Portugal has strong links with Britain and Brexit is perceived as a challenge in the country, as it has affected trade since the time of the referendum in 2016. But many companies seem to believe that Brexit will not happen, Paulo Vaz told EURACTIV in an interview.
Paulo Vaz is the general director of ATP, the Textile and Clothing Association of Portugal.
He spoke to EURACTIV’s Senior Editor Georgi Gotev on the fringes of ‘Portugal Fashion Brand Up’ in Porto on 16 March.
For centuries Portugal has had very deep links with Britain. How could you describe this relationship?
The historical links are indeed very strong. We have the oldest military alliance in the world, from the 13th century, and our strongest dynasty was based on links between the Portuguese royal house with the British royal house. This relation created the conditions for great geographic discoveries, and this says everything.
They say that modern free trade is inspired by the British-Portuguese relations from those times…
In any case, one of the biggest historical economists of the 18th century, David Ricardo, was the pioneer of the free trade doctrine, or ideology, in terms of economy. He is a descendant of a Portuguese Jewish family that emigrated in Britain, because of the Inquisition. He was inspired by the trade that flourished between Portugal and Britain. It was about the specialisation of the economies: the Portuguese are quite good in terms of wines, and we bought, and we are still buying from the UK, machinery, as for our textile industry. If you look around [at Gaia, on the other side of the Douro] you will see the Porto wine companies’ logos, many of which are British names: Sandeman, Croft, Offley. These were British families, they came to Portugal to trade with wine, they settled in Portugal, and their descendants are still here after five or six generations. They have both mentalities: the British and the Portuguese.
That’s why I want to ask you what Brexit means for you, and how it affects the textile industry you represent.
Brexit is very simple. If it happens, and that’s something I’m not sure about, everything will be more expensive. Brexit is a challenge for our industry. The UK is our fourth market, we sell to the UK goods for €500 million euro every year, and since the Brexit referendum in 2016, we already lost 12% of the volume. The effects of Brexit are there. But even in this situation, the exhibitions in which we participate under our international programme in the UK are more successful than ever. This means companies still believe in this market, and probably they don’t believe Brexit will ultimately happen. The situation is not very clear even for the British. Yes, we are worried, but we still invest in the relationship.
I said that everything will be more expensive, but the Portuguese textile and clothing industry is no longer based on price. This is a paradigm that is over.
You also learned from the various crises. One was globalisation, then came the EU enlargement, opening the EU market to competition from the East, the third was the eurozone crisis…
Yes, and we had to adapt. This is why I say the paradigm is over.
Which was the worst year for the Portuguese textile business? 2008, or 2009?
2008 was the ultimate crisis. It was an accumulation of difficulties, and the cherry on the top of the cake was this global economic and financial crisis, that was a crisis of consumption, meaning that everywhere you go, people are buying less. So you have to adapt, you have to get lean, and become much more productive, much more competitive, much more imaginative. It’s about innovation in any sense, not only about products but in services, technology, we need to change everything to survive. So it was a very tough test, but it inspired us with an enormous capacity to respond. We are not the biggest, but we are probably the most adaptable in our sphere.
What were your choices?
The choice was to give up: let’s do other things, let’s leave this business to the Chinese or Turkey, or to change everything, at the same time preserving our very important know-how accumulated for several generations in this industry, and to apply technological innovation, a more aggressive commercial strategy, by being present in so many exhibitions all over the world.
Did the EU help this adaptation?
Yes, we must say that we did profit from the existing EU programmes. We used those funds especially for innovation and for internationalisation. Our focus was precisely in these two domains, and fortunately, EU funds are quite well designed for this type of activities. With European funds, we can offer to small and medium companies to fund almost 50% of the costs in activities such as the location in an exhibition, the construction of the booths, the transport of the collections and of the personnel. This is very important. We are talking about small and medium companies, they have very tight budgets. But if thanks to this funding they could go to two or three exhibitions around the world, for them this can be a game changer. This helped them in particular during the eurozone crisis, as they reached new clients, new markets: the only way to do it is to go abroad and participate in fashion exhibitions.
You are very positive speaking about the EU today, but during the 2004-2007 EU enlargement, I suspect that you were less enthusiastic?
The enlargement was indeed a kind of a shock, because for the first time the EU took countries less rich than Portugal. When we joined the club, we had the expectation to profit a little bit from its generosity. In that case, it was the opposite – we had to give, and not to receive. Besides, we had to face the competition of these new members, which had, and still have, very strong textile and clothing industries, like Poland, Romania and Bulgaria.
But are these countries a real competitor for Portugal’s textile and fashion industry? Aren’t they on the low end, while you try to be on the high end?
Yes, but competition is always a problem. Of course, what it provoked was to push our companies to be even higher in the value chain in order to escape from the competition in the lower segment. So it was at the same time a problem, and an opportunity, because this is high we became strong in the high segment.