus on further developing and scaling such sorting technologies. The project group led by Texaid AG aims on building up a first 50,000 tons facility by the end 2024.

EURATEX has just released its Spring report, offering a detailed insight into trade figures for the European textile and apparel industry in 2021. The numbers are encouraging: comparing with the dramatic corona-year 2020, EU exports of textile and clothing articles increased by +10.6%, while imports dipped by -7.5%. As a result, the EU trade deficit improved, even it remains significant (- €48 billion).

Furthermore, import prices went slightly down in clothing and dropped in textiles, following a strong decrease of Chinese import prices of face masks and protective medical supplies.

The boost in exports was mainly due to strong performance on the Swiss, Chinese and US markets. On the other side, EU sales of textile & clothing to the United Kingdom fell sharply (-23%), due to Brexit new requirements, customs’ delays and shortage of truck drivers.  Imports from the EU top supplier, China, plunged by -28%, corresponding to €13 billion. Similarly, textile and clothing imports from the United Kingdom recorded a sharp decrease over the period (-48%, equal to €-3 billion).

Director General Dirk Vantyghem commented: “the 2021 export figures, presented in this Spring report, confirm that EURATEX members have gained momentum; even if energy prices are causing some serious short-term disruptions, our long-term ambition remains to be a world leader on sustainable textiles.”

The international trade dimension is indeed critical for the competitiveness of the European textile ecosystem, and needs to be fully embedded in the EU’s Strategy for Sustainable and Circular Textiles. The Commission insists that “all textile products placed on the EU market, are durable, free of hazardous substances, produced respecting social standards…” This is an essential condition to create a level playing field between all textile and apparel companies, regardless of their production base. With €100 billion of imports, and over 20 billion of “foreign” textile items put on the Single Market, this requires a dramatic upscaling of market surveillance, without however disrupting fluid supply chains.

Looking at the impact of war in Ukraine, EURATEX has strongly condemned the Russian aggression, and offered support to the Ukrainian textile industry. Ukraine offers valuable sourcing opportunities for European textile and apparel brands, as part of a broader nearshoring trend, which seems to emerge from the trade figures.

Today, March 30, the European Commission released its long-awaited Strategy for Sustainable Textile, with the ambition to move the sector towards the path of sustainability. EURATEX welcomes the EU ambitions to act on sustainable textiles and investments, in order to change how textiles are made, chosen and recovered, but calls for a smart and realistic implementation. Many European companies have already chosen this path, therefore the strategy should support them in this process, especially considering today’s energy crisis.

The strategy recognises the strategic importance of textiles, which are not only used as apparel or furniture, but applied in cars, medical equipment, agriculture, etc. It acknowledges the European Industry pro-active initiatives to tackle microplastics, to solve challenges of market surveillance and the skills needs. More cooperation is needed for re-use and recycling of textiles and to set up an EU market for secondary raw materials. On this last point, EURATEX ReHubs initiative is developing proposals to size EPR potential, to transform waste into value, and create a new capacity and jobs.

The proposed “transition pathways”, which will translate the strategy into action, will be critical in this respect: how will these sustainability targets be reached, what will the cost for SMEs be, how can companies be supported in that green transition, what about the impact on global competitiveness? These are essential questions to be addressed in the coming months.
The Textile strategy is part of much broader package, including as many as 16 new legislative actions and other policies which will directly impact on textile value chain. In particular the Sustainable Product Initiative Regulation released on March, 30 includes game-changing provisions on Digital Product Passport, Eco-Design, SMEs and Green Public Procurement.  The Regulation has an overwhelming ambition and, to be realistic, it would require a new way of joint working between institutions and business, and which builds on lessons learned on data flow across value chains, interoperability, conformity assessment and effective measures to support SMEs.

If wrongly implemented, such an unprecedented wave may cause a complete collapse of the European textile value chain under the burden of restrictions, requirements, costs and unlevel playing field. On the contrary, the changes ahead can boom the entire textile ecosystem and create a model of successful green and digital transition in manufacturing, which starts in Europe and expands globally.

Already in 2019, EURATEX asked policy makers to work together and remove barriers to circular economy, solve the market surveillance paradox in which laws are made but not checked, and to help create scale economies to make sustainable textiles affordable, hence the norm.

For example, there are 28 billion products circulating per year in EU, which is an impressive task for market surveillance authorities including customs. EURATEX has been stressing non-sufficient market surveillance and it is actively working on solutions for a fair and effective market surveillance of textile products through Reach4Textiles. EURATEX very much welcomes that the European Commission recognizes our work and the need for market surveillance by establishing more harmonised efforts in the EU.

EURATEX also welcomes the establishment of the Digital Product Passport. It has a high potential to improve every step in the textile value chain, from design and manufacturing to recycling and purchasing. At the same time, EURATEX calls the co-legislators to take into account the role of SME’s in this transition and to put forward pragmatic initiatives, supporting SME’s across the EU in a systematic approach.

Alberto Paccanelli, EURATEX President, concludes: EURATEX calls for true cooperation with all policy makers and other stakeholders across the value chains to advise, pressure-test and use this opportunity for a successful transition. Our ambition must be to reconcile sustainability, resilience and competitiveness; we know it can be done”.

Statement

On the occasion of the EU-Africa Business Summit, EURATEX is re-iterating the ambition of the European textile industry to grow its role on global markets, including the African continent.

The textile ecosystem is considered the 2^nd most globalised sector of the European economy ; it is built on globalised supply chains and fierce competition with China, US, Bangladesh, Turkey and many others. Imports are now peaking at €115 billion (ca. 60% garments and 40% textiles), with a dramatic increase of imported medical textiles (face masks) in 2020. Every year, 22 billion pieces of textile and garment products are brought into the EU Single market.

Europe’s answer to this competitive pressure must be to invest even more on quality and innovative products, made in a sustainable manner. As emerging markets evolve, the appetite for better quality, comfort and design will grow. The ability and willingness to purchase technical textiles, which offer solutions to durability and improved performance, will increase. That is where Europe can be successful. To illustrate: the EU’s exports to China have increased by 33% in 2021 (first 11 months).

In its vision paper on the future of European textiles and apparel, EURATEX has confirmed its ambition to increase the global market share of the European textile industry. Strengthening relations with nearby Turkey and North African countries is important in this regard, offering opportunities for nearshoring. The African continent at large offers trade and investment opportunities, provided the business climate is stable and transparent.

Relations with the UK and Switzerland need to be optimised; especially Brexit has caused serious damage to bilateral trade flows (-33% export to the UK during Jan-Nov 2021). The Mercosur FTA offers interesting opportunities for the European textile industry; it should be ratified as soon as possible. We need to work with the US on mutual recognition of standards and setting global environmental and social rules. We call upon India to make an honest proposal for the upcoming free trade negotiations, which will ensure full and fair access to the Indian market.

European textile and apparel companies (mostly SMEs) need to be accompanied to exploit these market opportunities. At the same time, they need to be protected from unfair competition, e.g. products who do not comply with stringent EU standards and procedures. This requires more effective market surveillance.

Latest trade data (January-September 2021) show a dramatic drop of imports and exports of textile goods between the EU and UK, with significant losses for companies on both sides. The situation is likely to get worse, as the full customs regime between UK and EU has entered into force on 1 January 2022. EURATEX calls on the European Union and the United Kingdom to effectively cooperate to remove the issues in the EU-UK Trade agreement that prevent smooth trade flows.  

All the sectors have been already suffering a significant loss in the past year and textiles has been no exception. Compared to the same period in 2020, between January and September the EU recorded a dramatic fall in imports (-44%, corresponding to almost € 2 billion) and in exports (-22%, corresponding to € 1.6 billion). The data show that the most impacted EU countries on the export side are Italy, Netherlands, Belgium and Germany while on the import side the most impacted countries are Germany, Ireland and France. Among the T&C sectors, clothing articles are facing the most severe drop in both imports and exports, corresponding to a total trade loss of more than € 3.4 billion over the 9 months period. Despite these alarming figures, the UK continues to be the most important export market for EU textiles and clothing.

Concerning the impact on the UK textiles sector, in May 2021 the UK Fashion and Textile Association’s (UKFT) surveyed 138 businesses, including leading UK fashion brands, UK textile manufacturers, wholesalers, fashion agencies, garment manufacturers and retailers.

The results of the survey showed that:

• 71% currently rely on imports from the EU
• 92% are experiencing increased freight costs  
• 83% are experiencing increased costs and bureaucracy for customs clearance
• 53% are experiencing cancelled orders as a result of how the EU-UK agreement is being implemented
• 41% had been hit by double duties  
• The vast majority of the surveyed companies declared they are looking to pass the increased costs on to consumer in the next  6-12 months

The above situation is expected to get worse. Since 1 January, full customs controls are being implemented. It means that export and import rules have become stricter: products should already have a valid declaration in place and have received customs clearance. Export from Britain to the EU must now have supplier declarations and the commodities codes changed.  

EURATEX calls on the European Union and the United Kingdom to effectively cooperate to address, solve and remove the issues in the EU-UK Trade agreement that currently prevent smooth trade flows between the two sides of the Channel. It is causing considerable losses for textile companies both in the EU as well as in the UK.