threads of innovation: the european union innovation gap and the textile industry

8/2/2019 Threads of Innovation: the European Union Innovation Gap and the Textile Industry

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Threads of Innovation: the European Union

Innovation Gap and the Textile Industry

Firas A.ID i********Pigeonhole ***E-Mail: ********Date: 18/07/2010Graduation Dossier IIVersion: final draft

Supervisors:Dr. W. L****


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Firas A. (i********) Bachelor Thesis II 2010

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Contents

1. Introduction ............................................................................................................................... 32. The Lack of Innovation in the EU: Analyzing Cause and Effect ................................. 43. A Concise Overview of the EUs Textile and Clothing Industry................................. 7

3.1 SWOT Analysis of the European Textile Industry................................................. 94. Innovation and a Traditional EU Textile Industry: Do They Mix? ........................ 11

4.1

The Role of Novel Technologies in the EU Textile Industry.......................... 12

4.2 The Importance of New Production Technologies.......................................... 124.3 Intelligent Textiles as an Opportunity for Europe .......................................... 13

5. The International Economic Dimension........................................................................ 135.1 Analyzing the Effects of Trade Agreements on Intl. Trade Relations.......... 14

6. The EU Policy Dimension: Analyzing Challenges and Responses ......................... 166.1 Technological and Scientific Research Development Framework.............. 176.2 Policy Challenges and Responses to the Textile and Clothing Sector ......... 19

7. Conclusion ................................................................................................................................ 21Bibliography .................................................................................................................................... 23


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1. IntroductionThe difficulty lies not in the new ideas, but in escaping from the old ones, which ramify, for

those brought up as most of us have been, into every corner of our minds.

British economist John Maynard Keynes, 11th of June 1935

Over the period of the last decade, the European clothing and textiles industry has

experienced fundamental restructuring. Not only has production shifted towards high-quality

articles, but also the productivity has increased considerably. This is closely linked to the

ongoing and intensive modernization of the industry, which has been shifting greater focus on

innovation. Together with this process of modernization and the restructuring of the industry

came the reduction of more than one-third of the European workforce employed in this sector.

Further factors which are predicted to significantly affect and alter the industry over the

coming decade are the European Union (EU) enlargement, increased competition as a direct

result of research, innovation, quality, and skills, and, above all, the recent abolition of quotas

together with its opportunities as well as challenges which pose themselves on a globalized

and international commercial landscape (Fahnemann, 2005).

This paper mainly revolves around the relationship between the EU innovation gap

and the textile and clothing industry. The following research question is therefore central to

this paper: What is the effect of the EU innovation gap on the textile industry? However,

this paper also deals with the following questions: What are the policies employed to

stimulate innovation and aid the troubled textile and clothing industry? How effective are

they? Thispaper examines the hypothesis stating that innovation is the savior of the textile

and clothing industry. In other words: innovation is essential for the survival of the EUs

textile and clothing industry on a globalized, increasingly competitive market economy.

In order to shed light onto these and other issues this paper begins by analyzing the

cause and effect of the lack of innovation within the EU. This is followed by a concise

overview of the EUs textile and clothing industry, serving to establish a common basis for

further discussion on the topic of innovation in the industry. As part of this a SWOT analysis

on the EU textile and clothing industry is conducted, allowing the reader to gain an improved

understanding of the strengths, weaknesses, opportunities as well as threats associated with

the industry. Subsequently the interplay between innovation and the traditional EU textile and


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clothing industry is examined, covering the role of new (production) technologies and

intelligent textiles as an opportunity for the EU. This chapter is followed by an analysis of the

internal economic dimension of the EU textile and clothing industry which also includes the

effects of EU trade agreements on international trade relations. Finally, the EU policy

dimension is addressed, analyzing challenges and responses to the innovation gap and the

troubled textile and clothing industry, thereby covering the technological and scientific

research development framework programme. A comprehensive conclusion summarizes the

main findings of this paper and addresses its limitations, suggesting further venues of

research.

2.

The Lack of Innovation in the EU: Analyzing Cause and Effect

The word innovation is a central key-word in this paper. For sake of establishing a clear

framework the word innovation is defined below. Additionally, innovation gap is another

concept which is fundamental to his paper and is further elaborated on later in this chapter,

illustrated by means of cause and effect as well as statistics to support claims made regarding

the innovation gap. It is important to mention that there are several, even opposing, definitions

of innovation. However, the ongoing debate on the definition on the aforementioned term is

beyond the focus of this paper. Instead the definition of innovation as established by the

American Chamber of Commerce to the European Union (AmCham) is found to be

appropriate in this particular context.

AmChamdefines innovation in its publicationRecommendations for Closing Europes

Innovation Gap published in 2006 as the successful commercial exploitation of new ideas

[by means of] incorporating new technologies, design and best practice to enable businesses

to compete effectively in the global environment. AmCham continues by stating that

innovation in the widest sense includes the development of new products and services

(product innovation), new ways of working (process innovation), and new commercial

arrangements, business models and ways of eliciting the best from people and resources

(AmCham, 2006).

According to research conducted by the Community Research and Development

Information Service (CORDIS) in 2005 the European Union invests about a third less in

research than the United States while at the same time emerging countries like China and

India are fast becoming world-class centers of research and innovation (CORDIS, 2005).
http://cordis.europa.eu/home_en.htmlhttp://cordis.europa.eu/home_en.htmlhttp://cordis.europa.eu/home_en.htmlhttp://cordis.europa.eu/home_en.htmlhttp://cordis.europa.eu/home_en.html


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This can be illustrated by the statistics collected by the Organization for Economic Co-

Operation and Development (OECD) in 2005, as seen in figure 1 below:

Figure 1 Figure 2

Figure 2 above clearly shows that Japan and the United States are still ahead of the European

Union in terms of innovation. With a composite index gap value of 0.04 in 2003 and 2004 and

an even lower value in 2005 the EU is far behind the US and Japan. While the US is stable

around 0.14, Japans composite index gap value has been steadily increasing over the years,

reaching 0.18 in 2005 thereby defining the highest value yet. According to the 2006

CORDIS report 70 percent of the EU25 innovation gap can be attributed to EUs

underperformance in the following areas: information and communication technology

investment (ICT), USPTO patents and population with tertiary education.

The European Union does not lack cutting edge technological capabilities, an educated

work force or renowned research institutes and universities. In fact it has been found to have a

strong capacity for innovation (AmCham, 2006). Thus, despite the aforementionedfavorable elements, the EU is finding it difficult to accelerate competitiveness and economic

growth to a level similar to that of Japan and the US, as illustrated in figure 2 above. In the

light of the challenges faced by the EU in this context, the former Finish Prime Minister Esko

Aho chaired an independent expert group which operated under the framework of the

Commission. The expert group concluded that if Europe cannot offer an innovation-friendly

market for the creative outputs of its business, then those businesses will fail to thrive or will

go elsewhere (European Commission, 2006).


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For a large number of sectors the EU cannot be said to be functioning in an innovation-

promoting manner when compared to third countries. There are plenty of examples to support

this claim. One example is the absence of common standards for energy-efficient

technologies, which has the effect of impeding the use as well as success of such

technologies. Another example is given by considering how oftentimes companies are

discouraged from innovating and developing new products due to laws dictating

disproportionate product liability. Furthermore, the level playing-field which is needed for

companies in order to innovate effectively is commonly distorted due to state aid regulations

being based on geographic location, country of possession of a corporation and size instead of

specific market failures (Keenan, Saritas, & Kroener, 2004). The result of these and other

similar factors can be observed in figure

3, where the EU as a location of the

worlds high-tech manufacturing output

has been steadily declining since the year

1990. This chart has been prepared by the

United Nations Industrial Development

Organization (UNIDO), illustrating how

the US represents the leading location of

the worlds high-tech manufacturing

output, with China quickly catching up

with the European Union and Japan.

The EU is aware of the above mentioned weaknesses and has therefore made it, over the

period of the last decade, to one of its main priorities to reach its objective of becoming the

most competitive global knowledge economy in the world. This endeavor has received

support by European leaders and has been subsequently supported by a wide range of

assessments, strategies and funding programmes. Despite all this, the EU has not been able to

achieve the aforementioned objective yet (this topic is discussed in section 5 of this paper in

more depth). Reasons for this have been identified to be the failure to invest efficiently or

suitably in the creative environments, competences, and infrastructure and, generally, the

businesses needed for successful innovation in the 21st century.

The Business Panel on the Future of EU Innovation Policy has criticized the EU for

the fact that public support for innovation is primarily provided through complex, slow and

uncoordinated programmes while noting that private finance mainly backs the same low

Figure 3


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risk investments (Innovation Unlimited, 2009). As a consequence companies, entrepreneurs

and individuals are often left with a large number of barriers while finding only limited

support in order to realize their creative, ambitious and innovative ideas. The aforementioned

business panel also notes the alarming trend of public services and broader public policy only

taking little advantage of the power of innovation to transform society. Therefore the

innovative potential of the majority of the enlarged Union remains untapped. This holds true

despite the difficult economic situation and societal transformations such as increasing

globalization and an aging population which are only intensifying the aforementioned

weaknesses, leaving the call for radical change louder than ever.

3.A Concise Overview of the EUs Textile and Clothing Industry

This chapter provides an overview of the European Union textile industry, serving to establish

a common basis for further discussion on the topic of innovation in the textile industry. As

part of this chapter, the economic, social and political aspects of the EU textile industry are

touched upon in order to convey an overall picture of the state of the European textile

industry, and the most apparent trends emerging in the aforementioned sector. Developments

which are taking place beyond the EUs borders are also incorporated in order to complete the

overview.

The annual turnover of the EU15 textile and clothing industry roughly accounts to 200

billion, while employing more than 2 million people distributed amongst 177,000 companies.

Recently the number of people employed in the textile industry rose to 2.7 million due to the

EU enlargement. Over the period of four decades trade in clothing and textiles rose from $6

billion in 1963 to $343 billion in 2001, which means an increase of over 60 times compared to

the initial level. As a consequence 5.7 percent of world exports can be attributed to the textile

and clothing sector. It should be noted that a large part (56 percent) of world trade in the

textile and clothing industry can be associated with clothing alone indicating that the

clothing sector is increasing at a faster pace than the textile sector. The EU has emerged as the

worlds largest exporter of textile products and the second largest exporter in the clothing

sectormaking it stand out as a world leader in the clothing and textile trade (CEC, 2003).

Due to the gradual abolition of World Trade Organization (WTO) 1995 quotas, EU

imports have been gradually increasing. Over the past two decades the geographic distribution

of clothing and textile production has undergone fundamental change. According to the


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International Labor Organization (ILO) European Union output has dropped by more than 32

percent over the aforementioned period. While the output of the United States has increased

by 97 percent and the output of Asia has increased by 97 percent. Research has shown that the

EUs share of global output has declined from 53 percent in 1980 to less than 30 percent in

the year of 1995. Traditionally, declining production is coupled with declining employment.

Investigating the employment landscape of the textile and clothing industry quickly reveals

that most jobs in this sector are semi-skilled. As a consequence those people occupying semi-

skilled positions within companies usually transfer to other low-wage occupations with only

little chance of landing a higher income job. Research by the ILO has shown that in the period

between 1990 and 1996 employment in the textile and clothing industry declined by 31

percent. The trend continued between 1996 and 1998, where employment fell by another 15

percent. Calculating these numbers reveals a disturbing figure: more than 1 million jobs in

Europe were lost in less than a decade (ILO, 2000).

The EUs textile and clothing industry now stands before the challenge of not just

maintaining but also improving its position in an increasingly globalized market. Rapid

advancements in technology and innovation from abroad are adding to the pressure in Europe.

However, international competition from countries outside the European Union is not just

stemming from advancements in technology and innovation, but also from low labor costs

abroad (especially in developing countries) which has been resulting in an ongoing process of

relocation of production facilities. An increasing number of European-based companies are

choosing to relocate in favor of the low labor costs abroad in order to guarantee their long-

term financial sustainability and competitiveness (Keenan, Saritas, & Kroener, 2004).

Sub-contracting labor-intensive production processes to North Africa, Turkey and

Eastern Europe and other cheaper locations has become common practice. The emphasis on

high-quality secondary products with greater added value has also been increasing over the

past few years. Thus there is no doubt that the industry is undergoing fundamental

restructuring in terms of the location of production facilities, the technological procedures, as

well as the quality of products manufactured (CEC, 2003). It seems that the modernization of

production processes in the European textile and clothing sector, which has already begun

(albeit progressing at comparatively slow pace) has gained even more importance in the light

of these developments.


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3.1 SWOT Analysis of the European Textile IndustrySWOT stands for Strengths, Weaknesses, Opportunities, and Threats. A SWOT analysis is a

commonly used strategic planning method, employed in order to identify the aforementionedfactors, typically in the context of a business endeavor or project. However, the range of

usage is very broad, allowing a SWOT analysis to be conducted on a particular industry

without any difficulty in this case the European Textile industry. As part of a SWOT

analysis internal and external factors are identified. Internal factors are shaped by the industry

itself while external factors are shaped by the environment and other dynamics outside the

influence of the EUs textile industry. Strengths and Weaknesses are internal while

Opportunities and Threats on the other hand are external.

The SWOT analysis below (figure 4) confirms the statements made in the previous

chapter: while Europes textile sector benefits from a large production base and solid

infrastructure, it is suffering from high labor costs coupled with a low research and

development (R&D) commitment bringing about a shortage in innovation. Increased

globalization is amplifying the growth of low-cost imports from developing countries,

especially China. However, as also previously mentioned, the modernization of production

processes in the European textile and clothing sector is underway, steadily increasing

efficiency. Added value production, product diversification and especially technical textiles

represent great opportunities for the troubled textile sector of the EU. Finally, the SWOT

analysis helps gain a better understanding of the industry by examining it from numerous

angles covering Strengths, Weaknesses, Opportunities, and Threats, thereby extending the

general overview of the textile and clothing to provide further valuable insights.

Space left blank in order for the table on the following page to display correctly.


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Table 1SWOT Analysis of the European Textile Industry

Strengths Opportunities

Tradition & expertise in textile &clothing

Quality and design Short delivery times Organizational flexibility World leader in technology usage An effective production network

disguised in industrial sectors &

exchange of information

Enlargement increases EUs authority &influence in trade talks

Strong family firms with professionalmanagement

Market access in certain important exportmarkets

Increasing efficiency Product diversification Investment in people Goodwill Adding value through innovation, design

and branding

Investments in technical textiles

Weaknesses Threats

Low profitability in the clothing sector Fragmentation of sector High labor turnover in clothing

manufacturing

Dependence on a few multiples (i.e. rawmaterials from China)

Growing shortage of qualified humanresources (i.e. textile engineering)

R&D commitment is extremely lowcompared to other industries

Growth of cheap imports fromdeveloping countries and within the EU

Sectoral decline in Western Europe,growth in Eastern Europe

Increased cost of labor, energy, andenvironmental compliance

Piracy or illegal copying of designs andbrands

Source: (Euratex, 2004)


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4. Innovation and a Traditional EU Textile Industry: Do They Mix?Over the last decade less developed countries have shifted their focus to the production of low

and medium quality sectors. These countries have become highly competitive in the

aforementioned area of production. Reasons for this include: know-how imported from

developed countries, low labor costs and high-quality textile equipment. The unique mix of

these factors has enabled developing and least developed countries to excel in the

aforementioned area of production, which led the EU15 to specialize in innovative and high-

quality textiles as well as clothing products in order to cope with these and similar challenges.

Over the recent years textile production has become more capital-intensive and increasingly

automated. As a result of this development labor wages only account for 40 and 60 percent of

production costs within the textile industry and the clothing industry respectively (Fraiman,

Singh, Arrington, & Paris, 2002).

Today a wide range of raw materials is utilized in the textile industry, both synthetic

and natural. The complexity of the fabrics is increasing, as new innovations are widening the

application spectrum of textile in general (e.g. smart textiles). This area of the textile

industry has a relatively higher rate of R&D, as customer requirements are changing at a fast

pace and manufacturers generally base their actions on customer requirements. In this

environment the EU15 has been able to assert itself in the field of technical textiles, aided bytechnology, capital and extensive know-how. According to the European Apparel and Textile

Organization (Euratex) the field of technical textiles (further elaborated on later in this

chapter) is one of the EUs most attractive markets both in terms of returns on investment

(ROI) and general profitability (Euratex, 2004).

An increasing number of companies which were active in the production of traditional

textiles are turning their focus towards technical textile, where they are assuming a pioneering

role. A recent survey conduct by CORDIS found that more than 75 percent of textile

production in the Northern Europe is focused on technical textiles; while in Germany 50

percent of current production is focused around technical textiles (CORDIS, 2005). Thus, as a

preliminary answer to the title of this chapter it can be said innovation and the EU textile

industry do mixand they must if the EU textile industry seeks to survive! The remainder of

this chapter is dedicated to the examination and analysis of how modern production and

management methods are used in the aforementioned industry, closing with stimulating

assumption and predictions on this particular topic.


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4.1 The Role of Novel Technologies in the EU Textile IndustryAs previously established, the European textile industry has undergone major restructuring.

Part of this is reflected in the customers demands for more product diversity, smaller orders

and shorter lead times. Such developments have made it even more important for existing

companies to make use of modern technologies in order to be able to cope with their

customers demands. As is illustrated later in this chapter this is indeed the case, as an

increasing number of companies are realizing that simply drawing on economies of scale

(which used to be the recipe for success) does not necessarily yield positive economic profit.

Demonstrated by statistics in the previous chapter, a large part of European producers are

focusing their production around technical textiles and enjoy large market shares in this

sector. Non-wovens play a major role in this respect. Examples of non-wovens include

sophisticated products for the automotive industry, geotextiles, hygiene products, military

grade protective textiles and industrial filters (Abernathy, Dunlop, Hammond, & Weil, 1999).

Thus it is apparent that in order for European companies to preserve and extend their

competitive advantage in this sector they must successfully embrace advances in production

technologies. Examples of such production technologies include process automation

facilitators, ICT as well as new raw materials, including multifunctional textiles.

4.2 The Importance of New Production TechnologiesIn the light of the increasing trend of mass-customization and quickly changing consumer

preferences new production technologies have gained further importance. They enable

computer-based and automated production, increasing overall efficiency of the production

process and providing more flexibility. In the past production technologies were mainly

improved in order to speed up production processes and increase quality (CEC, 2003).

However, today Europe has to compete on a different level, which explains the shift of focus

extending priorities from quality and speed to flexibility and individuality. Mass-produced

clothing is widely produced in less developed countries; however, the EU must realize new

production technologies as an enabler to saturate the growing need for tailor-made products

which are then produced in a cost-effective manner within mass-production systems. This

should emerge as a distinctively European competitive advantage over mass-produced

clothing.


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With new production technologies comes the unique opportunity of processing traditional

materials in a new, innovative manner. Having analyzed numerous publications on the future

of this sector quickly reveals a surprisingly large number in scientific breakthroughs in the

field of textiles. Developments in nanotechnologies, laser, biochemistry, biotechnology and

plasma will allow for new ways of yarn laminating, forming or coating processes. The fusion

of such scientific advances with the European textile industry would bring about a high

degree of desirability in terms of the final product characteristics (important for the consumer)

as well as the successive processability (important for the producer).

4.3 Intelligent Textiles as an Opportunity for EuropeSmart or intelligent textiles represent a rapidly growing market. It is a new sector wherehigh-tech innovation meets traditional European industrial design skills and engineering.

Improving the characteristics on the micro-fiber level does not only change the way such

materials are processed in the factory, but it also opens up a whole new range of usage-

scenarios. Smart textiles may find use in the context of protective clothing, military gear as

well as work, leisure and sportswearto name but a few. In such usage scenarios the reaction

to external conditions could prove extremely advantageous, serving to entertain, inform, alert

or relax the owner of such wearable technologies. Textiles reacting to fire, chemicals,

temperature changes, humidity, light, electric discharge, mechanic use or even bacteria have

already been developed and tested successfully. Another area of research concerns textiles

with light or electricity conducing properties, information storage chips as well as energy

accumulation technology. Thus returning to the statement made at the beginning of this sub-

chapter: the fusion of such technologies with the long-established know-how of the European

textile industry in the areas of industrial design and engineering may prove to be the recipe for

success allowing the EUs textile industry to both maintain and enhance their competitive

advance on a global scale (Fraiman, Singh, Arrington, & Paris, 2002).

5. The International Economic DimensionIn section 3 of this paper A Concise Overview of the EUs Textile and Clothing Industry it

was already briefly conveyed that the textile and clothing industry is undergoing a

fundamental transformation. This transformation is both triggered and spurred by increasingly

open and globalized markets and the connected financial networks of the 21st

century. In order


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to understand the developments taking place in the European textile and clothing industry a

holistic approach, going beyond the borders of the EU, is necessary. As a result this chapter is

dedicated to analyzing the international economic dimension of the European textile and

clothing industry.

Over the past decade the EU15 textile and clothing sector has been experiencing a

rapid decline in employment and production. Between 2001 and 2002 the production dropped

by almost 9 percent, while employment declined by more than 8 percent. According to a

European Commission report in 2005 the overall trade deficit in this sector amounted to 26

billion in the year 2002 (European Commission, 2005). Analysis in previous chapters has

shown that the general decline in employment and production can be associated with a

combination of factors, amongst them the abolition of quantitative restrictions, lower labor

costs abroad and increasingly fierce competition from less developed countries equipped with

expertise from industrialized nations.

The fact that the EU15 only has restricted access to third countries further contributes

to the existing trade deficit. Brussels based Euratex has been working toward achieving a less

restricted world market access for a number of years, stating that freer markets would most

certainly boost European textile and clothing exports. With a growing middle class worldwide

and especially in less developed countries an increasing number of individuals are able to

afford European high-quality and added-value products, previously only obtainable by the

affluent in the West. This exact phenomenon was observed in the 1990s as Mexico, South

Korea and Brazil opened up their markets in the framework of EU trade agreements (Euratex,

2004). WTO trade agreements on the other hand lack the characteristic of symmetric

reciprocal obligations. This means that EU countries may be removing trade barriers, granting

third countries unrestricted access, however third countries are not obliged to do the same for

the EU countries. Despite the European Commissions considerable influence on trade talks

the process of symmetric market liberation is moving forward only very slowly (CEC, 2003).

This topic is further elaborated on in section 6.2 of this paper.

5.1 Analyzing the Effects of Trade Agreements on Intl. Trade RelationsFor the last four decades the international trade relations in textiles and clothing have been

largely dominated by the so called Multi-Fiber Arrangement, or short MFA. The MFA has

played an important role in protecting producers located in the United States and Europe.

However, together with the Uruguay Round of the General Agreement on Tariffs and Trade


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(GATT) in 1995 a phasing out process of the MFA began. The plan was to phase out the

MFA in three stages, over a ten year period, starting from 1995. The process was completed

on the 1st of January 2005. From this date the textile trade fell under the jurisdiction of the

WTO. As a result of the dismantling of the quotas, which were in place under the MFA,

textile and clothing exports from China to the West increased by more than 100 percent

(GATT, 2005). A number of experts predicted this would happen long before the MFA was

phased out, bringing about extensive repercussions for domestic manufacturers. In 2002

quotas were removed for a limited number of products. Almost immediately Chinas exports

to the European Union increased by more than 180 percent in the respective categories. Other

countries on the other hand only increased exports to the EU by 10 percent in the same

product categories. This was seen as an indicator of what should be expected from China in

2005 with the removal of the rest of the quotas (Dicken, 2003).

This drastic increase in imports from the Chinese had been anticipated by the

European Union and the United States. Therefore, as part of Chinas entry agreement to the

WTO, a special safeguard was negotiated which specifically focused on textiles. In short, this

special clause enables any WTO member to re-impose a proportional quota on the Chinese

clothing and textile sector for a maximum period of three years (2005 2008). The main

condition for this clause to be allowed was if Chinese exports significantly disrupted domestic

markets with the consequence of harming home producers. The US did not hesitate and made

direct use of the clause, limiting growth to 7.5 percent while the EU, only after massive

pressure from interest groups, limited growth to 10 percent. Such developments left an

increasing number of people doubting the possibility of full trade liberalization in the textile

and clothing sector. In the absence of new quantitative export restrictions, some industry

spokespersons argue, China will seize more than half of the global textile and clothing exports

before the year 2011. Such quantitative export restrictions are also suggested to benefit China

itself, as it would have to deal with less anti-dumping cases (Dicken, 2003).

Many see China rising to the worlds largest exporter in this sector as unfair

considering the circumstances which enable such dominance in the first place: workers for

example earn less than US$120 per month, the currency is undervalued by 40 percent, state

owned companies are financially invulnerable while enjoying economies of scale on the

national market and an increasing number of companies are gaining access to capital

manufactured in Italy, Germany and Japan, together with large parts of the know-how

(Keenan, Saritas, & Kroener, 2004). However, voices are getting louder stating that the


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solution to such a crisis cannot be sought by leveling the playing field of free trade. In fact,

the idea of putting a policy of affirmative action in place is gaining more popularity. This

option would grant poorer countries tariff and quota advantages over competitors from

developed countries. In this context the European Union has already been utilizing the

General Scheme of Preferences, permitting less developed countries to export garments at

significantly lower prices. Along with this the EU has granted quota-free market access to

poorer countries (European Commission, 2005).

6. The EU Policy Dimension: Analyzing Challenges and ResponsesThis chapter can be said to be one of the most central parts to this paper. In the first part of

this chapter the approach of the EU institutions towards innovation policy is examined. This is

followed by an insight into the technological development and scientific research framework

programmes. Finally policy challenges and responses are evaluated, after shortly elaborating

on specific key-policy fields such as research and innovation policy as well as trade policy.

However, it is by no means the objective of this chapter to represent an exhaustive list of

studies conducted on the main regulatory and policy challenges in the areas of trade policies

and recent managerial and technological developments in the textile and clothing industry.

This chapter is intended to provide a well-balanced overview and analysis of the challenges

and responses faced by the EU on a policy-making level.

Starting in the 1990s innovation policies as such started to appear in the public

documents of the community institutions. The Green Paper on Innovation in 1995 marked the

first step toward innovation policy. One year later, in 1996, the First Action Plan for

Innovation in Europe was published, bringing forward policy suggestions (though sparing in

number) which later defined the direction of development. Generally, the suggested actions

were organized in three categories depending on their intended purpose, which was either tofoster an innovation culture, better articulate research and innovation, or to establish a

framework encouraging innovation (CEC, 2000). Such steps were taken in order to foster

innovation in a knowledge-driven economy, where a paradox exists which is namely that

satisfactory research performance is not successfully matched by adequate innovation

performance. This paradox has been identified and acknowledged in numerous publications

by a wide range of European institutions. For examples see COM (2000)567 or COM

(95)688. In such publication the European innovation performance was benchmarked again


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Japans or the United States performance, leading to the identification of serious deficits on

the European side.

An important milestone in Europes approach to innovation policy was achieved in

2000 with the Lisbon European Council. The conclusions of the Presidency set ambitious

goals to be fulfilled by the EU over the period of the coming 10 years. Amongst those

objectives, voiced within the framework of the Lisbon strategy, was the desire to become the

most competitive and dynamic knowledge-based economy in the world, capable of

sustainable economic growth with more and better jobs and greater social cohesion (CEC,

2000). Together with the Lisbon strategy, innovation became a priority within the EU policy

framework, accepting the reality that competitiveness on a global economy largely depends

on the introduction of new, innovative, products and services. This holds particularly true for

the textile and clothing industry, as discussed in chapter 4 of this paper, where the importance

of innovation in the aforementioned industry is paramount in order to compete successfully on

a global level.

In a wider context innovation policies began to be regarded as a vital component of

industrial and enterprise policy strategies. This represented a shift in theoretical perspective

and an end to the previously employed method of framing innovation policy within the

context of research policy. According to Mytelkaand, professorial fellow at Maastricht

Economic and Social Research and Training Center on Innovation and Technology the last

decades have been marked by European institutions being influenced by a number of

unorthodox approaches, including national systems of innovations and economics of

complexity leading to a paradigm shift in the analysis of technological change and

innovation. This stands in contrast with the past where heterodox economic theories played a

decisive role, shaping European policymakers intellect within institutions such as the

Commission. Thus numerous evolutionary developments have been taking place within

European institutions, placing innovation in a more relevant position. (Mytelka & Smith,

2002).

6.1 Technological and Scientific Research Development FrameworkSince the early 90s innovation and research activities of the European Union are placed under

one main platform: the Frame Programme (FP). So-called research framework programmes

represent the EUs key legal and financial instruments utilized to implement the European


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Research Area, or short ERA. In March 2002, during the Barcelona Summit, the objective of

increasing investment to 3 percent of the Unions overall GDP by the end of 2010 was set.

ERA plays a major role in achieving this objective as it is a key element to the

aforementioned strategy, which at the same time represents a political and legal obligation

stemming from the Treaty of Amsterdam. Generally, Framework Programmes last for a

period of four years and are composed by the Commission. The Council and Parliament on

the other hand has the obligation to adopt the frameworks.

Currently the 7th Framework Programme (FP7), which is the natural successor of the

6th Framework Programme (FP6), is in place. The main priorities of the FP7 have been

outlined by the European Commission in their Communication Science and technology, the

key to Europe's future - Guidelines for future European Union policy to support research.

FP7 is highly focused on achieving the Lisbon objectives, which have been addressed earlier

in this chapter. As part of this the management tools, organization, content and

implementation modes of FP7 are designed as a key contribution to the relaunched Lisbon

strategy (EurActiv, 2006). According to Science and Research Commissioner Potonik FP7

will not be just another Framework Programme. In the past, Framework Programmes have

been central to European as well as international multidisciplinary cooperation and research

activities. The 7th Framework Programme aims to continue this task, however differs from

other Framework Programmes as it is

larger (see budget comparison, figure 4)

and more comprehensive (European

Commission, 2007). Commissioner

Potonik further states that FP7 is

centered on innovation and knowledge

for growth, it will continue the drive

towards the European research area

(ERA) - thus aiming at building

the internal market of knowledge

(EurActiv, 2006). FP7 is the product of

years of consultation with European

policy making and research institutions,

the scientific community, as well as

other interested parties. Figure 4Source: (European Commission, 2007)
http://europa.eu.int/comm/research/future/pdf/com-2004-353_en.pdfhttp://europa.eu.int/comm/research/future/pdf/com-2004-353_en.pdfhttp://europa.eu.int/comm/research/future/pdf/com-2004-353_en.pdfhttp://ec.europa.eu/research/era/index_en.htmlhttp://ec.europa.eu/research/era/index_en.htmlhttp://europa.eu.int/comm/research/future/pdf/com-2004-353_en.pdfhttp://europa.eu.int/comm/research/future/pdf/com-2004-353_en.pdf


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6.2 Policy Challenges and Responses to the Textile and Clothing SectorThis sub-section is intended to relate the general policy responses outlined above to the

textiles and clothing sector and more specifically to one of the research question of this paper:

What are the policies employed to help the troubled textile industry and how do they

perform? One of the Commissions communications lay out the objectives from a

perspective of the textile and clothing industry particularly well: If it is the primary

responsibility of enterprises to meet the challenges [facing the sector], the role of public

authorities is and will remain the establishment of favorable framework conditions in which

textiles and clothing, like other sectors, can develop and enjoy the opportunity to compete,

domestically and internationally, on the basis of equity (CEC, 2003).

The European Commission, being responsible for trade policy in the EU, has made it

clear from an early stage that it is not willing to take actions which are aimed at privileging

the European textile and clothing industry by means of subsidies, or the replacement of quotas

of 2005 by other trade barriers (Rossi, 2005). Judging from the Doha Development Agenda

negations the European Commission seems much more interested in the introduction of a

level playing field instead of introducing such new restrictions. Ultimately the Commission

wants to see improved conditions of market access to third countries, which are comparable

across the globe and fair at the same time. The least developed countries however are exempt

from such demands. Thus in order to improve domestic conditions for textile and clothing

producers the EU has called upon all WTO members to eliminate non-tariff barriers while at

the same time cutting customs duties to the lowest possible level. Such a call can be

understood considering that, as mentioned in chapter 5 The International Economic

Dimension of this paper, WTO trade agreements lack the characteristic of symmetric

reciprocal obligations. This means that EU countries may be removing trade barriers, granting

third countries unrestricted access, however third countries are not obliged to do the same for

the EU countries.

As part of the EUs Barcelona Process the extension of the Pan-European arrangement

of diagonal cumulation of origin to the Mediterranean countries should be fiercely pursued.

This is necessary in order to maintain and improve the complete chain of production close to

the EU market. This chain of production is the most effective way of combining the economic

advantages of geographic proximity, quality as well as production costs. Today the

cumulation of origin includes the CEECs, EFTA, Turkey and of course the EU (CEC, 2003).


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Such endeavors are conducted under the framework of the Barcelona Process which has the

objective of putting in place a free trade area (FTA) encompassing the European Union and

Mediterranean countries. Such an FTA will enable manufacturers to draw from intermediate

products located around the entire area without having to deal with economic barriers, while

allowing for the successful exploitation of the competitive economic advantages of different

regions. The final result of such efforts is hoped to decrease the negative effects of the

abolition of import quotas which used to protect European markets under the Multi-Fiber

Arrangement (MFA), which is discussed in chapter 5.1 of this paper. However, the fact that

numerous countries in the Mediterranean region still do not have properly arranged FTAs

with one another represents a considerable hindrance to the smooth functioning of a diagonal

cumulation of origin.

The 7th Framework Programme, discussed in section 6.1, also contains numerous

funding possibilities which are potentially highly valuable for the textile and clothing sector.

Such funding possibilities for the textile and clothing industry can be found in the second,

third and sixth priority areas of the FP7 for Research and Development. Priority two for

example focuses on information society and technologies, while priority area three focuses on

nanotechnologies, new production processes and devices as well as knowledge-based multi-

functional materials (discussed in section 4). Priority six on the other hand focuses on

sustainable development (EurActiv, 2006). Those are all areas which are related to the

innovative textile and clothing industry of 21st century Europe. In fact, the aforementioned

priority areas already include research activates directed toward the textile and clothing

sector. This is expected to aid the EU industry to remain competitive while modernizing at the

same time.

It should be noted however that a larger number of publicly funded research and

development in the European Union is financed by its Member States (MS) therefore a

comparatively greater responsibility to let the textile and clothing sector benefit from such

work lies in the hands of the individual MS. Policies in support of human resources underlie

very similar regulations. The EUs Leonardo da Vinci II Programme for example provides

support for newly established training programmes and skills, which have benefitted the

aforementioned sector. In this case, again, it is up to the MS to improve skills in this sector as

most of the MS have their own programmes of skills development and specialized training. In

the light of such fragmented and inconsistent operations the Commission realized the

opportunity of erecting a Europe-wide approach to skills development and training (which it


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is currently encouraging amongst the MS). Such a common program would be focused on

identifying best practices in the industry while coordinating future progression in order to

avoid the duplication of efforts (Rossi, 2005).

As pointed out in the SWOT analyses conducted in section 3.1, the EUs clothing and

textile industry has its strengths in fashion, design, branding and to some extent innovation.

Having said this, one may wonder about how such intellectual property rights (IPR) are

protected abroad. The importance of IPR policy is uncontested, as the lack of thereof would

severely limit the motivation for innovation and novel designs in the industry due to declining

profitability. The European Commission has recognized this and made the improvement of

IPR enforcement and protection in third countries a priority. This includes monitoring the

compliance with the WTO Agreement on Trade-Related Aspects of Intellectual Property

Rights (TRIPs). In addition to informing EU rights-holders about registration requirements

(proper registration of e.g. trademarks) necessary to be eligible for protection under TRIPs,

the Commission also engages in political discourse with trading partners, stressing the

significance of TRIPs compliance (Keenan, Saritas, & Kroener, 2004).

7. ConclusionComing back to the main research question of this paper (stated in the introduction) What is

the effect of the EU innovation gap on the textile industry? it can be safely concluded that it

is a significant one. Analysis in this paper has shown that innovation, or the lack thereof, will

largely determine the fate of the EU clothing and textile industry. This confirms the

hypothesis presented in the introduction of this paper: innovation is essential for the survival

of the EUs textile and clothing industry on a globalized, increasingly competitive market

economy. The EU has to fuse the already available excellent expertise, quality, design and

technological affinity of its traditional textile and clothing industry with innovation in order to

unlock its full potential effectively turning threats to the industry into strengths and

weaknesses into opportunities (speaking in terms of the SWOT analysis conducted in chapter

3.1).

Throughout this paper it has become clear that a knowledge society is not enough in

order to successfully compete on an increasingly competitive world market. It is vital for the

European Union to form an innovation society where valuable knowledge is utilized swiftly

and powerfully for the purpose of the development as well as benefit of society. Indeed, this

requires an effective transformation away from closed approaches which are fragmented and


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only deal with single issues, to a flexible, open and networked approach. While closed

approaches typically favor large incumbents, open approaches favor new ideas and entrants,

which ultimately leads to more innovation. This paper is also intended as a call to all EU

policy makers, including EU institutions, regional as well as national governments, to actively

back this vital transformation. After all (referring to the opening quote of this paper) The

difficulty lies not in the new ideas, but in escaping from the old ones, which ramify, for those

brought up as most of us have been, into every corner of our minds. More than 75 years later,

this quote by British economist John Maynard Keynes still holds true.


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threads of innovation: the european union innovation gap and the textile industry

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