Month: October 2015

FIBERcast8: Two Years After the Rana Plaza, What Has Changed?


Panelists:

  • Zara Hayes, Director of Clothes to Die For
  • Sarah Hamilton, Producer of Clothes to Die For
  • Mara Burr, Senior vice president from the Albright Stonebridge Group
  • Avedis Seferian, President and CEO of Worldwide Responsible Accredited Production(WRAP)
  • Marsha A. Dickson, Professor of Department of Fashion and Apparel Studies, Irma Ayers Professor of Human Services, Co-Director of Sustainable Apparel Initiative, University of Delaware

Panel discussion questions:

  • What does the Rana Plaza tragedy bring out those aspects of the garment industry that many people don’t know?
  • What was it like going to Bangladesh and talking to survivors of the Rana Plaza? What are the behind the scene stories of filming the documentary Clothes To Die For?
  • What changes are happening in the Bangladesh garment industry after the Rana Plaza? Particularly, what people in Bangladesh are doing to prevent tragedies like the Rana Plaza from happening again?
  • The Alliance for Bangladesh Worker Safety (the Alliance) is a major effort from the U.S. business community in response to the Rana Plaza tragedy. What the Alliance has being doing, what major accomplishments have been achieved and what is the future work plan of the organization?
  • Has corporate social responsibility (CSR) practices in the Bangladesh garment industry critically improved after the Rana Plaza? Compared with other leading apparel manufacturers in the world such as China, Vietnam, India, Cambodia and Indonesia, is Bangladesh still significantly lagging behind in terms of corporate social responsibility practices?
  • How does the academia look at the Rana Plaza? Does the tragedy lead to some new research questions? What is the “academic” recipe for improving the CSR practices in the Bangladesh garment industry?
  • Will enhanced factory inspection increase production cost and make apparel “Made in Bangladesh” lose price competitiveness?
  • To prevent tragedies like the Rana Plaza from happening again, what each individual consumer can do or should do?
  • Sub-contracting is regarded as an indispensable part of today’s global apparel supply chain. But factories undertaking sub-contracting work operate in a “black box”—many of them are off the chart for inspection and audit. Any progress or new thinking on how to solve the sub-contracting issue in the garment industry?

The People’s Republic of Capitalism Part IV

Koppel_China_05_web08

Discussion questions

  • Is China still a “communist country”? Why or why not?
  • What is your view on China’s overall strategy to develop its economy first and leave problems such as income gap, corruption, human right and pollution to be solved at a later time?
  • How different is the business environment in China versus in the United States?
  • Given the problem such as human rights, pollution and corruption in China, should the U.S. government support and encourage U.S. business connections with China? Why or why not?
  • Anything in the documentary that is particuarlly interesting to you?

Please feel free to share your thoughts & comments. 

USTR Michael Froman Comments on the Textile and Apparel Chapter under TPP

Trans-Pacific-Partnership-1

In an event hosted by the Council on Foreign Relations on October 15, 2015, U.S. Trade Reprehensive Michael Froman left a comment on the textile and apparel chapter (T&A) under TPP. He said that:”

“You know, we worked very hard to find solutions that could address the broad range of stakeholder interests here, even when we had conflicting interests here in the U.S. I’ll take textile as an example. You know, we have a domestic textiles industry that’s been investing in more production in the U.S., growing their employment in the U.S. And obviously we have a strong sector of our economy that brings in apparel from other countries, apparel importers and retailers. We worked very closely with both groups of stakeholders to come up with a solution, to come up with an outcome that we think both will be comfortable with and both will be supportive of. And that’s been very important to us to try and address the broad range of U.S. stakeholder interests, whether it’s labor, environment, importers, exporters, to make sure we’re covering everybody’s interests well.”

In the remarks, Forman also ruled out the possibility that TPP would be renegotiated. He said that:

“So this isn’t one of those agreements where, you know, you can, you know, reopen an issue or renegotiate a provision. This is one where, you know, every issue is tied to every other issue and every country’s outcome is balanced against every other country’s outcome. And so that’s the agreement that we’ll be putting forward under TPA for a vote by Congress.”

According to Inside U.S. Trade (October 9, 2015), the final TPP reflects some of the key priorities of the U.S. textile industry by allowing limited exceptions from the prevailing yarn-forward rules of origin and by including tariff phaseouts for “sensitive apparel items” of 10 to 12 years.

Besides the basket of goods that will become duty-free upon entry into force (which include cotton shirts and cotton sweaters), TPP sets up three other categories for tariff reductions on apparel:

TPP apparel

Major exceptions other than the “short supply list” mechanism under TPP include:

  • An “earned import allowance“ program for cotton pants made in Vietnam from third-country fabric by importing a specified amount of U.S. cotton pants fabric. This would allow cotton pants from Vietnam would enter the U.S. duty-free as soon as the agreement is implemented. It is said the ratio for the program is “close” to 1:1. However, for men’s cotton pants, there could be a 15 million square meter equivalents (SMEs) annual cap until year 10, after which it will increase to 20 million. There is no quantitative limit for the other types of cotton pants that can be shipped under the program, such as women’s, girls’ and boys’ pants.
  • A limited list of cut-and-sew items that Vietnam and other TPP countries can ship to the U.S. under the preferential TPP duty rate. These include synthetic baby clothes, travel goods including handbags, and bras.

JCPenney’s Global Sourcing Practices

JCP sourcing

In the class, we discussed how global U.S.-based apparel companies have become. The typical business model in the U.S. apparel industry today is “producing anywhere in the world and selling anywhere in the world”. Here is one more example: JCPenney.

JCPenney has been importing products from across the world since 1959. The company’s sourcing organization has eight offices globally aside from its office in Dallas. The offices are in Shanghai, Hong Kong, Korea, Bangladesh, Guatemala, Pakistan, India, and Taiwan.

In terms of its future growth opportunities, JCPenney identifies the following three:

  • Omnichannel: Implementing the necessary tools, processes and technologies that enable us to serve the customer no matter how they’re shopping with us. By creating a seamless shopping experience in stores and online, customers are likely to shop and spend more at JCPenney.
  • Center Core: Strengthening and revitalizing the highest traffic area in the store to become a leading destination for women’s shoes, handbags, fashion jewelry, intimate apparel and accessories, which are anchored by two very strong businesses: Sephora inside JCPenney and the Fine Jewelry store.
  • Home: Restoring our Home store to its previous sales productivity with a compelling assortment of value-driven products backed by a promotional strategy that builds customer loyalty and increases traffic.

(Source: JCPenney’s 2014 Annual Report)

What role do you see global sourcing could play in helping JCPenney achieve these strategic development goals? How do you understand the statement that sourcing is part of a company’s overall business strategy? Do you think JCPenney will likely to source more “Made in USA” products in the future? Please feel free to share your views.

When Will TPP Take Effect? Let’s look at the History

Untitled

With the conclusion of the Trans-Pacific Partnership (TPP) negation on Oct 5, people now wonder: when will the agreement eventually take effect?

As shown in the chart above, since the 1985 US-Israel Free Trade Agreement, the average time lag between signing and implementing a free trade agreement (FTA) in the United States is 25.5 months (over 2 years). However, since 2006 the average time lag increased to 48.8 months (around 4 years).

So looks like it will take a while…

Potential Impact of TPP on the Textile and Apparel Sector: A Summary of Recent Studies

Screenshot 2015-10-06 08.13.16

(Picture credit: Lu, S. (2015) Does Japan’s accession to the Trans-Pacific Partnership mean an opportunity or a threat to the U.S. textile industry? A quantitative evaluation, Journal of the Textile Institute, 106(5), 536-549.)

With the conclusion of the Trans-Pacific Partnership (TPP) negotiation on Oct 5, 2015, it is time to think about its potential impact. Specifically for the textile and apparel (T&A) industry, the followings studies may offer some hints (to read more, you can click each title):

Trade Statistics

Statistics show the 12 TPP partners altogether imported $65 billion worth of textiles and $154 billion worth of apparel in 2013, which accounted for a world import share of 20 percent and 32 percent, respectively (WTO, 2015). In 2014, around 55 percent of U.S. textile and apparel exports (or $13.3 billion) went to the other 11 TPP partners, and 17 percent of U.S. textile and apparel imports (or $17.8 billion) came from the TPP region (OTEXA, 2015).

Impact of TPP on U.S. Textile and Apparel Manufacturing: A Preliminary Estimation

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.

2.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.

3.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.

“Import Sensitive” Clothing and the TPP X-basket : What might include

1

Based on examining three recent trade programs, including: U.S. International Trade Commission (USITC) monitoring program on T&A imports from China based on the U.S.-China Textile Memorandum of Understanding (MOU) (2008—present), Office of Textiles and Apparel (OTEXA) monitoring program on U.S. T&A imports from Vietnam (2007-2008) and U.S. textile safeguard measures against China (2003-2005), it seems “import sensitive” T&A in the United States mostly refer to cotton and man-made fiber apparel and fabrics. OTEXA product Code 338, 339, 340, 345, 347, 348, 352, 447, 638, 639, 640, 645, 646, 647, 648 and 652 are most likely to be included in the TPP X-basket.

Because Vietnam’s T&A exports to the United States heavily concentrate on these “import sensitive” T&A categories, the X-basket has the potential to substantially affect the actual trade liberalization that can be enjoyed by the T&A sector under TPP:

  • By the most conservative estimation, i.e. the X-basket only covers Category A “import sensitive” apparel products, it will affect about 41.6 percent of U.S. apparel imports from Vietnam (or 38.7 percent of total U.S. T&A imports from Vietnam) if trade pattern remains the same as in 2014.
  • In the worst case, i.e. the X-basket covers all “import sensitive” T&A products identified by this study, it will affect about 70.0 percent of total U.S. T&A imports from Vietnam, if trade patterns remains the same as in 2014.

2015 US Fashion Industry Benchmarking Study

3

The survey results show that TPP matters for the U.S. fashion industry, with as many as 79 percent of respondents saying implementation of the agreement will impact their business practices. Specifically:

  • 72 percent expect to source more textiles and apparel from TPP partners, suggesting the imminent impact of TPP for the U.S. fashion industry could be trade creation.
  • Fewer than 10 percent expect to source less from non-TPP members after the implementation of the agreement, suggesting the trade diversion effect of TPP could be limited.
  • 48 percent expect to strategically adjust or redesign their supply chain based on TPP, implying TPP could be a game changer and has the potential to shape new patterns of textile and apparel trade in the Asia-Pacific region in the long term.
  • However, as few as 7 percent expect to export more products to TPP partners, while only 10 percent expect to invest more in TPP partners (building factories, operating retail stores and e-commerce operations) after implementation of the agreement. It seems the U.S. fashion industry hasn’t focused much on TPP’s potential to promote exports and achieve greater market access.
  • Additionally, 45 percent say the TPP Short-Supply List should be expanded, and comments indicate the proposed “yarn-forward” Rule of Origin is a major hurdle to the industry realizing real benefits from the agreement. In fact, as many as 83 percent support or strongly support abandoning the strict “yarn-forward” Rule of Origin and adopting a more flexible one in future FTAs (Figure 21). This suggests that the benefit of TPP for the U.S. fashion industry and the utilization of the agreement will largely depend on the Rule of Origin. In particular, there is a strong call among U.S. fashion companies to make the textile and apparel Rule of Origin less restrictive and more flexible in TPP.

Why does the US Textile Industry Want Yan-forward Rule of Origin (RoO) in TPP?

The US textile industry insists yarn-forward RoO in TPP is not because they expect a substantial increase of textile exports to Vietnam as the case of NAFTA and CAFTA which help capture the export markets in Mexico and Central America. But rather it is because:

1) Without yarn-forward, situation will get even worse. Particularly, a less restrictive RoO will make Vietnam’s apparel exports which contain textiles made in China, Taiwan or South Korea qualified for duty free access to the US market. Definitely this will be a more imminent and bigger threat to the US textile industry than simply facing competition from Vietnam’s apparel which contains Japanese made textiles. And still many US textile companies don’t treat the Japanese textile industry very seriously, although I think they should. Remember, Japan currently is the fourth largest textile supplier to Vietnam and the NO.1 textile supplier to China.

2) With yarn-forward RoO in place, at least US textile companies can invest in Vietnam (remember, globalization is about movement of capital as well. Many apparel companies in Mexico and Central America actually are invested by US companies). Without yarn-forward RoO however, Vietnam can simply rely on imported textiles as the case mentioned in (1) and there will be no incentive for US textile companies to move factories to Vietnam (meaning, capital holders will lose).

So overall yarn-forward RoO may win a few more years for the US textile industry. But in the long run, it is my view that the US textile production and its exports to the Western Hemisphere countries may still inevitably decline (especially those output to be used for apparel assembly purposes) after the implementation of TPP. In the 21st century, the nature of competition is supply chain v.s. supply chain.

%d bloggers like this: