A political agreement could see a European Union directive guiding member states on setting minimum wages to boost pay in lower salary sectors, such as apparel manufacturing.
European countries have traditional strengths in making apparel and textiles, especially luxury lines, but relatively high costs have left the region exposed to competition from near-sourcing hubs in north Africa and the Middle East, such as Turkey.
The new law, which is now expected to come into force by the end of 2024 may make it harder for apparel and textile companies to pay wages that compete on cost in global markets, warn some industry experts.
A note from the EU Council of Ministers said it struck a deal on the law with the European Parliament in June ensuring the directive will promote collective bargaining on wage setting, increase controls by labour inspectorates and make it easier for enforcement authorities to chase non-compliant employers.
The criteria to set wages will include the purchasing power of statutory minimum wages, taking account of the cost of living; the general level and growth rate of wages; and, long-term national productivity levels, the EU official added.
That said, the law does not mandate a European minimum wage per se, with average levels varying widely across the EU. These (as of January, according to European Commission data) vary as widely as EUR2,250 per month in wealthy Luxembourg to around EUR300 per month in Bulgaria. In Romania, rates exceed EUR500 per month and Portugal EUR800 per month – both countries with significant textile and apparel industries.
Some EU countries do not have minimum wages – such as Italy, a major apparel and textile manufacturing player – and the law will not force them to install such a system.
How a political agreement on European minimum wage rules could impact the apparel sector
The official confirmed to Just Style that “EU ambassadors [have] endorsed the compromise agreement with the European Parliament,” adding the next steps will be a vote in parliament and final adoption in council, likely to happen in September or October. “After entry into force, member states have two years to transpose the directive.”
With the apparel and textile sector remaining a complex web of international relationships, lobbying on the topic is a complex issue, and EU textile association Euratex has yet to adopt a stance on the law.
Sweden’s Hennes & Mauritz (H&M) is a good example of a company having to negotiate the politics of minimum wages, being accused in September 2018 by workers’ rights movement the Clean Clothes Campaign that it had not met a 2013 commitment to ensure its suppliers would pay a living wage to some 850,000 textile workers by 2018.
Of course, with H&M sourcing around the world, these promises did not just apply to Sweden.
Fast forward to today, H&M says on its website that it is working to drive fair and competitive wages in the supply chain, taking a global approach while considering national contexts and legal settings: “Our work is adapted to better meet the conditions in production countries and help suppliers improve workers’ wages.” In addition, the brand emphasises “we monitor the level of wages paid in our factories constantly.”
However, H&M adds the company cannot set a minimum wage: “Like most fashion companies, we don’t own any factories or make our own clothes – we outsource production to independent manufacturers. This means we don’t pay garment workers’ salaries, nor can we decide how much they are paid.”
The wage challenge for European apparel sourcing countries
For Europe-based manufacturers, that is a different story, of course. One country where the minimum wage law may bite is Portugal, which has maintained a sustainable textile and apparel industry, despite the onslaught of outsourcing.
Portugal showed resilience and proactivity during the pandemic, with its exports last year (2021) reaching EUR5.42bn (US$5.45bn), up 4% from 2019 (ignoring 2020 which was atypical because of Covid lockdowns), according to the Textile and Clothing Association of Portugal (ATP – Associação Têxtil e Vestuário de Portugal). Wage costs may well increase, with socialist Prime Minister António Costa, promised on Twitter on Portugal’s Labour Day (1 May) to “increase the weight of wages in GDP to the European average”, namely 20% growth from 2022 to 2026, targeting low salaries.
Ana Dinis, executive director at the ATP, explained the minimum wage applied in the textile sector, is now EUR705 per each 14 payments made usually per year in Portugal (hence the figure is lower than the EU surveyed monthly figure). The rate is reviewed regularly by the government, business, unions and consumer organisations and will take “into account the cost of living”, which is increasing with Portugal’s inflation currently running at 8.7% in June, the highest level since December 1992.
Higher salaries “should be aligned and supported by an increased productivity, growth and wealth creation by companies, sectors and the economy,” yet this has not been the main focus and Portugal lags in several rankings on these issues, she told Just Style.
She said that without “productivity and competitiveness, especially in highly competitive and globalised sectors such as textiles and apparel,” companies will close doors.
Dinis suggested the government liberalised Portugal labour laws, reduced taxes on companies and workers, trimmed red tape, boosted access to financing and capitalisation, and encouraged investment in innovation, creativity, R&D, internationalisation and digitalisation, for instance.
The cost differences between apparel sourcing countries
Costs remain an issue, especially when European clothing and textile companies compete against outsourcing manufacturers subsidised by their governments and “putting products on the market below cost,” she said. Sadly, through its enthusiasm for regulation, such as the minimum wage law, the EU “is not a friend of the European industry,” said Dinis, forcing business from Europe and making the continent “completely dependent on overseas sectors, products and services”.
There is a different view in the Turkish garment sector, which thinks its costs will remain competitive in the European market, even though inflation is pushing up minimum wages: “We have costs favourably comparable with Europe,” said Mehmet Kaya, a board member of the Istanbul Apparel Exporters Association (İstanbul Hazır Giyim Ve Konfeksiyon İhracatçıları Birliği – İHKİB). The depreciation of the Turkish Lira (TRY), which dropped by around 40%, from TRY0.97 to the Euro in June 2021 to TRY0.57 in June 2022, has kept the sector’s pricing competitive, although inflation hit 73.5% in May. It also fell 44% against the US dollar in 2021 and by 24% so far in 2022, according to Reuters figures.
In December (2021), the Turkish government raised the country’s minimum wage by 50.4% to TRY4,250 (US$275) for 2022. Labour ministry figures note that in 2019, the minimum wage was just TRY2,325.
“Wage adjustments are usually made once a year, but due to high inflation, it may be adjusted in July,” said Kaya. The government has also lowered tax rates on low-income workers.
Entry-level garment workers earn the minimum wage, he said, with salaries increasing according to skills and experience. Wages are marginally higher in western Turkey, where most apparel manufacturers are based, compared to the east of the country.
Yet while salaries are lower, the sector is contending with higher overall prices, with imports made more expensive by the falling Lira. “This year is unpredictable for manufacturing, as energy costs have increased, and the Ukraine-Russia war has affected everybody. But in the Euro-Mediterranean zone, Turkey is the most integrated garment manufacturer, and that is why we have had an increase in demand this year,” said Kaya.
There is a similar situation in Tunisia, where minimum wages remain lower than those in Europe. “The minimum wage in Tunisia is 480 dinars (EUR150) and planned to be around 700 dinars,” said Habib Hazami, general secretary of the country’s clothing and footwear association, the FGTHCC (Fédération Générale du Textile, de l’Habillement, Chaussure et Cuir).
One concern highlighted by Hazami, however, is that higher minimum wages in Europe might make textile inputs imported from Europe to Tunisia for sewing, including finished fabric, could become more expensive.
But it could also persuade investors to sink more money into Tunisia’s apparel and textile sector given its low production costs and low wages: “The fact that we import and export the textile products in Euros, while workers are being paid in Tunisian dinars is very profitable for investors,” noted Hazami: “An increase in minimum wages in the EU will lead investors to seek countries that guarantee a higher profit margin.”
Nafaa Ennaifer, vice president of Tunisian clothing and textile association, the FTTH (Fédération Tunisienne du Textile et de l’Habillement) told Just Style: “The wage gap is already very large,” with European competitors.
Hazami said the same situation pertains in Morocco, another major near-sourcer for European markets, exporting to Germany, France, Italy and Spain, and benefiting from a sophisticated sector of well-resourced factories and training centres.
Low Moroccan wages which usually do not exceed EUR250 a month according to Spanish workers group SETEM Catalunya, underpin this competitiveness.
Of course, a robust minimum wage system is not a zero-sum matter and can, if efficiently applied, boost efficiency and capacity.
That is the view of trade unions and campaigners for just remuneration in the textile sector within Romania, whose apparel and textile sector has struggled to recruit and retain skilled labour.
“Investment and exports have shown positive developments, both at the national level and at the sectoral level,” because of Romanian efforts to improve pay, including minimum wage systems, said Cristina Căpitănița, Romania coordinator for the Clean Clothes Campaign.
More decent pay “will only help employers and the industry attract qualified workers needed to produce high-quality products,” Patricia Velicu, the Romania policy advisor from the trade union federation industriAll Europe, told Just Style.
She said that a dismantling of collective bargaining at the sectoral level in 2012 resulted in four times more Romanian textile and clothing workers being on minimum wage between 2011 and 2016, blaming EU social dialogue laws and guidance for the change.
“Since these agreements disappeared, employers have also started to ‘steal’ workers from each other by simply offering EUR10 extra to the monthly wage,” said Velicu. As a result, she welcomed “the part of the minimum wage directive that refers to increasing the coverage of collective agreements” to 80% of all industrial workforces.
“It is crucial for ensuring fair competition in the Romanian TCLF [textile, clothing, leather, and footwear] sectors…” This would prevent “employers from ‘stealing’ workers from each other,” solidifying labour force stability.
“It’s a win-win for workers, employers and a step towards fair competitiveness,” she said.Looking ahead to the implementation of the new rules, Căpitănița called on the Romanian government to oblige big brands sourcing from Romania to be more transparent about sourcing and associated payments so that better wages offered to Romanian workers are highlighted, maybe boosting sales among ethically-conscious consumers.