Penalties and advertising ban: France stops fast fashion companies

The French National Assembly has unanimously adopted the bill aimed at reducing the environmental impact of the textile industry, which will have to continue its legislative process in the Senate. Intended to curb “fast fashion”, the text provides: 

• the ban on advertising for the sale of clothing at rock-bottom prices
• the decision to define fast fashion based on a set number of items placed on the market annually
• an enhanced environmental penalty to make fast fashion products less attractive

Furthermore, companies that sell disposable fashion online will have to display messages near the price on their website that:

• raise awareness of the environmental impact of their products;
• encourage sobriety, reuse, repair or recycling.

In case of violation, companies will incur a financial penalty (up to 15,000 euros).

It’s not a tax

It is incorrectly called a tax but it is a bonus/malus system: the products with the worst environmental impact will not be able to benefit from the bonuses but will be subject to dissuasive sanctions starting from 2025. The ecological penalty will be over product:

• 5 euros in 2025
• 6 euros in 2026
• 7 euros in 2027
• 8 euro in 2028
• 9 euros in 2029
• 10 euros in 2030.

These sanctions should help finance bonuses for the benefit of virtuous companies in the textile sector.

Taxes are generally imposed by governments as mandatory payments on individuals, businesses, or other entities to fund government spending and public services.

Sanctions, on the other hand, are associated with punitive measures for violations of laws or regulations.

While they might work similarly to taxes in terms of their financial impact on businesses, they are not exactly the same.

Will the measures be effective?

From a macroeconomic perspective, the effectiveness of a bill targeting fast fashion companies depends on various factors, including the specific provisions of the bill, the reactions of consumers and businesses, and broader market dynamics. Here are some considerations:

• Elasticity of demand: If consumers are highly responsive to changes in prices or advertising restrictions, then the penalties and advertising bans imposed by the bill could lead to a significant decrease in demand for fast fashion products. However, if demand for fast fashion is relatively inelastic, meaning consumers are less sensitive to price changes, the impact of the bill may be limited.
• Substitution effects: Companies operating in the fast fashion industry may respond to the penalties and advertising bans by shifting their production strategies or diversifying their product offerings. For example, they may focus on producing higher-quality, longer-lasting clothing or explore alternative business models such as sustainable fashion lines. The extent to which they can successfully adapt will influence the effectiveness of the bill as a deterrent.
• Market competition: The fast fashion industry is highly competitive, with numerous companies vying for market share. If only one country implements penalties and advertising bans, companies may simply shift their operations to other countries with more lenient regulations. The effectiveness of the bill could be enhanced if it is part of a coordinated effort across multiple countries or regions.
• Innovation and technological advancements: Fast fashion companies may invest in research and development to find ways to mitigate the environmental impact of their products or improve their sustainability credentials. This could involve innovations in materials, production processes, or supply chain management. The bill may incentivize such innovation by creating market opportunities for companies that can offer more sustainable alternatives.
• Enforcement and government support: The effectiveness of the bill will depend on the French government’s ability to enforce its provisions and provide support to companies in transitioning to more sustainable practices. Effective enforcement mechanisms, together with financial incentives and support for innovation, could help ensure compliance and promote industry-wide change.

From a microeconomics perspective, the sanctions imposed by the fast fashion law can have different effects on the behavior of individual companies and consumers in the fashion market. Here are some of the possible effects:

• Reduced fast fashion production: Financial sanctions and advertising bans can make it less cost-effective for companies to produce and market fast fashion products. As a result, companies may reduce the quantity of such products offered on the market, instead focusing on more sustainable and higher quality product lines.
• Incentives for innovation and differentiation: Penalties can push companies to invest in research and development to develop more sustainable materials and production processes. This could lead to increased innovation in the fashion industry and the creation of differentiated products that stand out for their sustainability and quality.
• Increased retail prices: If companies pass on the costs of sanctions to consumers through retail price increases, this could reduce demand for fast fashion products. Consumers may be willing to pay more for more sustainable or higher quality products, but they may also reduce their overall spending on clothing due to higher prices.
• Changes in consumer preferences: Sanctions and advertising bans can influence consumer perceptions and preferences towards fast fashion products. Reducing advertising exposure to such products could lead consumers to seek more sustainable alternatives or to evaluate brands that promote more ethical and responsible practices differently.
• Consequences for small businesses: The sanctions could disproportionately affect small businesses operating in the fast fashion sector who may have limited resources to comply with the new regulations. This could lead to a reduction in competition in the sector and favor large companies that have greater financial resources to adapt to the new rules.

Pros and Cons

Pros:

1. Environmental benefits: By imposing penalties and advertising bans on fast fashion products, the bill encourages companies to adopt more sustainable practices, such as reducing carbon emissions, minimizing waste, and using eco-friendly materials. This can lead to long-term environmental benefits, including reduced pollution and resource conservation.
2. Market correction: Fast fashion has been criticized for its negative social and environmental impacts, such as exploitative labor practices and excessive consumption of natural resources. The bill provides a mechanism for correcting market failures by internalizing the external costs associated with fast fashion, thereby promoting more socially responsible behavior among companies.
3. Innovation and job creation: The bill incentivizes investment in research and development to develop sustainable alternatives to traditional fast fashion products. This can stimulate innovation in the fashion industry and create new opportunities for businesses that specialize in eco-friendly materials, technologies, and production processes. Additionally, the shift towards sustainable fashion may create new jobs in areas such as sustainable design.
4. Enhanced competitiveness: Adopting sustainable practices can enhance the competitiveness of French fashion companies in both domestic and international markets. As consumer preferences shift towards more environmentally friendly products, companies that prioritize sustainability may gain a competitive edge and attract more customers. This can contribute to the long-term viability and success of the French fashion industry.

Cons:

1. Cost implications: Compliance with the bill’s provisions, such as penalties for fast fashion products and restrictions on advertising, may increase production costs for companies. These additional costs could be passed on to consumers in the form of higher prices, potentially reducing consumer purchasing power and overall demand for clothing. This may have negative implications for economic growth and employment in the fashion industry.
2. Market distortions: The bill may create distortions in the fashion market by favoring companies that can afford to invest in sustainability initiatives over smaller or less financially secure businesses. This could lead to market concentration and reduced competition, potentially limiting consumer choice and innovation in the long run. Moreover, if the penalties disproportionately affect domestic companies compared to international competitors, it may result in market inefficiencies and trade imbalances.
3. Supply chain complexities: Implementing sustainable practices in the fashion industry requires collaboration and coordination across complex global supply chains. Companies may face challenges in sourcing sustainable materials, ensuring ethical labor practices, and maintaining quality standards throughout the production process. This could lead to supply chain disruptions, increased administrative burdens, and higher operational risks for businesses.
4. Unintended consequences: The bill’s provisions may have unintended consequences that negatively impact certain stakeholders, such as workers in the fast fashion industry or consumers with limited purchasing options. For example, restrictions on advertising could affect the livelihoods of workers employed in marketing and advertising roles, while penalties on fast fashion products could disproportionately affect low-income consumers who rely on affordable clothing options.

Shein’s reaction

Next steps

The issue of thresholds, which would define disposable fashion, has come under criticism for being left to the government, with fears it may not be implemented effectively.

Furthermore, the introduction of social criteria to ensure respect for human rights in clothing production has raised debate, with some supporters citing previous scandals such as Rana Plaza. However, others have warned that ultra-fast fashion may not be the right context for establishing global rules against social dumping.

The minister of ecological transition has promised to launch a mission to define social and ecological criteria in the next two months. After being adopted at first reading by the National Assembly, the bill will then have to continue its legislative journey in the Senate. Meanwhile, France’s environment minister has announced plans to propose an EU-wide ban on used clothing exports, seeking to tackle the growing problem of textile waste.

Sources: LCP Assemblée Nationale; Vie Publique; Reuters