Trade rules, the international division of labour and the evolution of the the Italian TCI

Mick Dunford

University of Sussex

1.1 The cost of a shirt: TCI is springboard for industrialization yet protection altered map of competitive advantage due to interaction of manufacturers, commercial capitalists, retail concentration and consumers

1.2 Global governance, trade rules and the TCI

• Long-Term Agreement re cotton textiles – Multi Fibre Arrangement – dispersal of production to quota-unconstrained countries – Agreement on Textiles and Clothing to return to normal GATT-WTO non-discrimination rules – OPT – preferential arrangement

• Tariffs to be examined in Doha round

1.3 Impact of end of MFA quotas

• Importers increase imports – quota restricted exporters increase exports - import prices fall by 'tariff equivalent' of quotas

• In the 35 product categories liberalized in 2005 China's market share increase by 130% in volume and 82% in value, and was accompanied by steep falls in unit prices

• A substitution of imports from privileged trade partners (mainly Asia, also in North Africa and the African, Caribbean and Pacific Group of States) by imports from quota-restricted countries.

1.4 Can one generalize from these models and short-term trends?

• Neglect the industry structure and sourcing strategies of buyers

• Insufficient account of preference schemes and rules-of-origin that allow managed trade

• Mainland China’s medium and long-term development goals better served by move to skill-intensive activities clothing and larger rural/domestic market

• After quota removal diversion from middlemen and recorded as exports from Hong Kong, Taiwan, Macao China SAR (Mayer, 2005: 24).

2.1 Trade regimes and export growth

2.2 Comparative EU15 TCI trade evolutions, 1961-2004

2.3 TCI value added

2.4 Geography of Italian textile and knitwear imports, 1997-06

2.5 Geography of Italian clothing imports, 1997-06

2.6 Geography of Italian textile and knitwear exports, 1997-06

2.7 Geography of Italian clothing exports, 1997-06

2.8 Outer/innerwear unit values and trade balance, 1997-06

2.9 Outer/innerwear unit values and trade balance, 1997-06

2.10 Outer/innerwear unit values and trade balance, 1997-06

3.1 Aggregate trends

• Trade balance (current values) stable in second half of 1990s, increase at start of millennium, yet strong deterioration in some sectors (outer and inner wear). A very strong rise in imports from east Asia and especially China. Apparel exports rise to EU15 and to Russian Federation. Textile exports to EU15 decline

• Stagnation of some markets and direct competition in home market and in export markets for final and intermediate goods from East Asia and China in certain market segments

• Trade and domestic market trends = after 2001 real output declines, as do employment and number of enterprises = unprecedented crisis

• Although Italy exports high value and imports low value items, as well as top end system includes middle and low end

• CEEC import growth stabilises/falls, and in some clothing categories trade balance decline reversed. Adverse impacts on preferential nearby/directly controlled and delocalised TCI

3.2 Micro-foundations of regional dynamics: not the district but the profit-seeking enterprise and its environment

3.3 Clothing product chain

3.4 Impacts differ across different segments of Italian TCI: movement into higher market segments

3.5 Aided by structure of distribution system and system organization

1) Independent retailers, specialised chains, department and variety stores, hypermarkets and supermarkets, mail order, street vendors

2) Commercial assessment and selection of projects materialised in samples, prototypes and collections through trade fairs, show rooms and catwalks

3.6 With a domestic production system over-reliant on micro-enterprises

• a model centred on micro-enterprises that do little research (firm versus district approach)

• dependent on Italian model of corporate governance (role of craft enterprises, exclusion of SMEs from social protection legislation)

• dependent on falling exchange rates (until Italy adopted the Euro)

• involving a reliance on markets (sectors/countries) subject to slow growth and intense competition

3.7 Evolution of provincial TCI jobs, 1971-2001

3.8 Changes in employment and number of enterprises, 1971-81

3.9 Size distribution of TCI enterprises

Number of firms Share (%) Number employedSize of firms 1981 1991 2001 2001 1981 1991 2001

1 72190 34770 27272 37 72190 34770 272722 20084 16074 10928 15 40168 32148 21856

3--5 17157 18702 13000 18 64446 70802 489836--9 9647 11202 7778 11 70527 82324 56637

10--15 8614 8818 6180 8 104576 108070 7552716--19 2894 3764 2542 3 49938 65304 4404120--49 4862 5648 4010 5 142444 158627 11597950--99 1521 1233 1021 1 104707 84221 69591

100--199 720 498 391 1 100180 67501 52773200--249 131 89 59 0 29013 19761 13265250--499 213 157 114 0 71806 52990 38344500--999 79 36 39 0 53559 23897 263491000 and

over 23 12 10 0 49241 25590 19012Total 138135 101003 73344 100 952795 826005 609629

3.10 Comparative performance of ashion and luxury goods companies (Pambianco, 2006)

2000 2001 2002 2003 2004 2005

% change, 2000-05

Compound annual growth rate, 2000-05

25 Italian fashion and luxury goods groupsTurnover 16407 18842 19619 19293 20953 23319 42.1 7.3Turnover (% change) 14.84123 4.123766 -1.66165 8.604157 11.29194Profits 1505 1355 1201 1062 1194 1570Profits (% of turnover) 9.2 7.2 6.1 5.5 5.7 6.7

Turnover 23003 24142 23930 22445 23920 26539 15.4 2.9Turnover (% change) 5.0 -0.9 -6.2 6.6 10.9Profits 2833 1167 1794 1726 3119 3479Profits (% of turnover) 12.3 4.8 7.5 7.7 13.0 13.1

Turnover 1505 1632 1671 1651 1778 1940 28.9 5.2Turnover (% change) 8.4 2.4 -1.2 7.7 9.1Profits 36 36 41 40 41 54Profits (% of turnover) 2.4 2.2 2.5 2.4 2.3 2.8

7 foreign fashion and luxury goods groups

A sample of 40 medium-sized Italian firms

Geography of TCI jobs, 2001

Trade specialization

The textile and clothing chain

Evolution of TCI jobs, 1971-01

Aggregate regional and industrial trends and the territorial division of labour

Micro-foundations of regional dynamics: not the district but the profit-seeking enterprise and its environment

• Evolution of capitalist enterprises and their profit and upgrading strategies – cost reduction– commercially relevant products– new markets– different functional roles– changing chains/disinvestment

• Their environment

Italian model of capitalism

• State interventionism: state holding companies, Ministry for PPSS to manage financial resources and circumvent Confindustria, political goals (oneri impropri funded via endowment fund transfers) privatized in 1990s

• Private sector (family capitalism) dominated by – a few large family dynasties (FIAT, Falck, Pirelli),

insider system of corporate control, high self-financing, pyramidal structure

– SMEs and craft enterprises (aided by generous regulation)