The U.S. Department of Commerce recently released its first-ever market report for technical textile and apparel, covering product categories including: non-wovens, specialty and industrial fabrics, medical textiles and protective apparel. According to the report:
- The U.S. exports of technical textiles totaled $8.5 billion or 46% of U.S. textile mill product exports in 2014.
- By size, the top 10 export markets for U.S. technical textiles from 2015 to 2016 include: Mexico, Canada, China, Germany, Japan, Hong Kong, United Kingdom, Belgium, Brazil and Honduras.
- North America is the largest regional consumer of technical textiles due to the presence of the majority of end-use industries. Europe and Asia Pacific follow North America in terms of current consumption; however, development in emerging markets including India, China, Japan, Korea and Taiwan is expected to increase overall technical textile demand. Among the best prospect in the emerging markets for U.S. companies are Vietnam, India, Taiwan and Brazil.
- Major challenges facing U.S. technical textile exports include: 1) trade protection such as high tariffs and non-tariff barriers, such as import license requirements; 2) foreign competition and continual investment in research and development in many developing countries; and 3) lack of transparency by foreign customs agencies which could slow the flow of trade and lead to processing delays.
Eight country studies are provided by the report, including: Brazil, Canada, China, India, Korea, Mexico, Taiwan and Vietnam.
The full report can be downloaded from HERE.
The European Apparel and Textile Confederation (Euratex) recently released its position paper on textile and apparel (T&A) rules of origin in the Trans-Atlantic Trade and Investment Partnership (T-TIP). According to the paper:
First, Euratex supports “double transformation rules” as the basis of T&A rules of origin in T-TIP, with the accompany of flexibilities in some cases. In general, “double transformation” is equivalent to “fabric-forward” rules of origin, which is less restrictive than the “yarn-forward” rules of origin adopted in the United States. Euratex believes that “double transformation rules” is “aligned with market realities and developments of the European industry.”
In contrast, the National Council of Textile Organizations (NCTO) which represents the interests of the U.S. textile industry insists that T-TIP shall adopt the strict “yarn-forward” rule. Particularly, NCTO is worried that a less restrictive rules of origin in T-TIP will have ramifications for the negotiation of future FTAs, including the Trans-Pacific Partnership (TPP).
Second, Euratex opposes applying the “value-added rule” to the T&A sector in T-TIP. Based on the value-added approach, country of origin can be granted when “manufacture in which the value of all the materials used does not exceed certain % of the ex-works price of the products.” Value added is typically calculated based on a subtraction formula, i.e. value added=ex-works price of the product obtained minus the value of all the non-originating material.
Euratex does not think the “value added rule” will work for T&A, because: 1) “variability of the value of originating/non-originating products (fibers, yarns or fabrics) used in spinning or weaving or making-up” will make it practically difficult to calculate value added. 2) “the value added principle is uncontrollable as the added value can be influenced by many factors such as raw materials price, financing, exchange rate manipulations etc.”
Potential impact of the Trans-Pacific Partnership (TPP) remains a hot topic among the U.S. textile and apparel industry. A recent news report suggests that implementation of the agreement will negatively affect clothing manufacturers in LA, where most remaining U.S. apparel manufacturing capacity is located.
According to the news report, “small, independent apparel manufacturers (in LA) did not see big gains from TPP because they did not want to outsource their work, but it put them at a competitive disadvantage.” One local industry estimation quoted in the report claims that “Southern California’s apparel manufacturing will shrink an additional 20 percent if the TPP goes into effect.”
The report further says that “A key question for the apparel industry is whether the agreement includes a yarn-forward provision, which requires material to come from a TPP country in order to be duty-free.” However, the report does not explain why the “yarn-forward” rule could potentially benefit apparel manufacturing in the United States.
The followings are my personal preliminary estimation* of the potential impact of TPP on U.S. T&A manufacturing. Results show that, compared to the base year level in 2011:
- TPP overall will have a negative impact on U.S. domestic textile and apparel manufacturing. In all simulated scenarios, the annual manufacturing output in the United States will decline by $846 million–$3,780 million for textile and $1,154 million–$1,828 million for apparel than otherwise.
- The “yarn-forward” rule may not substantially benefit U.S. domestic textile and apparel manufacturing as some people had suggested, for two reasons: 1) results show that Vietnam is more likely to use Japanese textiles than U.S. textiles when yarn-forward rule is in place. 2) U.S. apparel imports from Vietnam directly compete with those imported from NAFTA and CAFTA regions, the largest export market for U.S.-made yarns and fabrics. When NAFTA and CAFTA’s market share in the U.S. apparel import market is taken away by Vietnam, U.S. textile exports to NAFTA and CAFTA will decline anyway, regardless of whether Vietnam uses U.S.-made textiles.
- Results suggest that compared with the “yarn-forward” rule, development of Vietnam’s local textile industry will have an even larger impact on the future of U.S. domestic textile and apparel manufacturing. Particularly, when Vietnam becomes more capable of making textile inputs by its own, not only Vietnam’s overall demand for imported textiles will decline, but also Vietnam’s apparel exports will become even more price-competitive in the U.S. as well as the world marketplace.
*Note:1. The estimation is conducted based on the latest Global Trade Analysis Project (GTAP) 9.0 database which includes complete bilateral trade information, transport and protection linkages of 140 countries and 57 sectors. Four scenarios are estimated:
- Scenario 1 (Tariff reduction only): assumes tariff rate for textile and apparel traded between the twelve TPP members are eliminated, whereas tariff rate for other textile and apparel trade flows remain unchanged.
- Scenario 2 (Tariff reduction + yarn forward): assumes that in addition to tariff reduction among TPP members for T&A, Vietnam substantially increases tariff rate by 100 percent for textile imports from its leading suppliers that are non-TPP members (i.e. China, South Korea and Taiwan). This policy shock provides strong financial incentives for Vietnam to import less textile from non-TPP suppliers and instead import more from other TPP members—an equivalent effect as the yarn forward rule.
- Scenario 3(Tariff reduction + Vietnam develops local textile industry): assumes that in addition to tariff reduction among TPP members for T&A, productivity of Vietnam’s textile industry increases by 10 percent whereas productivity of other sectors remain unchanged.
- Scenario 4 (Tariff reduction + yarn forward + Vietnam develops local textile industry): this scenario combines all policy shocks mentioned in scenario 1-3, i.e. tariff rate for textile and apparel traded between the twelve TPP members are eliminated, Vietnam substantially increases its tariff rate by 100 percent for textile imports from its leading suppliers that are non-TPP members (i.e. China, South Korea and Taiwan) and productivity of Vietnam’s textile industry increases by 10 percent.
2. TPP1 includes Australia, New Zealand, Malaysia, Singapore, Burnie, Chile and Peru; NAFTA1 includes Canada and Mexico; CAFTA1 includes all other CAFTA members except the United States.