This paper sets out to assess the ability of Europes textile manufacturers to respond to the competitive challenge of low-cost producers from Eastern Europe and the Far East. In doing so it utilises Porters framework of the competitive advantage of nations to analyse the changing conditions under which the industry operates. The paper highlights the differing structure of the textile industry in the UK and Italy in order to demonstrate that the impact of competition may vary across the EU market as a whole. The conclusion suggests that the ability of European producers to resist the threat from low cost producers of textiles will lie in their ability to extend the strategy of developing high value added products directed towards the top-end of the market to embrace the middle range of consumers and it argues that the industrial groupings which feature collaborative but independent clusters of firms are most likely to succeed in this objective.