Our textile and clothing industry needs to be transformed, building on its assets and addressing the problems it faces. This proposal includes a review of the foreign trade scheme – and the import barriers created in the last 15 years – a proposal for incentives to formalisation, and a programme to guarantee a minimum threshold of working conditions. It sets out a realistic path for transforming an industry that employs many people (and has to do so under better conditions). It has a historic mission to become more competitive. Two objectives that cannot – and must not – remain enemies.
What to do with our textile and clothing industry?
The Argentinean textile industry has valuable assets: productive capacities in different links, a significant presence in different corners of the country and a sector that generates 300,000 jobs. But it also faces several problems in terms of competitiveness, productivity and quality, without which it is impossible to understand the high prices of clothing in our country. In addition, employment is relatively informal and working conditions are adverse, mainly in the garment sector.
A change is needed to ensure the sustainability of this industry. For this, achievable policies are needed to escape the pendulum between an indiscriminate opening to imports that destroys jobs and productive capacities, and market protection at the cost of high prices for consumers. In recent decades, this pendulum has dominated policy decisions by national governments towards the sector.
A lot to untangle
All the documents that make up the series on the textile industry in Argentina elaborate a thorough diagnosis of the sector, from which conclusions and lessons emerge that were valuable inputs for the elaboration of the present policy proposal. Throughout the series, various angles of the chain have been studied – employment, foreign trade, prices, what is happening in the world and the region – and a series of important challenges have been identified: making clothing cheaper to a level similar to the regional context, increasing both the productivity and international competitiveness of this industry, increasing its levels of formality and improving its working conditions.
A five point diagnosis of the industry
- Our country has local capacities in several links, from cotton through spinning, weaving, dyeing, garment design and manufacturing to the generation of premium brands. Several segments have competitive potential, such as knitted garments or those differentiated by design and quality.
- Argentina’s textile and clothing industry employs almost 300,000 workers, many of whom have little chance of successfully reintegrating into other sectors. Working conditions are below the average for the economy, particularly in home-based garment workshops.
- Labour and tax informality is high throughout the chain, and took off at the end of the 20th century as a mechanism to compete with garments imported from Asia.
- Argentina has been a semi-closed market for this type of product, with high barriers to the entry of foreign inputs and products. This has made garments more expensive and limited higher quality products.
- Clothing prices in Argentina are higher, on average than in the region. This has two concrete social impacts: i) spending on clothing weighs twice as much in household budgets as in the region; and, ii) the quantities of garments purchased are 22% lower than the regional average, despite Argentina being a relatively richer country. It also favours shopping tourism abroad, which has negative impacts on foreign exchange, tax revenues and commercial activity.
The proposal for the textile and clothing industry
What are we proposing?
A desirable textile industry for Argentina must be more competitive and formal than at present, less dependent on trade protection and less expensive for consumers. These are objectives that present tensions between employment, formality and competitiveness/prices. This is why this proposal was conceived from an integral perspective, as it seeks to address these objectives simultaneously.
This proposal seeks to address these challenges on a sustainable path over time by improving the incentive system and promoting specialisation in those segments where the competitive advantages are greatest. There is no magic: it takes time and the will of all actors to bring about the transformation of the sector.
What do we mean by sustainability?
Our public policy proposal to reform the Argentine textile industry focuses on its economic and social sustainability over time.
- By economic sustainability, we mean achieving the necessary increases in competitiveness to reduce dependence on trade protection – as has been the case in recent years – in order to converge towards relative price levels similar to those of other Mercosur countries and even develop certain latent export niches.
- By social sustainability, we mean that the industry should improve the employment conditions of its workers – today mostly precarious – and that its operation should not result in overpricing for consumers.
How can this be achieved?
Our proposal includes a comprehensive revision of the foreign trade scheme of this chain, a series of incentives for the formalisation of the supply and demand of garments, as well as a programme to guarantee a minimum threshold of working conditions for garment workers working in informal home-based workshops and their families. We divide it into three axes, which are interrelated. Public policy must advance along the axes proposed here in synchrony and a coordinated manner.
Three main pillars
Pillar 1. A comprehensive review of the foreign trade scheme.
Objetives
- Lower clothing prices in the local market until converging to a relative pricing scheme for garments similar to that of Brazil (18% lower than current prices).
- Improve the price-quality ratio in the local market by increasing the supply and variety of inputs and products.
- Improve the predictability of foreign trade for chain actors by minimising the use of discretionary instruments and by focusing para-tariff measures on those that promote formality and the improvement of production and environmental standards.
- Gain specialisation by prioritising the emergence of economies of scale in those segments that currently have greater consolidated capacities.
Reccomended actions
- Carry out a comprehensive review of import duties on inputs and products for this industry, with two general criteria as a guide
- : Reduce tariffs to a minimum on those inputs and products that are no longer manufactured in Argentina or are manufactured well below local needs.
- Prioritise the reduction of tariffs on those products that are more overpriced than the regional average, based on the magnitude of the price differentials.
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- Eliminate the PAIS tax on imports. At present, this tax acts as a 7.5% surcharge, which makes both imported products and domestic
production using foreign inputs more expensive. To avoid undesirable effects on competitiveness, it is necessary to raise the exchange rate proportionally. - Avoid the use of discretionary tools that hinder foreign trade in this industry, such as the LNA (non-automatic licences), which have been highly discretionary as they depend on the political authority in power.
- Design and selectively implement para-tariff measures to improve production practices, formality, quality and compliance with environmental standards in this industry.
Pillar 2. Incentives to improve levels of competitiveness and formalisation.
Objetives
- Improve the competitiveness of the local textile-industry.
- To increase the formality of the chain.
Reccomended actions
- Reduce non-wage labour costs through a combination of an employer contribution scheme for all small firms and, for medium and large garment firms, non-refundable contributions (NRAs) that subsidise up to 10% of employer contributions.
The sum of both instruments – small business schemes and NRAs – would make it possible to subsidise part of the employer contributions of 58,000 of the 101,000 formal salaried jobs in this industry in 2023. In turn, the instruments would make it possible to reduce labour costs in the textile and clothing industry by 6.3% (11.8% in clothing and 2.9% in the textile link).
- Establish tax benefits to improve the competitiveness of the textile-industry chain, using the following:
- Eliminating the tax on debits and credits and transforming it into a system of collection as a payment on account of another tax – which could be VAT or income tax.
- Negotiate reforms with all provincial administrations to reduce provincial gross income tax rates.
- Create a universal benefit programme to formalise retail demand for clothing, to stimulate the growth of formal buying and selling of domestically sourced clothing and textile products. The proposal seeks to take advantage of the opportunity provided by the phenomenal growth of digital means of payment to transform the retail marketing of apparel in our country and amplify the size of the formal market, at the expense of the informal one.
Pillar 3. Socio-productive integration
Objetives
- Improve the living conditions of informal home-based workshop workers and their families.
- Extend the minimum floor of tax and labour formality.
- Improve the productivity of the current informal link.
Garment manufacturing employs 186,000 people in Argentina, of whom 134,000 (72%) work in the informal sector. Eighty-three per cent of informal employment in this sector, equivalent to some 111,000 people, takes place in production units with fewer than five workers.
Recommended actions
- Promote authorised garment manufacturing centresto guarantee a minimum threshold for informal home-based workers who are not absorbed by formal factories and who cannot be reconverted to other sectors. This is a policy of socio-productive integration that should be promoted by local governments (in particular CABA and some municipalities in the Buenos Aires conurbation). It includes a series of actions to launch new poles and others to consolidate their operation over time.
