VZCZCXRO6363
PP RUEHFL RUEHNP
DE RUEHRO #3228/01 3390947
ZNR UUUUU ZZH
P 050947Z DEC 06
FM AMEMBASSY ROME
TO RUEHC/SECSTATE WASHDC PRIORITY 6654
INFO RUEHFL/AMCONSUL FLORENCE PRIORITY 1934
RUEHMIL/AMCONSUL MILAN PRIORITY 8027
RUEHNP/AMCONSUL NAPLES PRIORITY 2068
RUCPDOC/USDOC WASHDC PRIORITY

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 
------- 
 
¶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 
----------------------------- 
 
¶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 
------------ 
 
¶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 
 
ROME 00003228  002 OF 002 
 
 
with the EU to ensure that Chinese imports stay under the 
EU-China cap. 
 
The Business Environment and Role of Labor 
------------------------------------------ 
 
¶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 
--------------------- 
 
¶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