The event is hosted by the Association of Southeast Asian Nations (ASEAN) Secretariat.
About the webinar: This webinar seeks to understand the opportunities offered by the Regional Comprehensive Economic Partnership (RCEP) Agreement for the garment and textile industry in the region. Considering that the garment and textile industry involves a large number of MSMEs in its supply chain, it would be important to understand how MSMEs can utilise the RCEP Agreement to grow their business and further integrate themselves into the global supply chain, noting that RCEP members are critical apparel-sourcing country for many big global players in the industry.
The first part of the event includes three presentations. 1) textile and apparel trade patterns in the RCEP region and how to read RCEP’s detailed tariff phaseout schedule. 2) RCEP rules of origin for textiles and apparel; and 3) customs procedure
In the second half, three companies from Cambodia, Thailand, and Indonesia shared their perspectives about the potential impact of RCEP on their businesses.
This study aims to understand western fashion brands and retailers’ latest China apparel sourcing strategies against the evolving business environment. We conducted a content analysis of about 25 leading fashion companies’ public corporate filings (i.e., annual or quarterly financial reports and earnings call transcripts) submitted from January 1, 2022 to June 15, 2022.
The results suggest several themes:
First, China remains one of the most frequently used apparel sourcing destinations. For example:
Express says, “The top five countries from which we sourced our merchandise in 2021 were Vietnam, China, Indonesia, Bangladesh and the Philippines, based on total cost of merchandise purchased.”
According to TJX, “a significant amount of merchandise we offer for sale is made in China.”
Children’s Place says, “We source from a diversified network of vendors, purchasing primarily from Vietnam, Cambodia, Indonesia, Ethiopia, Bangladesh, and China.“
Ralph Lauren adds, “In Fiscal 2022, approximately 97% of our products (by dollar value) were produced outside of the US, primarily in Asia, Europe, and Latin America, with approximately 19% of our products sourced from China and another 19% from Vietnam.
However, many fashion companies have significantly cut their apparel sourcing volume from China. More often, China is no longer the No.1 apparel sourcing destination, overtaken by China’s competitors in Asia, such as Vietnam.
According to Lululemon, “During 2021, approximately 40% of our products were manufactured in Vietnam, 17% in Cambodia, 11% in Sri Lanka, 7% in China (PRC), including 2% in Taiwan, and the remainder in other regions… From a sourcing perspective, when looking at finished goods for the upcoming 2022 fall season, Mainland China represents only 4% to 6% of our total unit volume.”
Levi’s says, “The good thing about our supply chain is we’ve got truly a global footprint. We don’t manufacture a whole lot in China anymore. We’ve been slowly divesting manufacturing out of China, if you will, and kind of playing our chips elsewhere on the global map… Less than 1% of what we’re bringing into this country, into the US, less than 1% of it is coming from China.”
Adidas says, “In 2021, we sourced 91% of the total apparel volume from Asia (2020: 93%). Cambodia is the largest sourcing country, representing 21% of the produced volume (2020: 22%), followed by China with 20% (2020: 20%) and Vietnam with 15% (2020: 21%).”
Victoria’s Secret says, “On China, China is a single-digit percentage of our total inflow of merchandise. We’re not particularly dependent on China at all.”
Nike did not mention China as their leading apparel sourcing destination at all, “For fiscal 2021, 30% of NIKE Brand apparel was manufactured in Vietnam, and 24% of NIKE Brand footwear and less than 12% of NIKE Brand apparel was manufactured in Indonesia.”
Meanwhile, fashion companies still heavily use China as a sourcing base for textile raw materials (such as fabrics). For example:
Columbia Sportswear says, “in China where a large portion of the raw materials used in our products is sourced by our contract manufacturers.”
Lululemon says, “During 2021, approximately 48% of our fabrics originated from Taiwan, 19% from China Mainland, 11% from Sri Lanka, and the remainder from other regions.”
Likewise, Puma says, “90% of our recycled polyester comes from Vietnam, China, Taiwan (China) and Korea.”
Second, fashion brands and retailers express serious concerns about China’s COVID policy and government lockdown measures. Companies say such measures have affected their businesses negatively, from supply chain disruptions and shipping delays to lost sales in the China market. For example:
Levi’s says,” The other issue that we’ve been watching real closely is the impact that of COVID shutdowns in China has had on ports there. China, which is only 3% of our total business, was down mid-single-digit as growth in e-commerce was more than offset by declines across other channels due to COVID-related lockdown.”
Guess says, “closure of less than 2% of our directly operated stores as of April 30, 2022, mostly in China… Approximately $4.0 million was driven by the lower profit in China due to the impact of the COVID-19 pandemic”
G-III apparel adds, “The Company’s fiscal year 2023 guidance contemplates the expected impact from the current supply chain conditions, including the current lockdowns in China, expected increased shipping costs and delays in receipt of goods.”
Columbia sportswear says, “At varying times, government efforts to control the spread of COVID-19 impacted our stores in China.”
PVH says, “COVID-related pressures have continued into the first quarter of 2022, although to a much lesser extent than in the prior year period in all regions except China, as strict lockdowns in China have resulted in temporary store closures and have also impacted certain warehouses, which has resulted in the temporary pause of deliveries to the Company’s wholesale customers and from its digital commerce business.”
When discussing their outlook for fiscal year 2023, Under Armour says, “approximately three percentage points of (revenue) headwinds related to our strategic decision to work with our vendors and customers to cancel orders affected by capacity issues, supply chain delays, and emergent COVID-19 impacts in China.”
Third, fashion companies report the negative impacts of US-China trade tensions on their businesses. Also, as the US-China relationship sours, fashion bands and retailers have been actively watching the potential effect of geopolitics. For example,
Express says, “recent geopolitical conditions, including impacts from the ongoing conflict between Russia and Ukraine and increased tensions between China and Taiwan, have all contributed to disruptions and rising costs to global supply chains.”
When assessing the market risk factors, Chico’s FAS says, “our reliance on sourcing from foreign suppliers and significant adverse economic, labor, political or other shifts (including adverse changes in tariffs, taxes or other import regulations, particularly with respect to China, or legislation prohibiting certain imports from China)”
Adidas holds the same view, “In addition, the challenging market environment in China had an adverse impact on the company’s business activities… Additional challenges included the geopolitical situation in China and extended lockdown measures.”
Macy’s adds, “At this time, it is unknown how long US tariffs on Chinese goods will remain in effect or whether additional tariffs will be imposed. Depending upon their duration and implementation, as well as our ability to mitigate their impact, these changes in foreign trade policy and any recently enacted, proposed and future tariffs on products imported by us from China could negatively impact our business, results of operations and liquidity if they seriously disrupt the movement of products through our supply chain or increase their cost.”
Gap Inc. says, “Trade matters may disrupt our supply chain. For example, the current political landscape, including with respect to U.S.-China relations, and recent tariffs and bans imposed by the United States and other countries (such as the Uyghur Forced Labor Prevention Act) has introduced greater uncertainty with respect to future tax and trade regulations.”
QVC says, “The imposition of any new US tariffs or other restrictions on Chinese imports or the taking of other actions against China in the future, and any responses by China, could impair our ability to meet customer demand and could result in lost sales or an increase in our cost of merchandise, which would have a material adverse impact on our business and results of operations.”
Additionally, some fashion companies still see China as a promising sales market with growth potential. Localizing the supply chain (i.e., made in China for China) could be an increasingly popular practice for these companies. For example,
PVH says, “So, I think in general, our production in China is heavily oriented to China for China production. I think for us generally speaking, the biggest impact of the shutdowns that we’ve seen across Shanghai and Beijing has really been focused on the impact to our China market.”
Likewise, Levi’s says, “We’re manufacturing somewhere in the neighborhood of 5% of our global production is in China, and most of it staying in China.“
Hanesbrands says, “we’re committed to opening new stores, and that’s continues to go well, despite, the challenges that are there. Looking specifically at Champion, we continued our expansion in China adding new stores in the quarter through our partners.”
H&M says, “we still see China as an important market for us.”
According to Hugo Boss, “Thanks to overall robust local demand, revenues in China in 2021 grew 24% as compared to 2019.”
VF Corporation adds, “Consumer interest in our core categories is growing and we’re committed to continued expansion in China and across Asia-Pacific. Our confidence in the momentum of such key growth engines as our Outdoor & Action Sports businesses and our brands in China is evidenced by our plans to further increase investments in 2022 behind very targeted marketing and brand-building initiatives in these businesses.”
The latest trade data shows that in the first four months of 2022, US apparel imports increased by 40.6% in value and 25.9% in quantity from a year ago. However, the seemingly robust import expansion is shadowed by the rising market uncertainties.
Uncertainty 1: US economy. As the US economic growth slows down, consumers have turned more cautious about discretionary spending on clothing to prioritize other necessities. Notably, in the first quarter of 2022, clothing accounted for only 3.9% of US consumers’ total expenditure, down from 4.3% in 2019 before the pandemic. Likewise, according to the Conference Board, US consumers’ confidence index (CCI) dropped to 106.4 (1985=100) in May 2022 from 113.8 in January 2022, confirming consumers’ increasing anxiety about their household’s financial outlook.
Removing the seasonal factor, US apparel imports in April 2022 went up 2.8% in quantity and 3.0% in value from March 2022, much lower than 9.3% and 11.9% a month ago (i.e., March 2022 vs. February 2022). The notable slowed import growth reflects the negative impact of inflation on US consumers’ clothing spending. According to the Census, the value of US clothing store sales marginally went up by 0.8% in April 2022 from a month ago, also the lowest so far in 2022.
Uncertainty 2: Worldwide inflation. Data from the Bureau of Economic Analysis shows that the price index of US apparel imports reached 103.1 in May 2022 (May 2020=100), up from 100.3 one year ago (i.e., a 2.8% price increase). At the product level (i.e., 6-digit HS Code, HS Chapters 61-62), over 60% of US apparel imports from leading sources such as China, Vietnam, Bangladesh, and CAFTA-DR experienced a price increase in the first quarter of 2022 compared with a year ago. The price surge of nearly 40% of products exceeded 10 percent. As almost everything, from shipping, textile raw materials, and labor to energy, continues to soar, the rising sourcing costs facing US fashion companies are not likely to ease anytime soon.
The deteriorating inflation also heats up the debate on whether to continue the US Section 301 tariff action against imports from China. Since implementing the punitive tariffs, US fashion companies have to pay around $1 billion in extra import duties every year, resulting in the average applied import tariff rate for dutiable apparel items reaching almost 19%. Although some e-commerce businesses took advantage of the so-called “de minimis” rule (i.e., imports valued at $800 or less by one person on a day are not required to pay tariffs), over 99.8% of dutiable US apparel imports still pay duties.
Uncertainty 3: “Made in China.” US apparel imports from China in April 2022 significantly dropped by 26.7% in quantity and 24.6% in value from March 2022 (seasonally adjusted). China’s market shares also fell to a new record low of 26.3% in quantity and 16.8% in value in April 2022. The zero-COVID policy and new lockdown undoubtedly was a critical factor contributing to the decline. Fashion companies’ concerns about the trajectory of the US-China relations and the upcoming implementation of the new Uyghur Forced Labor Prevention Act (UFLPA) are also relevant factors. For example, only 10.5% of US cotton apparel imports came from China in April 2022, a further decline from about 15% at the beginning of the year. Given the expected challenges of meeting the rebuttable presumption requirements in UFLPA and the high compliance costs, it is not unlikely that US fashion companies may continue to reduce their China exposure.
As US fashion companies source less from China, they primarily move their sourcing orders to China’s competitors in Asia. Measured in value, about 74.8% of US apparel imports came from Asia so far in 2022 (January-April), up from 72.8% a year ago. In comparison, there is no clear sign that more sourcing orders have been permanently moved to the Western Hemisphere. For example, in April 2022, CAFTA-DR members accounted for 9.3% of US apparel imports in quantity (was 10.8% in April 2021) and 10.2% in value (was 11.4% in April 2021).
Uncertainty 4: Shipping delays. Data suggests we are not out of the woods yet for shipping delays and supply chain disruptions. For example, as Table 2 shows, the seasonable pattern of US apparel imports in March 2022 is similar to January before the pandemic (2017-2020). In other words, many US fashion companies still face about 1.5-2 months of shipping delays. Additionally, several of China’s major ports were under strict COVID lockdowns starting in late March, including Shanghai, the world’s largest. Thus, the worsened supply chain disruptions could negatively affect the US apparel import volumes in the coming months.
Congress might assess the U.S. experience with the Phase One process as it debates the merits of the deal and how to leverage it, the effects of the tariffs, and options to advance U.S. economic interests and counter China’s persistent statist economic practices. Specifically:
In light of how difficult it was to secure China’s acknowledgment of its practices of concern and limited commitments in these areas, to what extent may the U.S. reasonably expect talks with Beijing to achieve outcomes that further U.S. policy objectives, when measured against the U.S. resources and efforts required? Does focusing on talks with China take U.S. focus and resources away from efforts to deploy or develop U.S. trade tools and joint approaches with other countries that might be required to protect and advance U.S. economic interests?
Is the executive branch fully using its authorities to address its concerns about China? Are other approaches and measures needed in addition to or separate from tariffs, and if so, what are they? Should the USTR use Section 301 to address other concerns, such as subsidies? What approaches could be pursued, such as prior efforts with Europe and Japan to address non-market economic distortions and subsidies?
Should Congress require the USTR to enforce the Phase One provisions and actively use the Phase One dispute process? Should the USTR challenge China’s industrial policies that appear to violate commitments not to require technology transfer, and its efforts to set global technology licensing and pricing terms, such as through its courts?
How might Congress weigh the tariffs’ effects on U.S. firms and consumers against issues of economic competitiveness? To what extent are tariffs inflationary compared to drivers such as food, energy, housing, labor and supply chain shortages, and monetary policy?
Could tariffs help diversify China-based supply chains and counter China’s subsidies by raising costs vis-à-vis U.S. and third-market products? Could tariffs on goods tied to China’s industrial policies help level the playing field, or would this violate U.S. trade commitments and encourage others to follow suit? USTR proposed but never enacted tariffs on consumer electronics. Could these tariffs counter China’s efforts to deepen technology supply chains in China?
Congress could engage with the Administration to develop and implement guidelines for when and how to grant and extend exclusions. This could potentially promote transparency, consistency, and proper application of standards in reviewing requests, thereby helping to ensure that the USTR carries out Section 301 objectives as prescribed by Congress
What role should Congress play in the negotiation and consideration of an IPEF and other regional trade initiatives? What regional and other multilateral trade commitments would best serve U.S. economic and strategic interests in the region?
What types of enforcement mechanisms would an IPEF include and how would its commitments and enforceability compare to CPTPP and U.S. free trade agreements? What are the tradeoffs of these approaches and should they be pursued in tandem?
How does the expiration of U.S. Trade Promotion Authority (TPA) affect the Administration’s approach to scoping, negotiating, and enacting an IPEF and trade agreements?
AGOA reauthorization. AGOA is authorized through September 2025. US Trade Representative Katherine Tai has urged consideration of improvements to encourage investment, and help small and women-owned businesses and more countries make use of the program. Congress may consider whether and when to reauthorize AGOA and if reforms are needed.
Free trade agreement (FTA) negotiations. An FTA with an AGOA-eligible country would have implications for AGOA and U.S. trade relations in the region. As the Administration, in consultation with Congress, determines whether to pursue trade negotiations in the region, including with Kenya, key considerations include: (1) what flexibilities from typical U.S. FTA commitments are appropriate; (2) potential effects on broader AGOA utilization; and (3) potential effects on regional initiatives like the African Continental Free Trade Area(AfCFTA).
Increased U.S. tariffs. The Trump administration imposed tariff increases (Section 232) on steel and aluminum imports. Congress may examine the tariffs’ effects on AGOA participants.
Third-party agreements. Reciprocal agreements between AGOA beneficiaries and third parties (e.g., EU-South Africa) may disadvantage U.S. exporters. Congress may examine possible U.S. responses.
Congress may consider and advise the Administration on how to prioritize free trade agreement (FTA) talks with Kenya among other U.S. trade policy objectives; whether and in what form to seek renewal of the Trade Promotion Authority (TPA); the scope and extent of potential U.S.-Kenya FTA commitments to pursue; how to ensure an FTA with Kenya and its rules of origin support regional integration efforts and U.S. economic interests; and the potential types of support (e.g., trade capacity building funds) and flexibilities (e.g., phasing in of commitments) to include as appropriate to Kenya’s level of development)
Congress may continue to monitor U.S. trade and economic interests at stake in the UK-EU Trade and Cooperation Agreement (TCA)’s implementation. It may consider whether to press the Administration to continue to prioritize resolving specific trade issues and/or renew broader U.S-UK free trade agreement negotiations. In doing so, Congress may examine the potential benefits and costs of further U.S.-UK trade liberalization (or its absence) for the firms and workers in their districts and states.
Many in Congress and in the U.S. industry support a U.S.-UK FTA. Many Members tie their support to ensuring that Brexit outcomes do not undermine the Northern Ireland peace process. A potential TPA renewal debate could heighten these issues. If FTA talks proceed, Congress may monitor and shape them, and consider implementing legislation for a final agreement. Additionally, Members may examine other ways to engage further on bilateral and global trade issues of shared concern, e.g., sectoral regulatory cooperation or dialogues.
The GSP program expired on December 31, 2020. Congress is considering several bills to reauthorize and introduce new eligibility criteria to the program. Some of the proposed eligibility criteria include provisions on human rights, environmental laws, and good governance. Supporters of the proposed eligibility criteria consider it a modernization of the GSP program to address modern-day issues. Others raise concerns that adding new criteria may make the costs of complying with the program outweigh the benefits and discourage beneficiary developing countries’ participation. They may also undermine the core objectives of the program, which is to promote economic development through trade.
Other possible options for GSP include:
Support reciprocal tariff and market access benefit through free trade agreements (FTAs). Some U.S. policymakers have suggested that developing countries might benefit more through WTO multilateral negotiations, FTAs, or some form of agreement that could also provide reciprocal trade benefits and improved market access for the United States.
Authorize GSP only for Least-Developed Countries (LDCs). Narrowing the scope of eligibility could benefit the LDC that remains in the program by reducing competition in the U.S. market from more advanced developing countries. Assuming that many LDCs would continue to receive the GSP preference under AGOA, other LDCs that might benefit from an LDC-only GSP program are Afghanistan, Bhutan, Burma, Burundi, Cambodia, Congo (Kinshasa), Haiti, Kiribati, Mauritania, Nepal, Samoa, Somalia, South Sudan, the Solomon Islands, Timor-Leste,Tuvalu, and Vanuat.
Expand the application of GSP. For example, allow some import-sensitive products to receive preferential access (such as apparel). Increase the flexibility of rules of origin (ROO) requirements. For example, allow more GSP beneficiaries to cumulate inputs with other beneficiaries to meet the 35% domestic content requirement or lower the domestic content requirement. Eliminate competitive need limitations or raise the thresholds. Reauthorize GSP for longer terms or make the program permanent.
Restrict Application of Preferences. For example: Consider mandatory graduation for “middle income.” Strengthen provision that allows graduation of individual industry sectors within beneficiary countries. Reform eligibility criteria to strengthen provisions on worker rights as well as introduce new criteria, such as good governance, gender equality, and environmental law and regulation.
Congress may examine and weigh in on the TTC’s structure, priorities and scope, and prospects for “success.”
TTC’s anticipated prioritization of more recent or urgent issues (such as joint responses to Russia’s aggression in Ukraine), compared to other bilateral trade and technology issues (such as digital inclusion) that were priorities at the time of the TTC launch. Congress may explore potential trade-offs in priorities and/or opportunities to expand the TTC, such as by creating additional working groups or structures to sustain intensified cooperation on major bilateral trade issues. This may include a review of whether to modify the scope of the TTC’s working groups to address bilateral tariffs and other market access issues. Congress also may explore opportunities through the TTC to intensify U.S.-EU cooperation to remove regulatory barriers.
Congress may examine the TTC’s prospects for success and its ability to produce concrete outcomes, and also seek to establish the metrics by which to gauge the TTC’s effectiveness.
Congress may examine whether to pursue potential market opening opportunities through the TTC for future formal US-EU FTA talks, or pursue such talks separately. On one hand, potential FTA negotiations that develop out of the TTC could benefit from the intensified cooperation and renewed trust that the TTC may foster. On the other hand, such talks may be limited if they do not address bilateral tariffs or other market access issues.
This study offers valuable input and practical policy recommendations from U.S. apparel companies’ perspectives regarding expanding U.S. apparel sourcing from CAFTA-DR members. For the study, we consulted executives at 27 leading U.S.-based apparel companies (note: 85% report having annual revenues exceeding $500 million; over 95% have been sourcing apparel from the CAFTA-DR region for more than ten years).
The results confirm that expanding U.S. apparel sourcing from CAFTA-DR could be the best chance to effectively create more jobs in Central America and solve the root causes of migration there. To achieve this goal, we need to focus on four areas:
First, improve CAFTA-DR’s apparel production capacity and diversify its product offers.
As many as 92 percent of respondents report currently sourcing apparel from CAFTA-DR members.
Highly consistent with the macro trade statistics, the vast majority of respondents (i.e., 60 percent) place less than 10 percent of their company’s total sourcing orders with CAFTA-DR members.
Whereas respondents rate CAFTA-DR members overall competitive in terms of “speed to market,” they express concerns about CAFTA-DR countries’ limited production capacity in making various products. As a result, U.S. companies primarily source basic fashion items like T-shirts and sweaters from the region. These products also face growing price competition with many alternative sourcing destinations.
Improving CAFTA-DR’s production capacity and diversifying product offers would encourage U.S. apparel companies to move more sourcing orders from Asia to the region permanently.
Second, practically solve the bottleneck of limited textile raw material supply within CAFTA-DR and do NOT worsen the problem.
The limited textile raw material supply within CAFTA-DR is a primary contributing factor behind the region’s stagnated apparel export volume and a lack of product diversification.
Notably, respondents say for their apparel imports from CAFTA-DR members, only 42.9% of fabrics, 40.0% of sewing threads, and 23.8% of accessories (such as trims and labels) can be sourced from within the CAFTA-DR area (including the United States). CAFTA-DR’s textile raw material supply problem could worsen as the U.S. textile industry switches to making more technical textiles and less so for apparel-related fabrics and textile accessories.
Maintaining the status quo or simply calling for making the CAFTA-DR apparel supply chain more “vertical” will NOT automatically increase the sourcing volume. Instead, allowing CAFTA-DR garment producers to access needed textile raw materials at a competitive price will be essential to encourage more U.S. apparel sourcing from the region.
Third, encourage more utilization of CAFTA-DR for apparel sourcing.
CAFTA-DR plays a critical role in promoting U.S. apparel sourcing from the region. Nearly 90 percent of respondents say the duty-free benefits provided by CAFTA-DR encourage their apparel sourcing from the region.
The limited textile supply within CAFTA-DR, especially fabrics and textile accessories, often makes it impossible for U.S. companies to source apparel from the region while fully complying with the strict “yarn-forward” rules of origin. As a result, consistent with the official trade statistics, around 31 percent of respondents say they sometimes have to forgo the CAFTA-DR duty-free benefits when sourcing from the region.
Respondents say the exceptions to the “yarn-forward” rules of origin, including “short supply,” “cumulation,” and “cut and assemble” rules, provide necessary flexibilities supporting respondents’ apparel sourcing from CAFTA-DR members. Around one-third of respondents utilize at least one of these three exceptions when sourcing from CAFTA-DR members when the products are short of meeting the strict “yarn-forward” rules of origin. It is misleading to call these exceptions “loopholes.”
Fourth, leverage expanded apparel sourcing to incentivize more investments in the CAFTA-DR region’s production and infrastructure.
U.S. apparel companies are interested in investing in CAFTA-DR to strengthen the region’s sourcing and production capacity. Nearly half of respondents explicitly say they will make investments, including “building factories or expanding sourcing or manufacturing capacities” in the CAFTA-DR region through 2026.
CAFTA-DR will be better positioned to attract long-term investments in its textile and apparel industry with a sound and expanded apparel sourcing volume.
Kekeli Ahiableis a private sector development Advisor with the Tony Blair Institute’s Industrialisation Practice. Working with industry leaders over the past 10 years, she has facilitated business and job creation opportunities in the trade infrastructure, supply chain, and manufacturing sectors across four continents.
In her current technical support role at TBI, she manages the Institute’s regional textile and apparel (T&A) project which aims to support the development of a best in class, sustainable, and circular cotton-to-apparel manufacturing hub across five West African countries.
She holds a Master of Public Policy (MPP) from the University of Oxford, with a focus on trade policy and economic development.
Sheng: Thank you so much for speaking with us, Kekeli. First of all, would you please tell us a little about the Tony Blair Institute for Global Change (TBI) and your involvement with the textile and apparel (T&A) industry in West Africa?
Kekeli: Sure! The Tony Blair Institute for Global Change (TBI) is a not-for-profit organization that offers strategic advice and practical support to political leaders and governments so they can deliver reforms that raise standards and transform lives. Our work includes advising on a range of sectors including industrialization, energy, and technology. We currently work in 17 African countries.
Since 2019, we have been working with several governments in West Africa – specifically Cote d’Ivoire, Ghana, and Togo – to support the development of a best-in-class and sustainable textile and apparel sector that meets the needs of British, European, and North American retailers and consumers.
Our role has centered around supporting our partner governments to:
prepare for doing business; work with them to develop relevant sector strategy & review policy, etc.
design attractive investment incentives
attract interest in the region from relevant fashion trade actors
For instance, we facilitated a week-long investor roadshow to the three countries in 2019, with participation from three of the largest global apparel brands together with their mills and manufacturers (with a combined turnover of over US$ 70 billion). This was co-sponsored under the banner of Amcham Hongkong.
Covid-19 naturally impacted our physical scoping events and so we moved the conversations to virtual roundtable forums. Last December, eight of the UK’s biggest retailers, plus several European retailers, attended a session we organized, led by Rt Hon. Tony Blair. Representatives from the three main governments and other non-governmental groups involved in developing textiles and apparel in the region were also present to engage in discussion with the investors. We have also worked with the American Apparel and Footwear Association (AAFA) and the United States Fashion Industry Association (USFIA) to update US brands and retailers on West Africa’s potential as a nearshore sourcing destination for the North American market.
In summary, TBI is very much to help create top-of-mind awareness about West Africa’s suitability to grow a viable T&A sourcing hub and ultimately facilitate investment into the priority countries.
Sheng: What is the current state of the textile and apparel (T&A) industry in West Africa? What are the key development trends? How about the impact of COVID?
Kekeli: West Africa’s T&A market is rapidly expanding. Although considered nascent when compared to Asia’s more developed markets, its many greenfield opportunities also mean there are fewer legacy challenges to contend with. This offers a ripe opportunity for investors and manufacturers to start from an almost clean slate, which is crucial as the apparel industry makes strides toward a more environmentally sustainable footprint.
The region also has numerous natural and competitive advantages for textiles and apparel manufacturing and has seen increased interest from global actors, brands, manufacturers, infrastructure developers, development finance institutions, etc., over the last few years.
Key development trends
Recognizing shifting patterns in global T&A trade and the immense value in domestic processing of abundantly available raw materials, West African governments are demonstrating an ambition to harness their competitive advantages and expand their T&A sectors.
The governments of Cote d’Ivoire, Ghana, and Togo especially, are walking the talk. Togo’s agile government closed a ground-breaking €200 million investment deal with Arise IIP, in August 2020. The deal included building a 400-hectare eco-industrial park dedicated to textiles and apparel manufacturing. Apart from the park, the Arise group is investing into vertically integrated (fiber to fashion) knit apparel units which will start commercial operations in mid-2023.
Ghana has the most advanced industrial base of the three highlighted countries and hosts DTRT Apparel, which has been running its operation in Ghana for the past 7 years and is currently the largest apparel exporter from West Africa. As a further boost towards vertical integration, in March, they partnered on a co-creation deal with the International Finance Corporation (IFC) to jointly develop setting up a synthetic fabric mill in the region. Meanwhile, Northshore Apparel, another garment actor, recently began constructing a 10,000-worker garment factory in Ghana. To attract more foreign direct investment (FDI), the government is drafting a new T&A sector policy and incentive framework under the UK’s Foreign, Commonwealth & Development Office (FCDO) funded £16 million-pound JET Programme.
In a similar vein, Cote d’Ivoire, Africa’s second-largest cotton seed grower, is carrying out sector reforms and strategy development aimed at facilitating the domestic transformation of at least 50% of their annual cotton output.
Altogether, it is an exciting time to be developing the T&A sector in West Africa. We are excited to contribute towards this vision to create a best in class, vertical and sustainable manufacturing hub in the region, and help to create 500k direct and indirect jobs.
Impact of COVID
Most existing garment manufacturers pivoted to producing PPE for both domestic and international markets. For instance, DTRT is making this a permanent feature of their production, although orders have resumed from their traditional apparel buyers.
We have also witnessed a stronger resolve from governments to support their domestic T&A manufacturing sectors’ growth. The Togo deal, for instance, happened at the height of covid lockdowns. Some countries also offered waivers on value-add tax for their textile and apparel manufacturers and used the time to restructure their labor codes to meet international standards.
Sheng: How to understand West African countries’ competitiveness as an apparel-sourcing base for western fashion companies?
Kekeli: First, there is an immense opportunity to vertically integrate the T&A manufacturing value chain. The region produces around 1.5 million metric tons of cotton annually, which represents about 60% of Africa’s total output and 15% of global exports. The vast majority of this is exported unprocessed. Farming methods feature rain-fed irrigation with harvest done by handpicking, leading to 80% being labeled as preferred, sustainable cotton under Better Cotton Initiative (BCI) and Cotton made in Africa (CmiA) standards.
Secondly, its geographical location means it offers a natural nearshore market to Europe and US markets – literally less than two weeks away from Europe by sea.
Other benefits include an abundant trainable labor force, cost savings to manufacturers under favorable trade instruments like African Growth and Opportunity Act (AGOA), EU’s Economic Partnership Agreement (EPA)/Everything But Arms (EBA) program, etc., as well as consolidated political stability in all three countries. Moreover, there is strong potential for developing a circular textile economy facilitated by green manufacturing and initiatives like our West Africa Regeneration Zone (WARZ) initiative, on which TBI is collaborating with key brands and figures from the industry.
Apart from the main retail regions, there is a growing online retail market in Africa – estimated to increase to $75 billion by 2025 with projected $3.4 trillion aggregate GDP under African Continental Free Trade Area (AfCFTA). As we have seen with recent moves to the continent by Twitter, Google, and others, there is large scope for fashion retailers to use manufacturing in West Africa as a launchpad into this growing continental market, with free movement of goods and services under AfCFTA.
These are attractive propositions for buyers and manufacturers looking to diversify their supply chains and leave a greener carbon footprint in the process.
Sheng: It is of concern that used clothing exports from developed countries to Africa hurt the local textile and apparel industry. What is your assessment?
Kekeli: That is correct. The reality is that there is strong consumer demand for second-hand clothing, due to the cheap prices and readily available clothing for re-use. This is the main reason why the supply chains are routing the bales to other markets, including Africa. Most consumers in Africa rely heavily on the second-hand clothing markets. In this configuration, it is difficult for local players to compete and attract the same consumers’ appetites.
Moreover, this is quite complex, especially in an era of global value chains and [free] trade pacts that enjoin countries to offer some levels of reciprocity in their trade relations. Governments wishing to partake in international trade cannot simply ban imports of goods to protect their local industries. It is, therefore, crucial to explore practical win-win solutions.
For instance, there is a fast-growing global market for fabrics made from recycled materials as brands and manufacturers are taking steps to make their footprint greener. Receiver countries of second clothes could develop other business opportunities from the materials that arrive, with funding from relevant partners. Take Ghana as an example – its Kantamanto market, arguably the world’s largest reuse, repair, and upcycle market, process hundreds of tons of clothing each week. A large percentage of what comes to the market however ends up as landfilled waste due to various reasons.
One remedy is recycling, which ploughs back the many unsold and non-reusable clothes into the textile manufacturing economy. This not only reduces the need for virgin fibers but with the scale envisioned for the West Africa T&A manufacturing project, it increases the fabric feedstock available for domestic Cut, Make, Trim (CMT) manufacturers thus supporting to differentiate the region as a destination for circular apparel sourcing. Managed properly, we envision this would have positive spillover effects on the domestic market. At TBI, we published a piece on tackling Ghana’s textile waste which can be read here for a deeper dive into the subject.
Sheng: How does the textile and apparel industry in West Africa embrace sustainability?
Kekeli: The strongest aspect is from an environmental perspective. With rain-fed irrigation, around 80% of the region’s cotton is labeled as preferred cotton. Vertically integrating the cotton value chain by processing within one geographical area supports a lower carbon footprint of each final product.
West Africa’s geographical proximity to main buyer markets also increases its environmental sustainability credentials as a nearshore market.
Moreover, circularity is part of the culture in this part of the world – people reuse and pass on clothes to other family relations after use, with very little going to waste. We see an opportunity to scale this with the West Africa regeneration (WARZ) initiative. The WARZ initiative aims to support the development of a sustainable and circular textile and apparel supply base in West Africa where post-consumer textile waste is recycled at scale and becomes feedstock for making new apparel. This would be underpinned by disruptive recycling and traceability technology.
In our role as non-vested convenors and facilitators, we have convened a consortium of international and domestic stakeholders to develop a pilot project in Ghana, which is the world’s number two importer of second-hand clothing. Preliminary scoping puts the entire project size at over US$500 million with the potential to generate over 60K jobs along the value chain over the next 5-10 years. The following image depicts the initial concept for the regeneration zone project:
Sheng: How important are trade preference programs like the African Growth and Opportunity Act (AGOA) to the development of the textile and apparel industry in West Africa? Do you think AGOA should be extended after 2025? Should the agreement keep the liberal “third-country fabric” rules of origin? Why or why not?
Kekeli: Trade preference programs are extremely important to facilitate the growth of Africa’s manufacturing and export capacity. As fundamentals like infrastructure tend to be less developed on the continent, preferential regimes like AGOA serve as a key enabler for manufacturing FDI. The T&A industries in countries like Kenya, Lesotho, and Madagascar have grown tremendously in the past few years thanks to AGOA’s tariff-free concessions. West Africa’s T&A industry is now in the beginning stages of development and needs an extension of AGOA to grow.
I believe in the short-medium term, maintaining third-country fabric rules is also crucial (note: Third-country fabric rules allow for apparel made with fabrics sourced from outside the AfCFTA/Sub-Saharan Africa region to qualify for duty-free access). The simple reason is that West Africa’s cotton value chain needs support to develop. While countries have ambitions for vertical integration by processing cotton within the region, these backward linkages will take time to develop.
A phase-out period may be negotiated to further incentivize accelerating the move towards domestic production of fibers that qualify to be used by CMT manufacturers in the [sub]-region.
Sheng: What does the African Continental Free Trade Area (AfCFTA) mean for the textile and apparel industry in West Africa?
Kekeli: The AfCFTA pact aims to form the world’s largest free trade area by connecting almost 1.3bn people across 54 African countries. The goal is to create a single market for goods and services to deepen the economic integration of Africa, with a combined GDP of around $3.4 trillion.
Historically, the most developed world regions have been those that have figured out and developed strong regional value chains. The EU, which is the world’s largest regional trade agreement (RTA) by value has over 64% of trade taking place within the regional block. Similar cases pertain in the US-Mexico-Canada (USMCA) and the Association of Southeast Asian Nations (ASEAN) free trade areas.
Intra-Africa trade on the contrary is currently under 20%, with strong potential for growth. Trade figures show that when African countries trade with each other, it is mostly intermediate or finished goods, which naturally have more value. The goal is to encourage more of this.
Textiles and apparel development in West Africa has strong potential to become a flagship example of what AfCFTA implementation could practically look like. In the next couple of years, I envision fabrics from Cote d’Ivoire, Benin, being exported to Ghana duty-free to feed apparel factories, designers from Cote d’Ivoire offering their expertise across the sub-region with no restrictions on their movement, textiles from Ghana being traded in Nigeria, etc. The possibilities are truly endless.
Textile and apparel manufacturing in the U.S. has significantly shrunk in size over the past decades due to multiple factors ranging from automation, import competition to the shifting U.S. comparative advantages for related products. However, U.S. textile manufacturing is gradually coming back. The output of U.S. textile manufacturing (measured by value added) totaled $16.59 billion in 2021, up 23.8% from 2009. In comparison, U.S. apparel manufacturing dropped to $9.5 billion in 2019, 4.4% lower than ten years ago (Bureau of Economic Analysis, 2021).
Meanwhile, like many other sectors, U.S. textile and apparel production was hit hard by COVID-19 in the first half of 2020 but started to recover in the 3rd quarter. Notably, as of December 2021, U.S. textile production had returned to its pre-COVID level.
On the other hand, as the U.S. economy is turning more mature and sophisticated, the share of U.S. textile and apparel manufacturing in the U.S. Gross Domestic Product (GDP) dropped to only 0.12% in 2020 from 0.57% in 1998 (Bureau of Economic Analysis, 2021).
The U.S. textile and apparel manufacturing is changing in nature. For example, textile products had accounted for over 66% of the total output of the U.S. textile and apparel industry as of 2019, up from only 58% in 1998 (Bureau of Economic Analysis, 2020). Textiles and apparel “Made in the USA” are growing particularly fast in some product categories that are high-tech driven, such as medical textiles, protective clothing, specialty and industrial fabrics, and non-woven. These products are also becoming the new growth engine of U.S. textile exports. Notably, “special fabrics and yarns” had accounted for more than 34% of U.S. textile exports in 2019, up from only 20% in 2010 (Data source: UNComtrade, 2021).
Compatible with the production patterns, employment in the U.S. textile industry (NAICS 313 and 314) and apparel industry (NAICS 315) fell to the bottom in April-May 2020 due to COVID-19 but started to recover steadily since June 2020. From January 2021 to December 2021, the total employment in the two sectors increased by 4.5% and 4.2%, respectively (Seasonally adjusted). However, the employment level remains much lower than the pre-COVID level (benchmark: December 2019).
To be noted, as production turns more automated and thanks to improved productivity (i.e., the value of output per worker), U.S. textile and apparel factories have been hiring fewer workers even before the pandemic. The downward trend in employment is not changing for the U.S. textile and apparel manufacturing sector. Related, how to attract the new generation of workforce to the factory floor remains a crucial challenge facing the future of textile and apparel “Made in the USA.”
It is not rare to find clothing labeled “made in the USA with imported fabric” or “made in the USA with imported material” in the stores. Statistical analysis shows a strong correlation between the value of U.S. apparel output and U.S. yarn and fabric imports from 1998 to 2019.
Like many other developed economies whose textile and apparel industries had reached the stage of post-maturity, the United States today is a net textile exporter and net apparel importer. COVID-19 has affected U.S. textile and apparel trade in several ways:
Trade volume fell and yet fully recovered: Both affected by the shrinkage of import demand and supply chain disruptions, the value of U.S. textile and apparel imports dropped by as much as 19.3% in 2020 from a year ago, particularly apparel items (down 23.5%). Likewise, the value of U.S. textile and apparel exports in 2020 decreased by 15.6%, including an unprecedented 26% decrease in yarn exports. Further, thanks to consumers’ robust demand, the value of US apparel imports enjoyed a remarkable 27.4% growth in 2021 from a year ago and but was still 2.5% short of the level in 2019.
Trade balance shifted: Before the pandemic, U.S. was a net exporter of fabrics. However, as the import demand for non-woven fabrics (for making PPE purposes) surged during the pandemic, U.S. ran a trade deficit of $502 million for fabrics in 2020; the trade deficit expanded to $975 million in 2021. Meanwhile, as retail sales slowed and imports dropped during the pandemic, the U.S. trade deficit in apparel shrank by 19% in 2020 compared with 2019. However, the shrinkage of the trade deficit did not necessarily boost clothing “Made in the USA” in 2020, reminding us that the trade balance often is not an adequate indicator to measure the economic impact of trade.
No change in export market: More than 70% of U.S. textile and apparel export went to the Western Hemisphere in 2021, a pattern that has stayed stable over the past decades (OTEXA, 2022). More can be done to strengthen the Western Hemisphere supply chain and textile and apparel production in the region by leveraging regional trade agreements like CAFTA-DR and USMCA.
Second, I hope FASH455 helps students shape a big-picture vision of the T&A industry in the 21st-century world economy and provides students a fresh new way of looking at the world. Throughout the semester, we’ve examined many critical, timely, and pressing global agendas that are highly relevant to the T&A industry, from the impact of COVID-19 on apparel sourcing and trade, apparel companies’ social responsibility practices, the debate on the textile and apparel provisions in U.S. free trade agreements to the controversy of forced labor in the apparel supply chain. It is critical to keep in mind that we wear more than clothes: We also wear the global economy, international business, public policy, and trade politics that make affordable, fashionable, and safe clothes possible and available for hardworking families. This is also the message from many of our distinguished guest speakers this semester, and I do hope you find these special learning events enlightening and inspiring.
Likewise, I hope FASH455 can put students into thinking about why “fashion” matters. A popular misconception is that “fashion and apparel” are just about “sewing,” “fashion magazine,” “shopping” and “Project Runway.” In fact, as one of the largest and most economically influential sectors in the world today, the fashion industry plays a critical and unique role in creating jobs, promoting economic development, enhancing human development and reducing poverty. As we mentioned in the class, over 120 million people remain directly employed in the T&A industry globally, and a good proportion of them are females living in poor rural areas. For most developing countries, T&A typically accounts for 70%–90% of their total merchandise exports and provides one of the very few opportunities for these countries to participate in globalization. COVID-19, in particular, reveals the fashion industry’s enormous social and economic impacts and many problems that need our continuous efforts to make an improvement.
Last but not least, I hope from taking FASH455, students will take away meaningful questions that can inspire their future studies and even life’s pursuit. For example:
How to make apparel sourcing and trade more sustainable, socially responsible and transparent? What needs to be done further–fashion companies, government, consumers and other stakeholders?
How will automation, AI and digital technologies change the future landscape of apparel sourcing, trade, and job opportunities? What may fashion education look like ten years from now given the shifting nature of the industry?
How to use trade policy as a tool to solve challenging global issues such as forced labor and climate change? Or shall we leave these issues to the market forces?
We don’t have solid answers yet for these questions. However, these issues are waiting for you, the young professional and the new generation of leaders, to write the history, based on your knowledge, wisdom, responsibility, courage, and creativity!
So what do you take away from FASH455? Please feel free to share your thoughts and comments.
Event summary by Mariel Abano (FASH455 student, Spring 2022)
COVID-19 and other external shocks such as the Ukraine-Russia war shifted the fashion supply chain from its conventional low-cost model. In response to the changes, brands and companies focus on flexibility, strengthening their relationships with suppliers, and sustainability.
Regarding the pandemic’s impacts on the apparel supply chain, fashion brands need to be more future-oriented to better prepare for unexpected market shocks that may come up in the fluctuating world. Flexibility within their merchandising teams allowed Neiman Marcus to pivot during the pandemic and market differently within the context of the pandemic. The company explored new ways to connect with its consumers via digital platforms as many physical stores closed. However, fashion companies need to be flexible enough to respond to the increasing demand from its growing e-commerce platform. This is not always easy to happen.
Likewise, Reformation tries its best to predict demand, build supply chain capacity, and manage lead time during COVID-19. Their manufacturing chains within the U.S. and vertical integration helped them respond quickly to supply chain disruptions. As a result, the company pivoted quickly to athleisure even though its brand is typically known for its event-wear dresses.
Meanwhile, when evaluating their supply chain, Amanda Martin explains that Neiman Marcusprioritizes labor, speed, and cost. With this, there is a balance between investment of capital and resources and mitigating costs like surging fuel prices.
The relationship with vendors also matters during the pandemic. For example, Neiman Marcus’s relationships with its vendors built over the years allowed the company to move more quickly from ocean to air shipping during the pandemic. In the discussion, Amanda Martin explained why the relationship between retailers/brands and manufacturers needs to help both sides grow and benefit. Likewise, Reformation also focuses on people and their relationships with their suppliers during the pandemic. Kathleen Talbot emphasizes that brand-supplier relationships are evolving. Fostering two-way conversations is key to moving away from the previous model that prioritized the needs and wants of the brand over the manufacturer.
Sustainability is NOT ignored during the pandemic. For example, fashion companies increasingly use technology and process management to take accountability for supply chains and improve traceability. In terms of environmental impact, there are more applications within sourcing emphasizing recycled and renewable materials. For example, Reformation recently launched a new circularity initiative that focuses on extending a product’s lifetime and then recycling that back into the system. When creating new styles, the company started from sustainable fibers. Further, they hope to shift transportation from air to other means to minimize their carbon footprint.
Trade and sourcing play a critical role in building a more sustainable fashion apparel supply chain. Below are recent FASH455 blog posts addressing climate change, sustainability, recycling, and transparency issues. Feel free to join our online discussion and share your ideas on improving sustainable, ethical, and more socially responsible sourcing.
Japan has one of the world’s largest apparel consumption markets, with retail sales totaling USD$100bn in 2021, only after the United States (USD$476bn) and China (USD$411bn). Meanwhile, like many other developed economies, most apparel consumed in Japan are imported, making the country a considerable sourcing and market access opportunity for fashion companies and sourcing agents around the globe.
Japanese fashion companies primarily source apparel from Asia. Data shows that Japanese fashion brands and retailers consistently imported more than 90% of clothing from the Asia region, much higher than their peers in the US (about 75%), the EU (50%), and the UK (about 60%). This pattern reflects Japan’s deep involvement in the Asia-based textile and apparel supply chain.
Notably, Japan’s apparel imports from Asia often contain textile raw materials “made in Japan.” Data shows that in 2021, about 65% of Japan’s yarn exports, 75% of woven fabric exports, and 90% of knit fabric exports went to the Asia region, particularly China and ASEAN members. Understandably, in Japan’s apparel retail stores, it is not rare to find clothing labeled “made in China” or “Made in Vietnam” but include phrases like “high-quality luster unique to Japanese fabrics” and “with Japanese yarns” in the product description.
The Global value chain analysis further shows that of Japan’s $5.32 billion gross textile exports in 2017, around 34% (or $1.79 billion) contributed to export production in other economies, mainly China ($496 million), Vietnam ($288 million), South Korea ($98 million), and Taiwan ($92 million).
China remains Japan’s top apparel supplier at the country level. However, Japanese fashion brands and retailers have been diversifying their sourcing base. Since the elimination of the quota system in 2005, China, for a long time, was the single largest apparel supplier for Japan, with an unparalleled market share of more than 80% measured by value. However, as “Made in China” became more expensive, among other factors, China’s market share dropped to 56.4% in 2021. Japanese fashion brands and retailers actively seek China’s alternatives like their US and EU counterparts. Notably, Japan’s apparel imports from Vietnam, Bangladesh, and Indonesia have grown particularly fast, even though their production capacity and market shares are still far behind China’s.
As Japanese fashion companies source from more places, the total market shares of the top 5 apparel suppliers, not surprisingly, had dropped from over 94% back in 2010 to only 82.3% in 2021, measured by value. Similarly, the Herfindahl-Hirschman Index (HHI), commonly used to calculate market concentration, dropped from 0.64 in 2011 to 0.35 in 2021 for Japan’s apparel imports. In other words, Japanese fashion companies’ apparel sourcing bases became ever more diverse.
We can observe the same pattern at the company level. For example, the Fast Retailing Group, the largest Japanese apparel retailer which owns Uniqlo, used to source nearly 100% of its products from China. However, as of 2021, the Fast Retailing Group sourced finished apparel from over 550 factories in more than 20 countries. While about half of these factories were in China, the Fast Retailing Group had strategically developed production capacity in Vietnam, Bangladesh, Indonesia, and India. On the other hand, in April 2021, the Fast Retailing Group opened a 3D-knit factory in Shinonome, allowing the company to re-shoring some production back to Japan.
Additionally, Japan is a member of the Regional Comprehensive Economic Partnership (RCEP), the world’s most economically influential free trade agreement. Notably, Japan commits to reducing its apparel import tariffs to zero for RCEP members following a 21-year phaseout schedule. However, as Table 8 shows, Japan’s tariff cut for apparel products is more generous toward ASEAN members and less for China and South Korea due to competition concerns. For example, by 2026, Japan’s average tariff rate will be reduced from 9.1% today to only 1.9% for apparel imports from ASEAN members but will remain above 6% for imports from China. Given the tariff difference, it can be highly expected that ASEAN members such as Vietnam could become more attractive sourcing destinations for Japanese fashion companies.
In April 2022, the Office of the United States Trade Representative (USTR) released its 2023 Fiscal Year Budget report, outlining five goals and objectives for 2023. Notably, textile and apparel is a key sector USTR plans to focus on in the coming year:
Goal 1: Open Foreign Markets and Combat Unfair Trade
Provide policy guidance and support for international negotiations or initiatives affecting the textile and apparel sector to ensure that the interests of U.S. industry and workers are taken into account and, where possible, to provide new or enhanced export opportunities for U.S. industry.
Conduct reviews of commercial availability petitions regarding textile and apparel products and negotiate corresponding FTA rules of origin changes, where appropriate, in a manner that takes into account market conditions while preserving export opportunities for U.S. producers and employment opportunities for U.S. workers.
Engage relevant trade partners to address regulatory issues potentially affecting the U.S. textile and apparel industry’s market access opportunities.
Continue to engage under CAFTA-DR working groups and committees to optimize inclusive economic opportunities; strengthen the agreement and address non-tariff trade impediments; provide capacity building in textile and apparel trade-related regulation and practice on customs, border and market access issues, including agriculture and sanitary and phytosanitary regulation, to avoid barriers to trade.
Continue to engage CAFTA-DR partners and stakeholders to identify and develop means to increase two-way trade in textiles and apparel and strengthen the North American supply chain to enhance formal job creation.
Goal 2: Fully Enforce U.S. Trade Laws, Monitor Compliance with Agreements, and Use All Available Tools to Hold Other Countries Accountable
Closely collaborate with industry and other offices and Departments to monitor trade actions taken by partner countries on textiles and apparel to ensure that such actions are consistent with trade agreement obligations and do not impede U.S. export opportunities.
Research and monitor policy support measures for the textile sector, in particular in China, India, and other large textile producing and exporting countries, to ensure compliance with international agreements.
Continue to work with the U.S. textile and apparel industry to promote exports and other opportunities under our free trade agreements and preference programs, by actively engaging with stakeholders and industry associations and participating, as appropriate, in industry trade shows.
Goal 4: Develop Equitable Trade Policy Through Inclusive Processes
Take the lead in providing policy advice and assistance in support of any Congressional initiatives to reform or re-examine preference programs that have an impact on the textile and apparel sector.
Background: Tariff engineering refers to the practice of designing a product (e.g., clothing) to be classified at a lower tariff rate. For example, “women’s or girls’ blouses, shirts, and shirt-blouses of man-made fibers” imported from China can get taxed as high as 26.9%. However, the same blouse added a pocket or two below the waist would instead be classified as a different product and subject to only a 16.0% tariff rate.
US fashion companies like Columbia Sportswear leveraged tariff engineering to mitigate the negative impact of the US-China tariff war. Nevertheless, using tariff engineering requires substantial financial and human resources, which often were beyond the affordability of small and medium-sized fashion companies.
What do you think about tariff and tariff engineering based on the video and our lectures?
The full study is available here(need Just-Style subscription)
By leveraging production and trade statistics from government databases, we examined the critical trends of US textile manufacturing and supply. Particularly, we try to understand the strengths and weaknesses of the United States as a textile raw material supplier for domestic garment manufacturers and those in the Western Hemisphere. Below are the key findings:
First, fiber, yarn, and thread manufacturing is a long-time strength in the US, whereas fabric production is much smaller in scale. Specifically, fiber, yarn, and thread (NAICS 31311) accounted for nearly 18% of US textile mills’ total output in 2019. In comparison, less than 13% of the production went to woven fabrics (NAICS 31321) and only about 5% for knit fabrics (NAICS 31324).
Second, the US textile industry shifts to make more technical textiles and less apparel-related yarns, fabrics, and other raw materials. Data shows that from 2015 to 2019, the value of US fiber, yarn, and thread manufacturing (NAICS code 31311) dropped by as much as 16.8 percent. Likewise, US broadwoven fabric manufacturing (NAICS code 31321) and knit fabric (NAICS code 31324) decreased by 2.0 percent and 2.7 percent over the same period. Labor cost, material cost, and capital expenditure are critical factors behind the structural shift of US textile manufacturing.
Third, the structural change of US textile manufacturing directly affects the role of the US serving as a textile supplier for domestic apparel producers and those in the Western Hemisphere.
On the one hand, the US remains a critical yarns and threads supplier in the Western Hemisphere. For example, from 2010 to 2019, the value of US fibers, yarn and threads exports (NAICS31311) increased by 25%, much higher than other textile categories. Likewise, in 2021, fibers, yarns, and threads accounted for about 23.3% of US textile exports, higher than 21.0% in 2010. Additionally, nearly 40% of Mexico and CAFTA-DR members’ yarn imports in 2021 (SITC 651) still came from the US, the single largest source. This trend has stayed stable over the past decade.
On the other hand, the US couldn’t sufficiently supply fabrics and other textile accessories for garment producers in the Western Hemisphere, and the problem seems to worsen. Corresponding to the decline in manufacturing, US broadwoven fabric (NAICS 31321) and knit fabric (NAICS 31324) exports decreased substantially.
The US also plays a declining role as a fabric and textile accessories supplier for garment factories in the Western Hemisphere. Garment producers in Mexico and CAFTA-DR members had to source 60%-80% of woven fabrics and 75-82% of knit fabrics from non-US sources in 2021. Likewise, only 40% and 14.6% of Mexico and CAFTA-DR members’ textile accessories, such as labels and trims, came from the US in 2021.
Likewise, the limited US fabric supply affects the raw material sourcing of domestic apparel manufacturers. For example, according to the “Made in the USA” database managed by the Office of Textiles and Apparel (OTEXA), around 36% of US-based apparel mills explicitly say they use “imported material,” primarily fabrics.
The study’s findings echo some previous studies suggesting that textile raw material supply, especially fabrics and textile accessories, could be the single most significant bottleneck preventing more apparel “Made in the USA” and near-sourcing from the Western Hemisphere.
Meanwhile, how to overcome the bottleneck could trigger heated public policy debate. For example, US policymakers could encourage an expansion of domestic fabric and textile accessories manufacturing as one option. However, to make it happen takes time and requires substantial new investments. Also, economic factors may continue to favor technical textiles production over apparel-related fabrics in the US.
(About the authors: Dr Sheng Lu is an associate professor in fashion and apparel studies at the University of Delaware; Anna Matteson is a research assistant in fashion and apparel studies at the University of Delaware).
(The following comments are from students in FASH455 based on the readings)
Yes, US fashion companies should continue to diversify their apparel sourcing bases in 2022 because…
“It is said that you never keep all your eggs in one basket. If something happens in one of the countries that brands are sourcing from, whether it’s economically or politically, their business could be in jeopardy because they have no other sourcing bases anywhere else. As we see now with the Russian and Ukraine War, anything can happen at any time, and huge businesses like Mcdonalds and Starbucks have shut down their stores in Russia. Having connections in the business world is what takes a company further and makes them wealthier.
“The demand for sustainability and transparencyis only rising from consumers and this is causing brands to need to take accountability and action for more ethical sourcing. In order for brands to find factories that will work with the stricter regulations and policies, it may require them to find different and new locations and countries to work with.”
“The pandemic proved to be detrimental to brands only sourcing from a few countries. Pandemic lockdowns and government restrictions were harmful to companies that did not have a diverse sourcing base… A diverse sourcing base will allow companies to have the ability to continue to source new products in case of government lockdowns in other sourcing nations.”
“I think that US fashion companies should continue to diversify their sourcing base in 2022 to benefit other developing countries who are looking to build their economy. The majority of apparel sourcing is done out of China and Vietnam. A diverse apparel sourcing base would be a great way to take the heat off of these countries and benefit others.”
“I think fashion companies should continue to diversify their sourcing bases because it can help them remain competitive while stillkeeping costs down. Keeping costs down can also help prevent giant unpredictable spikes. Lastly, the company will have more flexibility if they are diverse because they won’t be relying on a single source and won’t run into issues if that single source fails.”
“I understand the argument that it is easier for smaller companies to produce solely in China seeing as it can be seen as a one-stop-shop. I also understand why some companies are looking to bring their sourcing closer together and closer to home to mitigate some of the sourcing costs. However, I find this view to be short-sighted and will be detrimental to companies in the long run. As we saw with the pandemic, diversification is helpful in the wake of disaster. If one country is suffering from a natural, economic, or political disaster it would be helpful to have production capabilities in other countries. This way if production is shut down in one country, it is not as detrimental to obtaining products because you can lean on the factories in other countries. I personally would rather wait out the incredibly high costs, which will hopefully go down soon, and keep my sourcing base diversified to be better prepared for unforeseen challenges in the future.”
No, US fashion companies should consolidate their apparel sourcing bases in 2022 because…
“US companies need to work on reducing the number of factories to increase sustainability and labor efforts. It would not be beneficial for the industry to continue to expand their sourcing bases, as that allows for less transparency with consumers. By diversifying their sourcing base they are proving to their consumers they only care about costs and how their clothing is affecting the environment.”
“I do not think US fashion companies should continue to diversify their sourcing base in 2022. These fashion companies should rather focus on nearshoring and local-to-local supply chain. Many retailers are interested in nearshoring as it helps eliminate the need to order months ahead, as the merchandise will have a shorter distance to travel. On top of this, many consumers want transparency and fast delivery. By sourcing more locally, fashion companies will be able to provide shorter shipping times as well as be more aware of sustainability in the supply chain and will then be able to relay the information to the consumers.”
“The very diverse sourcing base is exactly why some fashion companies struggled with supply chain disruptions and shipping delays. As the business environment remains highly uncertain, why not cut ties with some high-risk countries and only source products from the most secure and stable sourcing bases?”
“The present sourcing techniques used by US fashion corporations need to be refined and improved. The number of factories used for sourcing has to be reduced in order to improve sustainability and labor efforts. Increasing the number of sourcing bases does not benefit the industry since it reduces customer trust in the supply chain.”
“From trade data, it seems the top apparel suppliers to the US market barely changed—China, Vietnam, Bangladesh, Cambodia, Indonesia, or India. So, realistically, if a company intends to diversify sourcing, where else can they go?”
“During the pandemic, many US companies focused on strengthening their relationships with key vendors to gain a competitive advantage to achieve more flexibility in sourcing. It worked, then why companies should give up this strategy in 2022? Also, I think it would be wise for fashion companies to give MORE rewards to business partners that helped them survive the difficult times, rather than give sourcing orders to “new vendors”…further, using long-term loyalty and fiscal leverage with strategic business partners as an advantage could prove to be a good option for companies looking to obtain high production capacity, low prices, flexibility, and speed to market from their suppliers.”
Which side do you agree with or disagree with and why? What is your recommendation for US fashion companies regarding their apparel sourcing diversification strategies in 2022? Please join our online discussion and leave your comments.
Like many other sectors, the apparel industry is NOT immune to the Russia-Ukraine military conflict. According to data from Euromonitor, as one of the world’s largest apparel consumption markets, apparel retail sales in Russia exceeded USD 28 billion in 2021.
Notably, many well-known global fashion brands, such as H&M, Zara, Uniqlo, Adidas, Hugo Boss, Nike, and the emerging ultra-fast fashion retailer Shein, are top players with the largest market shares in Russia’s apparel retail market.
Russia was a lucrative and growing market for luxury apparel brands. Industry sources indicate that of apparel items launched to the Russian retail market from Jan 2021 to Feb 2022, more than 19% were in the luxury segment, much higher than 10% in the US and 8.7% in Italy, France, German, the UK, and Spain combined.
That being said, store closure, the EU, and US’s export ban of luxury goods to Russia would modestly impact most luxury apparel brands. Notably, Russia remains a relatively small market for luxury apparel brands. For example, less than 2% of LVMH’s annual sales came from Russia and 3% for the Kering Group. In comparison, Western EU and North America combined typically account for half of a luxury apparel band’s annual sales.
Given the fast deterioration of the situation, a growing number of international fashion brands and retailers have decided to suspend their operations in Russia, including Nike, H&M, Puma, Zara, Levi’s, Hermes, Chanel, and Gucci. Japan’s Fast Retailing Group (Uniqlo) initially chose to stay, but later reversed its decision. According to Yale University, as of March 18, 2022, over 400 global companies have withdrawn from Russia, but some remain.
Further, the World Trade Organization data shows that Russia ranked as the world’s No.10 largest apparel importer in 2020 (by value). According to UNComtrade, China served as Russia’s single largest source of apparel in 2020 (40.3%), followed by EU members (12.3%), Bangladesh (10.5%), Turkey (6.2%), and Vietnam (5.1%). However, Russia accounted for a relatively small proportion of these countries’ apparel exports, implying a modest trade impact.
Nevertheless, a few Eastern EU countries rely more heavily on Russia as their top apparel export market, including Uzbekistan (52%), Moldova (40.4%), and Lithuania (18.8%). Apparel producers in these countries could be vulnerable to trade disruption.
On the other hand, the fashion industry faces growing price pressure because of the Russia-Ukraine war. As the immediate result of the escalated tension, the world oil price jumped substantially. This means textile fibers derived from oil, such as polyester, could face tremendous price pressure. As man-made fiber becomes more expensive, the demand for natural fiber could also increase, eventually extending the price inflation to natural fiber.
Question #2: Primark sources from 28 countries work with around 928 contracted factories. What are the pros and cons of using such a diverse sourcing base?
Question #3: Near-shoring, meaning bringing manufacturing closer to home, is growing in popularity. Does it mean globalization is “in retreat”? What is your view?
Question #4: In the current state of the fashion industry, ethical labor laws are really important, especially to consumers. For example, activists are protesting Pretty Little Thing in London to protest the low wages paid to garment workers at the factories that Pretty Little Thing sources from. With this in mind, do you think that it would be wise for Primark to look for sourcing opportunities outside of Asia? Or do you believe Primark’s Ethical Trade and Environmental Sustainability team is sufficient to ensure ethical and sustainable sourcing?
Question #5: As of May 2021, Primark has the most workers in its Asian factories. Should we still call Primark an EU company? Does a company’s national identity still matter in today’s globalized world?
(Welcome to our online discussion. For students in FASH455, please address at least two questions and mention the question number (#) in your reply)
As US fashion companies diversify their sourcing from Asia, near-sourcing from the Western Hemisphere, particularly members of the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) seems to benefit. According to the latest trade data from the Office of Textiles and Apparel (OTEXA), US apparel companies placed relatively more sourcing orders with suppliers in the Western Hemisphere in 2021. For example, CAFTA-DR members’ market shares increased by 0.31 percentage points in quantity and nearly one percentage point in value compared with a year ago.
However, it is concerning to see the utilization rate of CAFTA-DR for apparel sourcing fall to a new record low of only 73.7% in 2021. This means that as much as 26.3% of US apparel imports from CAFTA-DR members did NOT claim the duty-free benefits.
The lower free trade agreement (FTA) utilization rate became a problem, particularly among CAFTA-DR members with fast export growth to the US market in 2021. For example, whereas US apparel imports from Honduras enjoyed an impressive 45.6% growth in 2021, only 72.6% of these imports claimed the CAFTA-DR duty benefits, down from 82.3% a year ago. We can observe a similar pattern in El Salvador, Nicaragua, and the Dominican Republic.
The phenomenon is far from surprising, however. For years, US fashion companies have expressed concerns about the limited textile supply within CAFTA-DR, especially fabrics and textile accessories. The lack of textile supply plus the restrictive “yarn-forward” rules of origin in the agreement often creates a dilemma for US fashion companies: either source from Asia entirely or source from CAFTA-DR but forgo the duty-saving benefits.
Likewise, because of a lack of sufficient textile supply within the region, US apparel imports from CAFTA-DR members become increasingly concentrated on basic fashion items, typically facing intense competition with many alternative sourcing destinations. For example, measured in value, over 80% of US apparel imports from CAFTA-DR members in 2021 were shirts, trousers, and underwear. However, US companies import the vast majority (70%-88%) from non-CAFTA-DR sources for these product categories.
Understandably, it will be unlikely to substantially expand US apparel sourcing from CAFTA-DR members without solving the textile supply shortage problem facing the region.
Video 1: Asian garment and textile industry seeks a path to a bright and sustainable future
Video 2: Smart tech at E China clothing factory
Video 3: Vietnam’s textile and apparel industry amid the pandemic
Video 4: Fashion has a sustainability problem – here’s how TAL is tackling it
How are textile and apparel “Made in Asia” changing its face? What are the driving forces of these changes?
What are the examples of the “flying geese model” in the videos? Overall, why or why not do you think this pattern is still valid today?
How to understand COVID-19’s impact on Asia’s textile and apparel industry? What strategies have been adopted by garment factories in Asia to survive the pandemic? What challenges do they still face?
What is your evaluation of Asia’s competitiveness as a textile and apparel production and sourcing hub over the next five years? Why? What factors could be relevant?
Anything else you find interesting/intriguing/thought-provoking/debatable in the video? Why?
Note: Everyone is welcome to join our online discussion. For students in FASH455, please address at least two questions. Please mention the question number # (no need to repeat the question) in your comment.
The EU region as a whole remains one of the world’s leading producers of textile and apparel (T&A). The EU’s T&A production value totaled EUR135.6 bn in 2019, down around 6% from a year ago (Note: Statistical Classification of Economic Activities or NACE, sectors C13, and C14). The EU’s T&A output value was divided almost equally between textile manufacturing (EUR69.4bn) and apparel manufacturing (EUR66.2bn).
Regarding textile production, Southern and Western EU, where most developed EU members are located, such as Germany, France, and Italy, accounted for nearly 60% of EU’s textile manufacturing in 2020. Further, of EU countries’ total textile output, the share of non-woven and other technical textile products (NACE sectors C1395 and C1396) has increased from 20.2% in 2011 to 23.2% in 2019, which reflects the ongoing structural change of the sector.
Apparel manufacturing in the EU includes two primary segments: one is the medium-priced products for consumption in the mass market, which are produced primarily by developing countries in Eastern and Southern Europe, such as Poland, Hungary, and Romania, where cheap labor is relatively abundant. The other category is the high-end luxury apparel produced by developed Western EU countries, such as Italy, UK, France, and Germany.
It is also interesting to note that in Western EU countries, labor only accounted for 20.3% of the total apparel production cost in 2019, which was substantially lower than 30.1% back in 2006. This change suggests that apparel manufacturing is becoming capital and technology-intensive in some developed Western EU countries—as companies are actively adopting automation technology in garment production.
Because of their relatively high GDP per capita and the size of the population, Germany, Italy, the UK, France, and Spain accounted for nearly 60% of total apparel retail sales in the EU in 2021. Such a market structure has stayed stable over the past decade. Also, reflecting local consumers’ preference, EU apparel brands overall outperform non-EU brands in the EU retail market.
Intra-region trade is an essential feature of the EU’s textile and apparel industry. Despite the increasing pressure from cost-competitive Asian suppliers, statistics from UNComtrade show that of the EU region’s total textile imports in 2019, as much as 53.8% were in the category of intra-region trade. However, it could result from increased PPE imports from Asia, EU countries’ Intra-region trade% for textiles dropped to 40% in 2020.
Meanwhile, about one-third of EU countries’ apparel imports came from other EU members during 2019-2020. In comparison, close to 98% of apparel consumed in the United States was imported over the same period, of which more than 75% came from Asia (Eurostat, 2022; UNComtrade, 2022).
Regarding EU countries’ textile and apparel trade with non-EU members (i.e., extra-region trade), the United States remained one of the EU’s top export markets and a vital textile supplier (mainly for technical and industrial textiles). Meanwhile, Asian countries, led by China, and Bangladesh, served as the dominant apparel sourcing base outside the EU region for EU fashion brands and retailers. Turkey was another important apparel sourcing base for EU fashion companies. There is no sign that COVID-19 has shifted the trade pattern.
Additionally, Vietnam was EU’s sixth-largest extra-region apparel supplier in 2020 (after China, Bangladesh, Turkey, India, and Cambodia), accounting for 4% in value. The EU-Vietnam Free Trade Agreement which took effect in August 2020, could encourage more EU apparel sourcing from the country in the long run.
According to the European Apparel and Textile Federation (Euratex), the EU textile and apparel industry continued to recover from COVID-19. For example, the value of textile output has already reached its pre-pandemic level by the end of September 2021. However, apparel production is still lagging behind. Euratex further warns that 2022 could be a challenging year for the EU textile and apparel industry given the “high prices in raw materials and energy, supply chain disruptions and additional sanitary restrictions related to the Covid-19 pandemic.”
According to the video, how has the supply chain for apparel and footwear changed over the past decade?
What are the pros and cons of moving from a global supply chain to a regional one for fashion companies?
For fashion companies interested in “near-shoring” and “re-shoring”, what factors should they consider? Why?
Anything else you find interesting/intriguing/thought-provoking/debatable in the video? Why?
Note: Everyone is welcome to join our online discussion. For students in FASH455, please address at least two questions. Please mention the question number # (no need to repeat the question) in your comment.
First, US apparel imports continue to rebound in November 2021 as companies build the inventory for the holiday season. Thanks to US consumers’ strong demand and the upcoming holidays, the value of US apparel imports went up by 15.7% in November 2021 from a month ago (seasonally adjusted) and increased by as much as 39.7% from 2020. However, before the pandemic, the value of US apparel imports always peaked in October and then gradually slipped in November and December. The unusual surge of imports in November 2021 could be the combined effects of price inflation and the late arrival of goods due to the shipping crisis.
Meanwhile, US apparel imports so far in 2021 have been far more volatile than in the past few years because of uncertainties and disruptions caused by COVID-19 and the shipping crisis. For example, the year-over-year (YoY) growth rate ranged from 131% in May to 17.6% in July, causing fashion companies additional inventory planning and supply chain management challenges. Unfortunately, the new omicron variant could worsen the market uncertainty and volatility.
Second, Asian countries remain the dominant sourcing base for US fashion companies as the production capacity elsewhere is limited. Asian countries’ market shares fell from 74.2% in 2020 to 71.3% in July 2021, primarily because of the COVID lockdowns in Vietnam and Bangladesh. US apparel imports came from Asian countries rebounded to 74.8% and 72.5% in October and November 2021, respectively. This result suggests a lack of alternative sourcing destinations outside Asia, especially for large volume items. Meanwhile, the worsening shipping crisis affecting the route from Asia to North America could explain why Asian suppliers’ market shares in November were somewhat lower than a month ago.
Third, US companies continue to treat China as one of their essential sourcing bases in the current business environment. However, companies are NOT reversing their long-term strategy of reducing “China exposure.” China stays the largest supplier for the US market in November 2021, accounting for 41.5% of total US apparel imports in quantity and 25.8% in value. Due to the seasonal factor, China’s market shares typically peak from June to September and then drop from October until March-April.
Both industry sources and the export product diversification index also consistently show that China supplied the most variety of products to the US market with no near competitors. In comparison, US apparel imports from Bangladesh, Mexico, and CAFTA-DR members concentrate more on specific product categories.
Nevertheless, the HHI index and market concentration ratios (CR3 and CR5) calculated based on the latest data suggest that US fashion companies continue to move their apparel sourcing orders from China to other Asian countries overall. For example, only around 15% of US cotton apparel comes from China, compared with about 27% in 2018. My latest studies also indicate that it has become ever more common to see a fashion company places only around 10% of its total sourcing value or volume from China compared to over 30% in the past. Furthermore, with the growing tensions of the US-China relations and the newly enacted Uyghur Forced Labor Prevention Act, fashion companies could take another look at their China sourcing strategy to avoid potential high-impact disruptions.
Fourth, near sourcing from the Western Hemisphere, especially CAFTA-DR members, continue to gain popularity. Specifically, 17.3% of US apparel imports came from the Western Hemisphere year-to-date (YTD) in 2021 (January-November), higher than 16.1% in 2020. Notably, CAFTA-DR members’ market shares increased to 10.6% in 2021 (January to November) from 9.6% in 2020. The value of US apparel imports from CAFTA-DR also enjoyed a 41.7% growth in 2021 (January—November) from a year ago, one of the highest among all sourcing destinations. The imports from El Salvador (up 42.6%), Honduras (up 47.1%), and Guatemala (36.6%) had grown particularly fast so far in 2021. However, the political instability in some Central American countries could make fashion companies feel hesitant to permanently switch their sourcing orders to the region or make long-term investments.
Additionally, the latest trade data suggests a notable increase in the price of US apparel imports. Notably, the unit price of US apparel imports from almost all leading sources went up by more than 10% from January 2021 to November 2021. As worldwide inflation continues, the rising sourcing cost pressure won’t ease anytime soon.
As “COVID sets the agenda” and the trajectory of several critical market and non-market forces hard to predict (for example, global inflation, and geopolitics), fashion companies may still have to deal with a highly volatile and uncertain market environment in 2022. That being said, it is still hopeful that fashion companies’ toughest sourcing challenges in 2021 will start to gradually ease at some point in the new year, including the hiking shipping costs, COVID-related lockdowns, and supply chain disruptions.
In response to the “new normal,” fashion companies may find several sourcing strategies essential:
One is to maintain a relatively diverse apparel sourcing base. The latest trade data suggests that US, EU, and Japan-based fashion companies have been steadily sourcing from a more diverse group of countries since 2018, and such a trend continues during the pandemic. Echoing the pattern, in the latest annual benchmarking study I conducted in collaboration with the United States Fashion Industry Association (USFIA), we find that “China plus Vietnam plus many” remains the most popular sourcing model among respondents. This strategy means China and Vietnam combined now typically account for 20-40 percent of a fashion company’s total sourcing value or volume, a notable down from 40-60 percent in the past few years. Fashion companies diversify their sourcing away from “China plus Vietnam” to avoid placing “all eggs in one basket” and mitigate various sourcing risks. In addition, more than 85 percent of surveyed fashion companies say they will actively explore new sourcing opportunities through 2023, particularly those that could serve as alternatives to sourcing from China.
The second strategy is to strengthen the relationship with key vendors further. As apparel is a buyer-driven industry, fashion brands and retailers fully understand the importance of catering to consumers’ needs. However, the supply chain disruptions caused by COVID-19 remind fashion companies that building a close and partner-based relationship with capable suppliers also matters. For example, working with vendors that have a presence in multiple countries (or known as “super-vendors”) offers fashion companies a critical competitive edge to achieve more flexibility and agility in sourcing. Sourcing from vendors with a vertical manufacturing capability also allows fashion companies to be more resilient toward supply chain disruptions like the shortage of textile raw materials, a significant problem during the pandemic.
Further, we could see fashion companies pay even closer attention to textile raw material sourcing in the year ahead. On the one hand, given the growing concerns about various social and environmental compliance issues like forced labor, fashion brands and retailers are making more significant efforts to better understand their entire supply chain. For example, in addition to tracking who made the clothing or the fabrics (i.e., tier 1 & 2 suppliers), more companies have begun to release information about the sources of their fibers, yarns, threads, and trimmings (i.e., tier 3 & tier 4 suppliers). On the other hand, many fashion brands and retailers intend to diversify their textile material sourcing from Asia, particularly China, against the current business environment. Compared with cutting and sewing garments, much fewer countries can make textiles locally, and it takes time to build textile production capacity. Thus, fashion companies interested in taking more control of their textile raw material sourcing need to take concrete actions such as shifting their sourcing model and making long-term investments intentionally.
Apparel industry challenges and opportunities
One key issue we need to watch closely is the US-China relations. China currently remains the single largest source of apparel globally, with no near alternative. China also plays an increasingly significant role as a textile supplier for many leading apparel exporting countries in Asia. However, as the US-China relations become more concerning and confrontational, we could anticipate new trade restrictions targeting Chinese products and products from any sources that contain components made in China. Notably, with strong bipartisan support, President Biden signed into law the Uyghur Forced Labor Prevention Act on December 23, 2021. The new law is a game-changer! Depending on the detailed implementation guideline to be developed by the Customs and Border Protection (CBP), US fashion companies may find it not operationally viable to source many textiles and apparel products from China. In response, China may retaliate against well-known western fashion brands, disrupting their sales expansion in the growing Chinese consumer market. Further, as China faces many daunting domestic economic and political challenges, a legitimate question for fashion companies to think about is what an unstable China means for their sourcing from the Asia-Pacific region and what the contingency plan will be.
Another critical issue to watch is the regional textile and apparel supply chains and related free trade agreements. While apparel is a global sector, apparel trade remains largely regional-based, i.e., countries import and export products with partners in the same region. Data shows that from 2019 to 2020, around 80% of Asian countries’ textile and apparel imports came from within Asia and about 50% for EU countries. Over the same period, over 87% of Western Hemisphere (WH) countries’ textile and apparel exports went to other WH countries and about 75% for EU countries.
Notably, the reaching and implementation of new free trade agreements will continue to alter and shape new regional textile and apparel supply chains in 2022 and beyond. For example, the world’s largest free trade agreement, the Regional Comprehensive Economic Partnership (RCEP), officially entered into force on January 1, 2022. The tariff reduction and the very liberal rules of origin in the agreement could strengthen Japan, South Korea, and China as the primary textile suppliers for the Asia-based regional supply chain and enlarge the role of ASEAN as the leading apparel producer. RCEP could also accelerate other trade agreements in the Asia-Pacific region, such as the China-South Korea-Japan Free Trade Agreement currently under negotiation.
As one of RCEP’s ripple effects, we can highly anticipate the Biden administration to announce its new Indo-pacific economic framework soon to counterbalance China’s influences in the region. The Biden administration also intends to leverage trade programs such as the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) to boost textile and apparel production, trade, and investment in the Western Hemisphere and address the root causes of migration. These trade initiatives will be highly relevant to fashion companies that could use the opportunity to expand near sourcing, take advantage of import duty-saving benefits and explore new supply chains.
Additionally, fashion companies need to be more vigilant toward political instability in their major sourcing destinations. We have already seen quite a turmoil recently, from Myanmar’s military coup, Ethiopia’s loss of the African Growth and Opportunity Act (AGOA) benefits, concerns about Haiti and Nicaragua’s human rights, and the alleged forced labor in China’s Xinjiang region. Whereas fashion brands and retailers have limited or no impact on changing a country’s broader human rights situation, the reputational risks could be very high. Having a dedicated trade compliance team monitoring the geopolitical situation routinely and ensuring full compliance with various government regulations will become mainstream among fashion companies.
And indeed, sustainability, due diligence, recycling, digitalization, and data analytics will remain buzzwords for the apparel industry in the year ahead.
Discussion questions [Anyone is more than welcome to join our online discussions; For FASH455, please address at least two questions in your comment; please also mention the question number (i.e., #1, or #3; no need to repeat the question) in your comment.]
#1: How to understand apparel is a global sector from the video?
#2: How to understand the economic, social, and political implications of apparel sourcing and trade from the video?
#3: What are the top challenges facing Bangladeshi garment factories during COVID-19? Why or why not do think these challenges will go away soon?
#4: How is the big landscape of apparel sourcing changing because of COVID-19? Any apparel trade or sourcing patterns that COVID-19 didn’t change based on the video?
#5: Anything else you find interesting/intriguing/controversial/thought-provoking from the video? Why?
#1 According to industry estimates, the world’s apparel retail market is expected to enjoy a 7.6-8.6 percent growth 2021-2022. However, the annual growth rate will slow down to 4.0-5.7 percent during 2022-2024 and down further to 3.8-4.6 percent during 2025-2026.
#2 The Asia-Pacific region, North America, and Western Europe will stay the world’s largest apparel consumption markets, accounting for over 80 percent of the retail sales. However, the Middle East and Africa, and Latin America will be important emerging markets to watch.
#3 Given GDP per capita and the size of the population, China and the United States will remain the world’s top two largest apparel retail markets with no near competitors. However, affected by the macro-economic environment, we may only see modest retail sales growth in these two markets through 2026.
Note: The video provides a great overview of Amazon’s supply chain strategies in response to the current shipping crisis and their broad industry implications. You will also learn how international shipping and logistics work today, including processes, technologies, innovations, and remaining challenges.
The latest industry estimates show that Amazon’s apparel and footwear sales in the U.S. grew by roughly 15% in 2020 to more than $41 billion, more than Walmart did. This represents a highly impressive 11%-12% share of all apparel sold in the U.S. and 34%-35% share of all apparel sold online. Amazon achieved early success by offering a wide range of basics, but it has since expanded its fashion business. It now features a growing slate of name brands. The company also launched online luxury fashion shops in the fall of 2019.
What are the unique features of Amazon’s supply chain strategies in response to the current shipping crisis? Do these strategies work well? What is your evaluation?
To what extent can other retailers emulate what Amazon is doing? Should they?
Should conventional fashion companies (such as Macy’s and Gap Inc) see Amazon as a competitor or a potential collaborator? Why?
Is there anything else you find interesting/intriguing/thought-provoking in the video? Why?
Shipping & logistics terms mentioned in the video:
TEU (Twenty-foot Equivalent Unit): TEU is a measure of volume in units of twenty-foot long containers. For example, large container ships are able to transport more than 18,000 TEU (a few can even carry more than 21,000 TEU). One 20-foot container equals one TEU.
FEU (Forty-foot Equivalent Unit): Two TEUs equal one FEU.
FCL (Full Container Load): This means that a shipment occupies the entire space of a container without having to share it with other shippers. In an FCL cargo, the complete goods in the container are owned by one shipper.
LCL (Less than Container Load): LCL describes the transportation of small ocean-freight shipments, which do not require the full capacity of a container.
ULD (Unit Load Device): A container used for baggage, cargo and mail on wide-body and narrow-body aircraft.
Freight Forwarder: An agency that receives freight from a shipper and arranges for transportation with one or more carriers to the final destination. While the forwarder does not always handle the freight itself, it contracts with other carriers to move goods via road, rail, ocean and air.