Month: September 2023

Why the Developing World and All of Us Need Trade and the WTO (Panel Discussion)

CSIS event on Sep 22, 2023

Below are selected comments by US Trade Representative Katharine Tai (Tai) and WTO (World Trade Organization) Director-General Dr. Ngozi Okonjo-Iweala (Ngozi).

What kind of global trade do we want today?

“For decades, the United States has been proud to champion the international rules-based order and the multilateral trading system…But the functioning and fairness of this order are now in question and that is why all of us need to adapt to a more challenging era marked by rapid technological change, increasing extreme climate events, vulnerable supply chains, intensifying geopolitical friction, widening inequality” (Tai)

“The United States is writing a new story on trade. We are pursuing fair competition, addressing the climate crisis, promoting our national security, and ensuring the rules-based system helps all economies, not just the biggest ones.” (Tai)

“how can we harness the effectiveness of our trade tools to be promoting not just efficiency and liberalization, but using those tools to promote what we consider certainly today to be higher goals. And those goals are resilience for our economy and the word economy, sustainability, again, for our economy in the world economy, and inclusivity… we started to see where the concentrations in supply and production started to impact this and spike this economic insecurity on a macro level and also for individuals” (Tai)

Trade and climate change

“trade is necessary to disseminate green technologies and through competition and scale efficiencies to drive down the cost of decarbonization. Another reason is that trade amplifies the impact of environmental policy action. Recent research at the WTO demonstrate that just as countries can reap economic gains by focusing on what they are relatively good at, the world can reap environmental gains if countries focus on what they are relatively green at” (Ngozi)

Is trade diversification the future?

“A fragmented world economy would not just be bad for already-squeezed household budgets. Without trade, it would become harder, even impossible, to meet the big challenges of our time – resilience, socioeconomic inclusion, and climate change… The problems we encountered in the trading system were less about trade per se and more about excessive concentration for some products and supply relationships. The smart response is to deepen, diverse, and deconcentrate production so there are fewer potential bottlenecks” (Ngozi)

“we believe we can solve the problem by diversifying the supply chains not just to ourselves or to friends but to all over the world where the opportunity exists. Business should look at the possibility of not just doing China+1. It means China plus Vietnam or Indonesia. But they can do Bangladesh. They can do Laos. They can do Rwanda. They can do Senegal. They can do Nigeria. I’m just – Morocco” (Ngozi)

Debate the impact of trade

“Technology was generally a big culprit in job losses…U.S. manufacturing output, the volume of products produced here, is about as high as it has ever been. But the sector employs more machines and fewer people than it used to. Nevertheless, import competition was a significant factor and an easier focus, I think, for political anger.” (Ngozi)

“…between 1995 and 2011, while increased goods import from China did eliminate 2 million jobs in the United States, increased exports to China and elsewhere added 6.6 million jobs to the U.S. economy, 4 million of them from higher-services exports…These numbers illustrate the power of trade for job creation. But as we know, those new jobs were not created in the same places. Neither did they go to the same people. That a backlash would result from those left out was perhaps predictable, but it was not inevitable. There are countries that use domestic-policy levers to translate gains from trade into broadly shared growth by providing people security against income loss and support to seize new opportunities.” (Ngozi)

Renew or update the African Growth and Opportunity Act?

“The world is really different from when AGOA was first created…So I think copy-paste is to really lose an important opportunity…we should be practical. Also, we’re on a timeline…The AfCFTA, the African Continental Free Trade Area, that has been concluded, that has that has been brought into being by the countries on the continent. And those continental integration aspirations should absolutely be reflected in our offer to Africa, and something we should try to figure out how to incorporate” (Tai)

“African countries appreciate AGOA. They would like to see an agreement that is, you know, at least a decade out so that they have some predictability. What they’re hearing from investors is that with this up in the air, they can’t make up their minds whether to invest or not because they don’t know what will happen. So I think if we can reform and get it done, and people can have a predictable time horizon for AGOA, it would really help” (Ngozi)

How to reform the World Trade Organization?

“The United States wants a WTO where dispute settlement is fair and effective, and supports a healthy balance of sovereignty, democracy, and economic integration where all members embrace transparency, where we have better rules and tools to tackle non-market policies and practices, and to confront the climate crisis and other pressing issues.” (Tai)

“We must recognize the diversity of developing members. We should have flexibilities in the rules that reflect actual needs. But we cannot have economic and manufacturing powerhouses gaming the system by claiming the same development status and flexibilities intended for less-advantaged members.” (Tai)

“people ask me all the time, oh, are you worried because there are so many [Free trade agreement, FTA]? I’m not. Like I said, 75 percent of trade still goes on WTO terms [MFN tariff rates]. And we can learn from them.” (Ngozi)

“I don’t have enough time and money to waste resources in Geneva on a process that we don’t actually believe in…When President Biden talks about it from the floor of the United Nations General Assembly, if we still have trading partners who want to question our seriousness, then I think the problem is those partners and it’s not us” (Tai) [note: this comment was mentioned by Politico]

–END–

FASH455 Debate: Is the U.S. Textile Manufacturing Sector a Winner or Loser of Globalization and International Trade? (Updated September 2023)

(note: the following comments are from students in FASH455 based on the video “Textile Manufacturing in America, post-globalisation”

Argument: The U.S. textile manufacturing industry has been a winner of globalization

Comment #1: While it is true that many Americans lost their jobs due to the increase in trade, there are more benefits to both importing and exporting rather than the mercantilist view of trade. Increasing trade and globalization, especially during the Clinton administration, was an opportunity to develop strong relationships with other nations. The value of U.S. textile exports since 2000 has risen by 30% for yarn and 15% for fabric, after the establishment of agreements such as NAFTA. Additionally, one of the U.S. apparel manufacturers in the video used machinery for their production from Sweden. Without globalization and trade, they would not be able to use this high-tech equipment. All in all, U.S. textile manufacturing sector benefits from both importing and exporting goods.

Comment #2: Deeper down, the US textile sector seems to be winning in the long run. The squeeze that globalization has placed on them has allowed for innovation within the industry as they fight to stay relevant and compete with overseas goods. Operational slack such as high turnover jobs have been eliminated with automation, and US manufacturers gained a new branding niche that overseas companies do not: a US “personal touch.” Consumers may now be more willing to pay more for a garment just because it says it is made in the USA. USA-made clothing may now be perceived as higher quality and more scarce. The sentiment towards US-made goods and their quality could enact change to reduce overseas reliance, which is a win for US manufacturing in the long run. Additionally, globalization expands the export market for the US textile manufacturing sector.

Comment #3: As discussed in the video, there is a growing trend of reshoring and regionalization in some manufacturing sectors, including textiles. Some U.S. textile manufacturers have seized this opportunity to bring production back to the United States, capitalizing on the advantages of local supply chains, quality control, and speed to market. The video also shows how technology and automation can help streamline production processes and make manufacturing more competitive, even in higher-cost regions like the United States. US textile manufacturers have invested in innovation and automation, making them competitive in producing textiles with advanced features and properties in today’s global economy. It is globalization that is pushing the US textile industry to adopt these new technologies and continue improving its international competitiveness.”

Argument: the U.S. textile manufacturing industry has been a loser of globalization

Comment #4: One of the biggest arguments for globalization is the lower prices & affordability for the consumer. From this perspective, it seemed that the United States was a winner of globalization as a whole. However, when beginning to look at the consequences of moving production overseas, we not only see the textile manufacturing sector being affected, but we also see this impact disperse to the communities in America as well. When brands offshore and outsource production overseas for lower prices & labor, our very own US textile manufacturing industry is losing out on this business. It also forces this industry into a highly competitive environment that does not have equal “playing fields” and does not have insurance/protection in case environmental factors ruin crops. The US has clear labor laws and human rights policies (as well as increasing environmental policies), whereas their cotton-growing competitors, for instance, do not have to follow the same rules. This allows labor exploitation to decrease costs and makes US companies seem unappealing or less competitive.

Comment #5: Over the past few decades, the number of manufacturing jobs in the US textile industry has plummeted after companies began moving production overseas, specifically to countries like China, which have preferential treatment. These foreign facilities can produce things much faster and cheaper because the standards and regulations are completely different than those of the United States. Free trade does not consider these differences in labor and environmental laws, making it much less “free” than it claims. As countries overseas– specifically China and regions like Xinjiang– continue to not play by the rules, the US is forced to keep up by implementing things like the Toyota System…Americans want to be the best in manufacturing and globalization often gets in the way of this. With near-shoring, the US can reclaim high-quality, American-made garments while helping with job security and sustainability.

Comment #6: Overall, I believe that the U.S. textile manufacturing industry is a loser of globalization and international trade, mostly due to the competition from overseas. This competition includes more manufacturers from other countries, but also the competition of pricing since other oversea manufacturers are able to sell their cotton/textile materials at a lower price. Since the U.S. struggles to compete with these lower prices, they are forced to look for another way to have a competitive advantage in the textile manufacturing sector, such as lean manufacturing and technology improvements. At Carolina Cotton Works, Bryan Ashby shares how they have increased efficiency and use high-quality machines (note: imported) for their products. Although this sounds great, this also means that there are fewer workers.  

Comment #7: Globalization creates a trade dependence on imports. It’s important we don’t depend on things for when things happen that we can’t predict like the pandemic where we can’t import anymore. Since there was a lack of local textile manufacturing and sourcing in the United States compared to what was being imported, there was less of a chance for technological advances and improvement in the United States textile manufacturing sector. Post Globalization, however, may be the chance for the United States to bring back the textile manufacturing sector momentum. I think this because the United States has seen the result of heavily relying on other countries for their cheap labor/sources, and this could add extra motivation for companies to want to figure out better alternatives in manufacturing in their own country.

Comment #8: I think currently the US is a loser to globalization only because brands want to get the product for cheap. I think brands think that would create more profit that way. However, I do believe we could get to a future where more things would be created in the US and wouldn’t have to pay that much in tariffs and other external prices. I think it would help boost people to work more. I think people are worried about making things in our country because of the relations we have with other countries.

Discussion questions:

Do you agree or disagree with any particular argument above? Any follow-up comments on the impact of globalization on the US textile manufacturing sector? What should government do with trade given the debates? Please feel free to share any additional thoughts.

Video Discussion: The Global Travels of a T-shirt

For FASH455 students: Please share your reflections on the video. For example, how does the video illustrate the global nature of the textile and apparel industry today? How can we understand the impact of globalization on the many stakeholders involved in the textile and apparel supply chains? Do the textile and apparel trade patterns described in the video support or challenge the trade theories we discussed in class? According to the video, what are the debates and controversies related to apparel sourcing and trade? What is your view and proposed solutions?   

Patterns of US Apparel Imports (Updated September 2023)

First, while US apparel imports gradually recovered, the import demand remained weak overall. For example, US apparel imports in July 2023 increased by 0.9% in value and 2% in quantity from June (seasonally adjusted). However, the trade volume still experienced a decrease of approximately 17-18% compared to the previous year. Meanwhile, the US consumer confidence index fell again in August 2023, suggesting the economic uncertainties are far from over. Notably, so far in 2023 (January to July), US apparel imports decreased by 22.3% in value and 28% in quantity from the previous year, the worst performance since the pandemic.

As a silver lining, the price of US apparel imports has stabilized, although inflation remains an issue for the US economy.  

Secondly, because of the seasonal pattern, Asian countries were able to capture relatively higher market shares since June. For example, measured in value, China, ASEAN, and Bangladesh accounted for over 64% of total US apparel imports in July 2023, a notable increase from 61% in June and 58% in May 2023.

Nevertheless, US fashion companies continue diversifying their sourcing base to mitigate various supply chain risks and rising geopolitical tensions. For example, the HHI Index for US apparel imports dropped to 0.097 in the first seven months of 2023, which is lower than the 0.106 recorded in the same period the previous year (January to July 2022), indicating a greater diversity in the sources of imports.

Third, despite an apparent rebound in exports to the US, China continued to experience a further decline in its market share. For instance, in July 2023, China’s market share was more than 3 percentage points lower in value (27.2% in July 2022 vs. 24.1% in July 2023) and 2.5 percentage points lower in quantity (43.1% in July 2022 vs. 40.6% in July 2023). This marked the worst performance since April 2023. In other words, consistent with recent industry surveys, US fashion companies continue to reduce their China exposure given the adverse business environment.

Fourth, the latest data suggests that US apparel imports from CAFTA-DR members remain stagnant, and some critical problems, such as the underutilization of the agreement, even worsened. For example, about 9.5% of US apparel imports in value and 8.5% in quantity came from CAFTA-DR members in July 2023, lower than 10.2% and 9.0% in the previous year (i.e., July 2022). In absolute terms, US apparel imports from CAFTA-DR in 2023 were about 20% lower than in 2022.

Additionally, CAFTA-DR’s utilization rate (i.e., the value of imports claiming the duty-free benefits under CAFTA-DR divided by the total value of imports from CAFTA-DR) fell from 70.2% in 2022 (Jan to July) to a new low of 69.2% in 2023 (Jan to July). Likewise, the value of imports utilizing CAFTA-DR’s short supply decreased by more than 20%. Thus, how to leverage CAFTA-DR to meaningfully encourage more US apparel imports from the region, particularly in light of US fashion companies’ eagerness to reduce their exposure to China, calls for sustained efforts and probably new strategies.

by Sheng Lu

Primark’s Global Sourcing for Apparel (Updated September 2023)

Primark’s sourcing strategies

According to Primark, it does not own any factories but sources all apparel products from contracted factories. Any contracted factory that manufactures products for Primark must meet internationally recognized standards before receiving the first sourcing order.

As of October 2022, Primark sourced from 883 contracted factories in 26 countries (note: it was a slight decline from 928 contracted factories in 28 countries as of May 2021). Of these factories, 85.5 percent were Asia-based because of the region’s massive production capacity and a balanced offer of various sourcing factors, from cost, speed to market, and flexibility to compliance risks.

Like many other EU-based fashion companies, near-shoring from within the EU was another critical feature of Primark’s sourcing strategies. About 14 percent of Primark’s contracted garment factories were EU-based (including Turkey).

Measured by the number of workers, Primark’s Asian factories were larger than their counterparts in other parts of the world. For example, while Primark’s factories in Pakistan and Bangladesh typically have more than 2,500+ workers, its factories in Western EU countries like the UK, Germany, Italy, and France, on average, only have 64-200 workers. This pattern suggests that Primark mainly uses Asian factories to fulfill volume sourcing orders, and its EU factories mainly produce replenishment or more time-sensitive fashionable items.

Meanwhile, similar to the case of other retailers like PVH, Primark’s contracted garment factories in China were smaller than their peers in the rest of Asia. For instance, while over 90% of Primark’s garment factories in Bangladesh employ more than 1,000 workers, around 43% of their contracted factories in China have fewer than 100 workers. This pattern suggests Primark could use China as an apparel sourcing base primarily for orders requiring greater flexibility and agility and those involving a wider variety of products but in smaller quantities.

Further, reflecting the unique role of the garment industry in creating economic opportunities for women, females account for more than half of the workforce in most garment factories that make apparel for Primark. The percentage was exceptionally high in developing countries like Tunisia (94%), Morocco (91%), Pakistan (69%), Sri Lanka (69%), Myanmar (64%), India (62%), and Vietnam (59%).

According to Primark (as of September 2023), its Ethical Trade and Environmental Sustainability team comprises over 120 specialists based in key sourcing countries. The team conducts around 3,000 supplier audits a year to monitor compliance (i.e., fair pay, safety, and healthy working conditions.) Additionally, Primark says its factories were in line with the company’s environmental code of conduct, and the company “donated any unsold merchandise to the Newlife Foundation in Europe and KIDS/Fashion Delivers in the US.

by Sheng Lu

Discussion questions:

What are the unique aspects of Primark’s apparel sourcing strategies? What role does sourcing play in supporting Primark’s business success? Any questions or suggestions for Primark regarding its sourcing practices?