VZCZCXYZ0003
RR RUEHWEB

DE RUEHLI #2201/01 2761501
ZNR UUUUU ZZH
R 031501Z OCT 06
FM AMEMBASSY LISBON
TO RUEHC/SECSTATE WASHDC 5220
INFO RUCNMEM/EU MEMBER STATES
RUEHBJ/AMEMBASSY BEIJING 0327
RUCPDOC/DEPT OF COMMERCE WASHDC

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 
----------------- 
 
¶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 
--------------------------------------------- -- 
¶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 
---------------------- 
¶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