US-UK Free Trade Agreement: What Does it Mean for the Apparel Industry?

By Victoria Langro (2020 UD Summer Scholar) and Dr. Sheng Lu (advisor)

Key findings:

US-UK bilateral apparel trade

Over the past decade, the US and UK bilateral trade in apparel enjoyed steady growth, reflecting ever closer business ties of fashion companies in the two countries. While US apparel exports still predominantly go to geographically nearby countries such as Mexico and Canada, the UK has emerged to become the single largest export market for “Made in the USA” apparel outside the Western Hemisphere. Similarly, the United States has always been the UK’s single largest export market outside the EU region.

On the other hand, the apparel products that the US and the UK export to each other target different segments of the market. Industry sources indicate that the clothing exported from the US to the UK primarily focuses on the premium market. Garments “Made in the USA” in the UK are mostly carried by premium brands and retailers such as Free People, J. Crew, and Moda Operandi. However, due to a lack of brand power, clothing “Made in the USA” is typically priced 30%-50% lower than similar products locally made in the UK or elsewhere in Western EU, such as France and Italy.

In comparison, approximately 70% of apparel exported from the UK to the US are luxury goods. With a relatively clear-cut market position, luxury and high-end designer UK brands, such as Burberry, Roland Mouret, and Victoria Beckham, can effectively reach out to their target markets.

How Might the US-UK FTA Affect the Bilateral Apparel Trade

According to the released negotiation objectives, both the US and the UK seem to be willing to consider a substantial cut or even a full elimination of the apparel tariff rate as part of the trade deal. Should this happen, fashion companies across the Atlantic could benefit from a proportional reduction of their sourcing cost, resulting in a considerable expansion of the US-UK bilateral apparel trade flows.

On the other hand, to enjoy the preferential duty benefit under a free trade agreement, rules of origin will always be a requirement. Notably, most US trade agreements currently adopt the so-called “yarn-forward” rules of origin. In contrast, most EU-based trade deals adopt a more liberal “fabric-forward” rule.

While it is hard to predict which specific rules of origin the proposed US-UK trade agreement will adopt, it seems the result will have a more significant impact on the US apparel exports to the UK than the other way around. Restrained by the limited domestic supply and high cost, a substantial proportion of US apparel exports contain imported textile raw materials. This means US apparel producers may have to either switch to use more expensive domestic textile inputs or forgo the FTA duty-saving benefits should restrictive rules of origin are adopted. Meanwhile, the UK apparel exports to the US will be less sensitive to the rules of origin in the proposed FTA, as most of these luxury items are already 100% “Made in the UK” to meet customers’ expectations.

Uncertainties associated with the US-UK FTA

The US-UK trade negotiations have to deal with an evolving Brexit. Given the EU’s economic cloud, understandably, some argue that the UK may have to reach a comprehensive trade agreement with the EU before it can consider a trade deal with the US. Additionally, several US domestic politics and policy factors may further slow down the progress of the US-UK trade negotiation, from the US presidential election to the upcoming expiration of the trade promotion authority (TPA).

Further reading: Langro, V., & Lu, S. (2020). US-UK Free Trade Agreement: What Does it Mean for the Apparel Industry? Just-Style.

Author: Sheng Lu

Professor @ University of Delaware

5 thoughts on “US-UK Free Trade Agreement: What Does it Mean for the Apparel Industry?”

  1. Always the same question about these statistics: are we talking about apparel ship from and made in the UK or US ? Normally not, the statistics normally show „ship from“ independent from the origin. Burberry is mentioned as an example. Their percentage of UK-production is very low. They have a global sourcing portfolio like all other brands of that size – and only their distribution center in the UK. Consequently the link from these statistics to an FTA (from which only originating products can benefit) leads to wrong conclusions and results.

    1. hi Bernd, we used a big data tool—related products must explicitly mentions “made in the UK” or “made in the USA” in there product description.

  2. First of all I still doubt the „Made in“- Information since apparel produced in UK is very rare. Even if UK-made I have even more doubts that they will fulfil the traditional rules of origin for apparel in case of an FTA.

  3. Well, the election is tomorrow so we’ll see how that affects future trade policies, but I wonder how COVID-19 is affecting this trade deal since no one wants goods or even people visiting their country from the U.S. Right now, we are essentially a health liability that no one wants to deal with…

    On another note, I don’t find it that surprising that Made in the U.S. apparel isn’t that popular in the UK. We don’t have a long history of manufacturing high quality or luxury goods especially when you think of places like Milan and Paris. America isn’t necessarily viewed as a fashion hub. I wonder if it is a matter of marketing. New York and Los Angeles for example are considered fashion capitals so what would happen if labels started saying Made in Los Angeles or Made in New York. Could that increase U.S. apparel consumption in the UK? Considering the current state of American politics, it’s not at all surprising that the UK doesn’t highly value clothing made here…

  4. posted on behalf of Lizzy
    As I learnt, part of the economy in the UK is supported by the tourism. Under the affect of COVID-19, will this further decreases the demand of “Made in USA” products for a long-term?

    The Free Trade Agreement between U.S. and UK offers more opportunities for fashion brands and retailers to explore oversea export markets. As mentioned in the article, the clothing exported from the US to the UK primarily focuses on the premium market. “Made in USA” products have more competitive pricing than domestic products made in the UK. However, the products exported from the UK to the US are mainly focusing on the luxury products. This may be caused by the historical background. Those indicate that the markets toward by the brands in UK and the US are different. The The luxury products exported from UK can fill in the blank for the US fashion market. However, the “Made in USA” products are competing with domestic premium fashion brands in the UK. Some of the brands and retailers in the UK may not be able to benefit from the free trade agreement between US and the UK.

    The standards and rules followed by the US and the UK are different. Those may cause disagreement and barriers for companies to cooperate with each other. When the companies export products to another country, they need to adjust their standard and rule to satisfy and meet the requirements of others.

    Just like what we mentioned during the lecture, policy is another factor that can affect the free trade agreement, like Brexit.

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