Upgrading the textiles, clothing and footwear sector

The Romanian textiles, clothing and footwear sector exports more than 92% of its output to the EU market, according to the findings of a 2005 study. The study examines developments in the sector and analyses its national economic importance. It also assesses a number of ‘decent work’ parameters, such as union density, non-discrimination and working time. Overall, the report recommends that the sector be upgraded as part of a long-term strategy. Measures to achieve this include investing in research and development, and in human resources, focusing more on the domestic market, as well as implementing quality standards.

In March 2005, a team of two independent experts carried out a study on the Romanian textiles, clothing and footwear sector, with the financial support of the International Labour Organisation (ILO). The investigation sought to assess the sector in light of the removal of trading quota restrictions. The quota system had formed part of the global Multifibre Arrangement (MFA), in place since 1974, but the subsequent Agreement on Textiles and Clothing stipulated the phasing out of all quota restrictions by January 2005.

The study aimed to:

• analyse the developments and economic importance of the textiles, clothing and footwear sector during Romania’s economic transition;

• assess parameters of decent work in the industry;

• formulate conclusions and recommendations in the context of the constraints and opportunities of the sector’s competitiveness.

The study is based on a secondary analysis of data from already available statistical sources, including statistical yearbooks, Eurostat and annual reports of public institutions. In addition, the authors carried out interviews with representatives from national trade unions and employer organisations.

Sectoral developments and economic importance

During 2002-2003, the textiles, clothing and footwear sector, also known as part of the ‘light industry’ sector, contributed 5.5% to gross domestic product (GDP), and represented 10% of national industrial production, 35% of national exports and 19% of imports. In the same period, more than 8,900 enterprises were operating in the sector, of which 24.3% were in textiles, 56.3% in clothing and 19.4% in leather/footwear.

The main vulnerabilities of the sector are that it is heavily reliant on exports and has neglected the domestic market. The European Union constitutes the main export market, accounting for 92.5% of exports in 2002.

Imports are also significant, mainly due to the lack of competitiveness in the domestic upstream fibre sector (i.e. at the raw material stage). About 80% of orders are based on the Lohn system , which works as outward processing trade (OPT). This means that the buyer supplies all the necessary materials to the producer, who only provides the labour and the workplace, after which the buyer re-imports the finished merchandise. This system encourages many European buyers to send their production requirements to Romania. As a result, its textiles, clothing and footwear industry sector is both dependent on the Lohn system and raw material imports.

Decent work parameters

• Freedom of association and effective recognition of the right to collective bargaining - The Labour Code regulates freedom of association and collective bargaining. Regulations are generally observed in unionised enterprises, but less so, or not at all, in non-unionised companies, such as small and medium-sized enterprises (SMEs).

• Discrimination regarding employment and profession - The majority of employees in the sector are women: 82.4% in 2002. Legal regulations cover, for example, equal opportunities, equal pay, protection of pregnancy and motherhood, and sexual harassment. However, the mechanisms for implementing these legal provisions are not yet well developed; therefore, the specific needs of women are not yet well addressed. The textiles, clothing and footwear sector does not have an employment programme/policy.

• Working time - Practice has shown that employers, particularly in non-unionised companies, tend to change the work schedules often in order to meet specific contractual obligations. In many cases, tight deadlines are used as a means of cutting costs, especially labour costs.

• Social dialogue - Union density in the textiles, clothing and footwear industry stands at 25% of employees, with SMEs being less open to trade union activities. Cases of unfair dismissal or unfair treatment of union leaders - or even of ordinary employees interested in setting up a union - are common. Usually, trade union leaders are men, in spite of the fact that more than 90% of union members are women.

• Corporate social responsibility - Traditionally, the textiles, clothing and footwear industry is seen as a sector with low wages and repetitive work. Moreover, foreign investors have often regarded the Romanian textiles, clothing and footwear sector as a ‘free for all’, where anyone can achieve short-term high profits, with low investments. Initiatives regarding codes of conduct are exclusively of foreign origin.

Conclusions and recommendations

Even if quota removal and EU accession seem to be having little short or medium-term impact on the Romanian light industry, sectoral and company strategies need to become more focused on long-term issues.

• The current competitive advantage is based on low labour costs, combined with a constantly depreciating currency. However, companies will have to shift their strategic focus and try to move further up the value-added chain. Companies will, thus, have to invest more in human resources and pay more attention to employee motivation and salary policies.

• Creating national brands is a way of becoming less dependent on external orders. This involves, for example, highly specialised products, more effort in research and development and expert consultancy. The textiles, clothing and footwear sector is rather fragmented, due to the high presence of SMEs, so networks should be built for identifying suppliers, potential beneficiaries and retail outlets, and for making use of e-commerce facilities.

• The sector must implement quality standards.

• It will be important to introduce social standards and develop a ‘care ethic’, as part of the investment in human resources.

• More attention should be given to the domestic market, which will become more attractive in the future.

• The sector needs to have a more efficient bipartite dialogue, more backing and a stronger lobby for specific programmes and strategies.

Catalin Ghinararu and Cristina Mocanu, National Labour Research Institute