BUDAPEST: Europe’s luxury fashion is recognised as one of the West’s most potent mechanisms of soft power. From state banquets where prominent leaders brandish high fashion as diplomatic statecraft to runway shows at the Great Wall of China and Gyeongbokgung Palace, European luxury houses project an image of timeless heritage and unmatched prestige.

This projection even surfaces in anti-Western North Korea when Kim Ju Ae, daughter of leader Kim Jong Un, appeared in state media wearing a US$1,900 Christian Dior jacket while strolling in front of an intercontinental ballistic missile.

Yet beneath the cultural dominance, a supply chain reckoning is emerging. Mandatory environmental, social and governance rules are being enforced, while court investigations are exposing extensive outsourcing, resulting in a widening gap between European brand prestige and global manufacturing realities.

This tension stems from international trade regulations that dictate origin labelling. Under Article 60(2) of the European Union Customs Code, a product legally qualifies for a “Made in (Country)” origin label if its “last substantial transformation” occurs within that country’s borders.

These non-preferential origin rules allow brands to carry out primary manufacturing in Asia while performing minimal final operations – such as attaching a zipper or sewing a logo – within Europe.

This is known as the “made in” loophole because the regulation does not check how much work was actually done there. Compliance oversight is largely administrative because national customs authorities rely primarily on self-declaration by brands rather than conducting physical tier-3 supply chain audits.

GAPS REMAIN This regulatory framework enables European luxury conglomerates to maintain domestic heritage narratives while optimising global supply chain costs. While legislative attempts such as the Reguzzoni-Versace Law in Italy sought to restrict the label to products that fulfilled at least two primary manufacturing stages domestically, gaps remain.

Recent judicial proceedings have brought these Asia-Europe division-of-labour dynamics into sharp legal scrutiny. In 2024, the Milan Public Prosecutor’s Office uncovered illegal subcontractor networks in Lombardy and Tuscany supplying major luxury houses including Dior and Armani.

Italian court documents revealed Chinese-owned facilities operating as parallel assembly hubs where bags produced for less than €100 (US$110) were retailed in boutiques for thousands of euros.

Similar dynamics exist in industrial centres like Prato where networks of Chinese migrant workers perform complex assembly under gruelling conditions. While these court actions target specific instances of subcontractor exploitation instead of the entire luxury fashion industry, they expose systemic oversight risks across tier-2 and tier-3 supplier networks.

At the same time, the narrative that non-European manufacturing offers cheap, low-skill assembly lines is being challenged by regional specialisation across Asia. Modern European luxury production frequently relies on advanced industrial and artisanal capabilities distributed across the Asian region.

China is capable of providing high-throughput technical infrastructure and specialised material processing. In Southeast Asia, facilities in Vietnam and Indonesia offer buffalo horn carving for jewellery alongside regional heritage textile expertise. In South Asia, Indian ateliers such as Chanakya International in Mumbai provide hand-embroidered dresses and runway tapestries for major European couture houses including Dior, Fendi, Lanvin and Valentino.

LOGO FATIGUE These technical realities do not necessarily erode European brand prestige.

Symbolic power and marketing dominance remain heavily concentrated in Western fashion capitals. However, the growing supply chain transparency is changing consumer attitude and preferences, particularly across East and Southeast Asia.

A rising segment of discerning, tech-savvy consumers is experiencing logo fatigue and rejecting the assumption that the West is the only source of true luxury. In China, the guochao movement (“national tide”) has elevated domestic luxury labels that offer comparable craftsmanship with Western brands while reflecting local identity.

Market surveys across key Asian hubs, such as the Bluebell Asia Consumer Lifestyle Report 2025, indicate an increasing willingness among younger demographics to complement or substitute European heritage brands with regional designers that give prominence to local craftsmanship and responsiveness. European luxury fashion’s soft power is fundamentally contingent on the alignment between its cultural narrative and operational integrity.

New legal frameworks such as the EU Corporate Sustainability Due Diligence Directive (CS3D) is being phased in with the aim of mandating supply chain traceability, closing the gap between these brands’ prestige storytelling and real manufacturing conditions. To bridge this gap, European policymakers in Brussels and state-level trade authorities must supplement corporate transparency directives with rigorous supply chain verification to ensure the active safeguarding of both Asian labour rights and global consumer trust.

Instead of relying on stringent origin labels, the future of Asia-Europe luxury fashion relations will require European houses to provide formal acknowledgment, equitable financial compensation, and guarantees of ethical working conditions to the Asian workers and artisans whose technical mastery sustains their runway visions.

Sjenica Sevilla is a PhD student in International Studies at Eotvos Lorand University’s Doctoral School of Sociology in Budapest. This commentary first appeared on Lowy Institute’s blog, The Interpreter.