Sheng Lu

Discussion: The People’s Republic of Capitalism

What does the documentary impress you most or surprise you most?
How do you compare your life with any characters in the documentary? (the Missourian lady, her boss who moved factories to China, the Mexicans who worked on US cotton farms, the Chinese girl working on the production line, the Chinese high school student who comes from a poor rural area and her mother….)
How do you see the dilemma of globalization and international trade from the documentary?
What arguments in the video do you disagree or have different viewpoints?
Do you have any discussion questions to ask your classmates about the documentary?

Please feel free to share your thoughtful comments and I look forward to exciting discussions with you all.

[Discussion for this post has ended, please post no more comment]

Why People Think Differently about International Trade?

This week we looked at a critical activity closely associated with the textile and apparel industry in the 21^st century: International Trade. Among the fundamental questions we examined, whether trade is beneficial or not is a one that all of us care much about but also has raised many debates.

Just this week, the Pew Research Center released its latest survey findings about the public opinion on growing trade and business ties between countries and views about the impact of trade on jobs, wages and prices. The results show that not only Americans, but also people in other countries, including those developing ones, are divided about international trade. Anyhow, the highest level of public skepticism about trade and foreign investment is found in the United States.

Job and wage are among the top concerns about trade among the general public. In Italy, nearly 59 percent survey respondents believed that trade destroy jobs and 52 percent believed trade lower wages. These two figures are 50 and 45 among US respondents.

After our discussion on various trade theories, which school of thought do you agree more: mercantilism or comparative advantage theory? Are these theories proposed hundreds years ago still working today? Do you think deepened globalization will reduce the gap or even widen the gap of people’s divided view on international trade? How do you think international trade affects your daily life and your future career opportunities? Last but not least, is trade beneficial for the US textile and apparel industry in the 21^st century? Please feel free to share your views!

Employment in the US Textile and Apparel Industry (Update: August 2014)

[Please read the updated version: U.S. Continues to Lose Apparel Manufacturing Jobs in 2016]

Employment in the textile sector has remained stable since 2011. From the end of 2013 to July 2014, employment in textile mills (NAICS 313) even slightly increased 0.1 percent, mostly contributed by fiber & yarn mills (NAICS 3131) and fabric mills (NAICS 3132). The data supports the argument that textile manufacturing is gradually returning back to the United States.

Employment in the apparel manufacturing sector (NAICS 315) continued to shrink. By July 2014, total employment in apparel manufacturing had declined by 15.6 percent since 2010 and went down 7.3 percent just from the end of 2013 to July 2014. Still it is getting harder and harder for US consumers to find “made in USA” apparel in the retail stores.

Retailers remains the leading job providers in the U.S. textile and apparel industry. By July 2014, within the total 1.76 million employment in the US textile and apparel industry (NAICS 313, 314, 315 and 448), almost 80 percent came from the retail sector (NAICS 448).

From 2010 to July 2014, employment in the US manufacturing sector as a whole enjoyed a 5.5 percent growth, much higher than the case in the textile and apparel sectors. This trend reminds us that the principal of “comparative advantage” is still working in the 21st century.

Last but not least, geographically, manufacturing jobs in the US textile and apparel industry were gradually moving from the North to the South from 2007 to 2011.

by Sheng Lu

World Textile and Apparel Trade (Update: August 2014)

The following analysis is conducted based on the statistics released by the World Trade Organization on August 5, 2014.

1. Asia continues to dominate the world textile and apparel exports from 2012 to 2013.

2. Despite concerns about its rising labor cost, China continues to gain more market shares in world textile and apparel exports from 2012 to 2013.

3. World market for textiles remains relatively stable from 2000 to 2013; world market for apparel is gradually shifting and diversifying. Although Europe and North America still account for lion’s shares in world apparel imports (due to their higher GDP per capita), Asia is the fast growing market.

4. Intra-region trade remains a distinct pattern in world T&A trade, particularly in Asia, Europe and America. However, the pattern has become substantially weakened in Europe and America from 2000 to 2013, which could be the results of increasing number of FTAs in these regions.

5. US textile and apparel exports increased 3.3% and 4.4% respectively from 2012 to 2013. North America remains the single largest T&A export market for the United States.

by Sheng Lu

Recent Scholarly Books about the Global Textile and Apparel Industry (Update: Aug 2014)

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

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

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

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

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

The future of the US textile industry is those high-end markets, particularly technical & industrial textiles.

Sheng Lu

Additional Reading: The potential impact of TPP on the US textile industry

Textile and Apparel Sector in the TPP Negotiation: An Update

USTR objectives
Officially, USTR has announced the following objectives in the TPP for textile and apparel:

Elimination of tariffs on textile and apparel exports to TPP countries;
A “yarn forward” rule of origin, which requires that textile and apparel products be made using U.S. or other TPP country yarns and fabrics to qualify for the benefits of the agreement, so as to ensure that non-qualifying textiles and apparel from non-TPP countries do not enjoy the benefits reserved for TPP countries;
A carefully crafted “short supply” list, which would allow fabrics, yarns, and fibers that are not commercially available in the United States or other TPP countries to be sourced from non-TPP countries and used in the production of apparel in the TPP region without losing duty preference;
Strict enforcement provisions and customs cooperation commitments that will provide for verification of claims of origin or preferential treatment, and denial of preferential treatment or entry for suspect goods if claims cannot be verified; and
A textile specific safeguard mechanism that will allow the United States and other TPP countries to re-impose tariffs on certain goods if a surge in imports causes or threatens to cause serious damage to domestic producers.

X-basket
According to the National Council of Textile Organizations, with regard to the market access offer to Vietnam, textile and apparel products are categories into different groups based on their “sensitivity” to the domestic industry producing the like products. Among the three major categories, the so called “X-basket” will include textile and apparel items that are deemed most sensitive to the United States. Specific items to be included in the X-basket however are unclear and details of the phrase-out formula are still under discussion. It is said that items in the “X-basket” may be subject to an initial tariff cut ranging from 35 to 50 percent.

Vietnam’s top apparel exports to the United States are basic apparel items like shirts, sweaters and pants. Many of them are the same types of items that were subject to the U.S. safeguard measures against China back in 2005. The U.S. textile industry hopes that the longer phrase-out period for items in the “X-basket” would provide needed time for the industry to adjust. However, for the Vietnam side, if duties on most of its apparel exports to the United States stay in place after the implementation of the TPP, the value of participating in the agreement would substantially be compromised.

Short-supply list
The short-supply list is a roster of fabrics and other textile inputs that are determined to not be readily available in the TPP region in commercial quantities on a timely basis and can therefore be imported from third countries. Items on the short-supply list would be exempt from the general “yarn-forward” rule of origin that the U.S. has proposed in the textiles and apparel talks. USTR is pushing for a short-supply list that would have permanent items as well as temporary items that will be removed after three years. Previous U.S. free trade agreements, including CAFTA, have included a short supply process to add additional products to the list once the agreement enters into force. But the U.S. has rejected the notion that the short-supply list could be modified after the TPP enters into force.

Mexico has consistently sought to limit the scope of the short-supply list, arguing that it actually makes some of the products that the U.S. had originally proposed for inclusion in the short-supply list. Mexico was also pushing for roughly 70 items proposed for the short supply to be included only on a temporary basis, rather than a permanent one.

Other TPP members’ positions
According to the Inside US Trade, Malaysia’s textile and apparel industry is supporting U.S. calls for a “yarn-forward” rule of origin in TPP, but is also pushing for a range of exceptions such as cut-and-sew allowances and a short supply list that would be periodically reviewed. Among the items the Malaysian industry would like to see on the short supply list are shirting fabrics such as woven cotton fabric that weighs not more than 250 grams because this type of fabric is said not made in the U.S. nor Malaysia.

EU Commission: Skills for Jobs in the EU Textile and Clothing Industry to Evolve

In a recent analysis report, the EU Commission foresees that skills needed by jobs in the EU textile and clothing industry will continue to evolve from 2013 to 2025. Specifically, the report argues that:

First, employment in the EU textile and clothing sector is forecast to decline by 13.4% from 2.5 million in 2013 to 2.1million in 2025. Even with shrinking employment levels, because of the need to replace nearly 1 million workers forecast to retire or leave the sector, about 611,000 job openings are anticipated from 2013 to 2025.

Second, employment in the EU textile and clothing sector is no just declined, but also evolved. From 2013 to 2025, demand for “crafted and related occupations” as well as “plant and machine operators and assemblers” will decline 34% and 13% respectively, whereas job openings for “technician and associated professional occupations” are estimated to grow at a modest rate. Among the estimated 611,000 job openings, 93% will require high or medium level qualifications.

Third, in terms of specific skills needed by the EU textile and clothing sector based on where the sector might progress towards 2020:

1) Technical production competencies will remain central to recruitment with increased focus on the demand for versatile staffs that can operate across different workstations.

2) Supply chain management, business, sales and marketing skills (including the skills in international trade) are growing in importance. For many EU textile and clothing companies, “trade has taken place of production”.

3) The EU textile and clothing industry is further expecting skills on technology, innovation and sustainability. Leading technology-led areas include mass customization, 3D body measurement, advanced CAD and eCommerce technologies, internet infrastructures for custom-tailored clothing and business-to-consumer eCommerce among retailers.

UNCTAD: Sharp Rise of Greenfield FDI in the Textile and Apparel Industry Worldwide from 2012 to 2013

According to the 2014 World Investment Report released this week by the United Nation Conference on Trade and Development (UNCTAD), a sharp rise in greenfield foreign direct investment (FDI)* activity was observed in the textile and apparel (T&A) industry worldwide from 2012 to 2013, with the value of announced investment projects totaling more than $24 billion, more than doubled than the level a year earlier.

Although detailed country-level data is not available, the UNCTAD report shows that the developed countries as a whole attracted $13.7 billion inflows of greenfield FDI and invested $18.7 billion greenfield FDI overseas in the T&A industry from 2012 to 2013. The report further says that Cambodia and Myanmar, the two least developed countries in South-East Asia, have recently emerged as attractive locations for investment in textiles, garments and footwear.

FDI is another critical format of market access in addition to international trade.

*Note: Greenfield FDI means a foreign company opens a new physical facility from which to conduct business.

2014 USFIA Benchmarking Study Released

Key Findings

China will remain the dominant supplier, though Vietnam and Asia as a whole are seen as having more growth potential.
Companies aren’t leaving Bangladesh, and are committed to compliance.
Companies continue to look for opportunities closer to home, including the United States, as they diversify their sourcing.
Companies are diversifying their sourcing and expect to continue to do so. However, current FTAs and preference programs remain under-utilized or don’t represent a major component of respondents’ sourcing.
Respondents welcome the passage or renewal of all future trade agreements that intend to remove trade barriers and facilitate international trade in the industry.

About the Benchmarking Study
The 2014 USFIA benchmarking study is conducted based on a survey of 29 executives at 29 leading U.S. fashion companies from March to April 2014. The study incorporates a balanced mix of respondents representing various business types in the U.S. fashion industry, including retailers, importers, wholesalers, and manufacturers. The survey asked respondents about the business outlook, sourcing practices, utilization of Free Trade Agreements and preference programs, and views on trade policy.

The full study can be downloaded from HERE.

Euratex Releases Key Indicators of the EU Textile and Apparel Industry in 2013

In its annual release, the European Apparel and Textile Federation (Euratex) provides a skeletal statistical profile of the EU textile and apparel (T&A) in 2013. Most statistics cited in the report comes from the Eurostat.

Production
In 2013, T&A production in EU overall remains stable. Output of Man-made fiber (MMF) enjoyed a 6.8 percent growth from a year earlier, although production of textile (yarns, fabrics and made-ups) and apparel respectively declined 0.1 percent and 4.2 percent. Accumulatively, from 2010 to 2013, production of MMF, textile and apparel in EU has down 15.2 percent, 8.1 percent and 13.3 percent respectively.

Employment
Employment in the EU T&A industry continues to move downward in size, shrinking from 1.73 million in 2012 to 1.64 million in 2013. The most significant drop happened in the apparel subsector, which suffered a 4 percent job loss from 2012 to 2013. The number of employment in the textile and MMF subsectors goes down 3.7 percent and 1 percent respectively.

Consumption
Affected by the slow economic recovery in the region, EU consumers seem still hesitant in expending more money on T&A products in 2013. Value of T&A consumption in EU (28) stood at €483.9 billion in 2013, only a slight increase of 0.2 percent from 2012.

Trade
The two-way EU T&A trade enjoyed a modest growth from 2012 to 2013. Particularly, despite reported decline in production, value of EU apparel exports in 2013 increased 4 percent, reflecting the growing demand for “made in EU” apparel products in other parts of the world. In terms of import, consistent with the pattern of consumption, EU apparel imports slightly increased 1.7 percent from 2012 to 2013. It should be noted that China is gradually losing market share in the EU apparel import market. From 2012 to 2013, value of China’s apparel exports to the EU declined 4 percent, compared with 10 percent growth of Bangladesh.

The Next Black – A film about the Future of Clothing

‘The Next Black’ is a documentary film that explores the future of clothing. Watch as we meet with some of the most innovative companies on the planet to get their opinion on clothing and its future, including: heroes of sustainability, Patagonia; tech-clothing giants, Studio XO; sportswear icon, adidas; and Biocouture, a consultancy exploring living organisms to grow clothing and accessories.

EU Commission Releases Negotiating Positions for Textile and Apparel in T-TIP

The EU Commission released its negotiating positions for the textile and apparel sector in the Trans-Atlantic Trade and Investment Partnership (T-TIP) on May 14, 2014. The position paper outlines a few areas that the EU Commission says it would include in the T-TIP negotiation with the United States:

Labeling requirements for textile & apparel and footwear products
convergence and/or harmonization of approaches to guarantee product safety and consumer protection
standards approximation

Earlier this year, USTR also released its negotiating objectives for the T-TIP. Specifically for the textile and apparel sector, USTR will “seek to obtain fully reciprocal access to the EU market for U.S. textile and apparel products, supported by effective and efficient customs cooperation and other rules to facilitate U.S.-EU trade in textiles and apparel.” USTR holds the positive view that “eliminating the remaining duties on our exports will create new opportunities for integration into European supply chains and to sell high-quality “made-in-USA” garments to European consumers. Enhanced U.S.-EU customs cooperation will also help ensure that non-qualifying textiles and apparel from third countries are not being imported into the United States under T-TIP.

However, T-TIP negotiation somehow is under the shadow of the Trans-Pacific Partnership (TPP), another free trade agreement currently under negotiation among the United States and other eleven countries in the Asia Pacific region. As reported by the Inside US Trade, the National Council of Textile Organizations (NCTO) holds the view that TTP and T-TIP negotiation should be dealt with “sequentially”. NCTO would like to avoid a situation where the US makes a concession on textiles and apparel to the EU in T-TIP that goes beyond the US offer to Vietnam in TPP, causing Vietnam to demand the same concession in the TPP talks.

One of the most difficult issues on textiles and apparel in T-TIP will be the rule of origin, given that the U.S. and EU have taken vastly different approaches on this issue in their existing preferential trade agreements. The EU rule of origin for apparel essentially consists of two different rules — one that applies generally and one that can be used as an exception. Under the general rule, an apparel item qualifies as originating if it has undergone at least two “substantial processes” in the EU. In general, weaving the yarn into fabric and finishing the fabric are considered substantial operations. Under this scheme, EU manufacturers can use non-originating yarn to make qualifying apparel as long as that yarn is woven into fabric in the EU and also finished there. As a result, this part of the EU rule is sometimes referred to in the United States as the equivalent of a “fabric-forward” rule, since it usually requires all components of the item, starting with the fabric, to be made in the region.

The second part of the EU rule — which functions as an exception — essentially applies a more liberal rule for certain apparel and textile items. These items can qualify for tariff benefits even if only the printing or other downstream operations occur in the EU. Specifically, under this exception, a textile or apparel item that is made from non-originating fabric but for which the printing occurs in the EU can qualify for tariff benefits if the non-originating part of the item is no more than 47.5 percent of the value of the final product. EU manufacturers of printed bed sheets often take advantage of this printing exception (Inside US Trade).

Latest data from OTEXA shows that in 2013, U.S. textile and apparel imports from EU(28) totaled $4 billion, among which 52% were apparel products and 48% were textiles. Top product categories of U.S. textile and apparel imports from EU include non-woven fabrics, men&boys’ suits, dresses, floor coverings, other man-made fiber apparel, special purpose fabrics and women & girls’ coats. In comparison, U.S. textile and apparel exports to EU(28) reached $2.5 billion in 2013, among which only 29% were apparel products and 71% were textiles. Top product categories of U.S. textile and apparel exports to EU include specialty & industrial fabrics, felts & other non-woven fabrics, filament yarns, other made-up textile articles, waste & tow staples, women & girls slacks, shorts and pants as well as spun yarns & thread.

Vietnam Announces Ambitious Plan to Develop its Textile Industry

Reported by the Sourcing Journal, Vietnam’s Ministry of Industry and Trade recently approved its textile and garment sector development plan up to year 2030. Under the new plan, Vietnam sets an ambitious goal to achieve a 55% local content ratio for exported apparel by 2015 and will further increase the ratio to around 70% by 2030. As estimated, the plan will bring about an annual textile production growth rate of 12 to 13 percent between 2013 and 2030 in Vietnam.

Numerous studies have suggested that Vietnam could substantially expand its apparel exports to the world after the implementation of the Trans-Pacific Partnership (TPP), a free trade agreement under negotiation by twelve countries in the Asia-Pacific region, including the United States and Vietnam. However, restrained by its stage of development, about 70—80% of Vietnam’s demand for textile inputs currently is imported (Lopez-Acevedo & Robertson, 2012). Based on 23 interviews, Goto (2007) further finds that apparel suppliers in Vietnam on average produced 67% CMT and 33% FOB based on value and 95% CMT and 5% FOB based on quantity.

But with the help of foreign investment from South Korea, Taiwan and Japan, Vietnam is quickly building up its textile manufacturing capacity (note: this is very different from the case in Mexico). According to the General Statistics Office of Vietnam, the number of textile firms in Vietnam had quickly increased from 408 in 2000 to 1,577 in 2008. Lopez-Acevdeo & Robertson (2012) further suggest that Vietnam’s annual production of cotton fiber has reached 10,000 tons; 50,000 tons of man-made fiber; 260,000 tons of short-staple fiber and yarn; 15,000 tons of knitted fabric; and 680 million meters of woven fabric. Around 38% of Vietnam’s textile output came from foreign invested companies in 2009.

Vietnam’s ambition to expand its domestic textile manufacturing capacity will have huge implications for the US-based textile industry. Although Vietnam seldom uses US-made textile inputs, Vietnam’s apparel exports to the United States directly compete with those exported from Mexico and countries in the Caribbean Basin regions which is the largest export market for U.S. made textiles (Lu & Dickerson, 2012). An expanded local textile manufacturing capacity will not only reduce Vietnam’s demand for imported textile inputs, but also will help improve the price competitiveness of Vietnam’s apparel exports in the global marketplace. If China increasingly moves its textile factories to Vietnam (unless the conflict between Vietnam and China over the South China Sea complicates the situation), Vietnam may further becomes a net textile exporter in the long run.

OECD Service Trade Restrictiveness Index Shows Trade Obstacles in Emerging Economies Remain High

According to the latest Service trade Restrictiveness Index (STRIs) released by the Organization for Economic Cooperation and Development (OECD), service trade barriers in many emerging economies remain much higher than their developed trading partners.

Specifically for the distribution service sector, which covers general wholesale and retail sales of consumer goods, the STRIs suggests the highest trade barriers are in place in Indonesia, China and India whereas Spain, Germany and Czech Republic are among the most open to foreign companies (see the figure above). Because trade in distribution services has mainly taken place through commercial presence, and the STRI results highlight the importance of impediments on foreign ownership.

The STRIs indices take the value from 0 to 1, where 0 is completely open and 1 is completely closed. The indices are calculated based on the following five factors:

Restrictions on foreign ownership and other market entry conditions (30%)
Restrictions on the movement of people (10%)
Other discriminatory measures and international standards (17%)
Barriers to competition and public ownership (22%)
Regulatory transparency and administrative requirements (21%)

Currently, the STRIs include 40 countries (34 OECD members as well as Brazil, China, India, Indonesia, Russia and South Africa) across 18 service sectors.

Is Wal-Mart’s $250 billion “Made in the USA” Program Another “Crafted with Pride Campaign”? (I)

Earlier this year, Wal-Mart Store Inc. announced its commitment to buy $250 billion “Made in the USA” products (including textiles and apparel) over the next 10 years ($50 billion annually) with the hope to “help spark a revitalization of U.S.-based manufacturing” and “create jobs in America”. According to the Hoover’s, Wal-Mart’s cost of goods (i.e. sourcing cost for merchandise sold) totaled $358 billion in fiscal year 2013, suggesting $50 billion will account for around 10-14% of its total sourcing portfolio.

Wal-Mart’s campaign has received positive feedback from the US textile and apparel industry. As reported by the WWD, the U.S. textile industry sees Wal-Mart’s movement an encouraging and “sincere commitment”. Bill Jasper, the outgoing chairman of the National Council of Textile Organizations (NCTO) and CEO of Unifi Inc believed that “manufacturing in general across the United States is in a more favorable position than we’ve seen for some time” and “this is an environment for growth in U.S. textile manufacturing”. As an example, Unifi Inc has spent millions of dollars upgrading its equipment and expanding the company’s US-based cloth mill. However, Bill also realizes the market risks involved in the investment decision, which may not happen without Wal-Mart’s “assurance” through the $250 billion program.

However, to fully take advantage of Wal-Mart’s program is not without obstacle. On top of them, Walmart requires qualified apparel for the program has to be “100 percent made in the United States”. However, the reality is there is more apparel being made in the Western Hemisphere by countries such as Mexico and those in the Caribbean Basin Regions than there is in the United States. As put by Bill, “We’re seeing more of a resurgence of ‘made in the region’ as opposed to Made in USA…If you at look the growth we see in apparel, much of that is in Central America and to a lesser extent Mexico. It does drive growth in yarn and fabrics here in the U.S., which are feed for those garments.”

It is also interesting to compare Wal-Mart’s $250 billion “Made in USA” program with its role in the “Crafted with Pride Campaign” launched in the 1980s (our case study 3). During that campaign, Wal-Mart initially pledged that “our entire management and merchandising staff is committed to Buy American program” and it did cut imports by 20% and purchased $197.3 million of merchandise from domestic suppliers in 1985 (Minchin, 2012). However, for the commercial reasons, later on Wal-Mart more and more relied on imports to support its global expansion and “everyday low price” business model. The “betrayal” of Wal-Mart largely contributed to the eventual failure of the campaign.

What will be the destiny of the 21^st century version of the “Crafted with Pride Campaign”? Is Wal-Mart really committed to “Made in USA” or rather the more price competitive “Made in USA” today attracts the attention of Wal-Mart? If implementation of new free trade agreements such as TPP and TTIP switches the cost balance of domestic sourcing versus global sourcing again, will War-Mart repeat its record in history? Maybe only time will tell…

Sheng Lu

Why Textile and Apparel Majors Need to Know about Trade Policy

This past week, our class moved to the topic of trade policy, which as usual turned out to be one of the most challenging and “least exciting” chapters for our students. A common question in students’ mind is (and probably for some professors in the textile and apparel field as well): as a fashion major, why do I need to care about trade policy?

The answer is straightforward: textile market is shaped by rules—trade policy. Trade policy affects the availability of T&A products in the market in terms of quantity, price and speed. Trade policy also affects T&A companies’ access to the market, both domestic and foreign. Simply look at the clothing and shoes we wear daily: if they are imported, very likely the price we pay includes 10-30% additional tax (tariff). Even the clothing is “made in USA”, we should realize that the survival of US domestic apparel manufacturing could be the result of protection by the exact same trade policy which makes imported competing products 10—30% more expensive than otherwise in the US market.

Yet, trade policy does not happen naturally. Trade policies are deliberately made by policymakers and strongly influenced by industry players. Two things I hope our students can realize: first, the T&A industry cannot afford ignoring trade policy. Think about this case: if the US yarn manufacturers did not actively advocate “yarn-forward” rules of origin to be adopted in NAFTA and CAFTA, what will happen to their fate right now? Vice versa, how will the commercial interests of apparel retailers/importers be affected if they stop voicing themselves and simply leave the trade protectionism forces to influence trade policymakers? As the saying goes: if you are not at the table, you are on the menu. To certain extent, there is no good or bad trade policy, but winners and losers.

Second, understanding trade policy making is about understanding the real world. Trade policymaking is a painful balancing process like trying to “breathe and suck at the same time”.Not only different interests groups may have conflicting views on a specific trade policy, but also different policymakers may have their respective philosophies and priorities. As we mentioned in the class, agencies in the executive branch such as the US Trade Representative Office and the Commerce Department put national interests and international obligations of the United States at its heart whereas the Congress often times gives preferences to regional, sectoral and party interests. A full understanding of T&A trade policy thus requires familiarity with what’s going on in this unique industry sector, knowledge about its key players as well as having a big picture vision in mind. For example, without recognizing the value of becoming a WTO member for China, it will be difficult to appreciate why it was willing to allow US to restrict its apparel exports from 2003 to 2008 on a discriminatory basis (T-shirt book, part III).

Our FASH students shall be encouraged to jump out of the narrowly-defined fashion world, because no industry operates as an island. Instead, the T&A industry is part of the world economy and shaped by the “rest” of the world economy.

Sheng Lu

The Ways and Means Hearing Shows Divided Views on US Trade Policy for Textiles and Apparel

ways&means

US Trade Representative Michael Froman testified on Obama’s 2014 trade policy agenda before the House Ways and Means Committee on April 3. Issues concerning the textile, apparel and the footwear industry were raised three times during the 3-hour hearing. However, it seems the Congress is much divided on how to deal with the T&A sector deemed as “sensitive” in the FTA talks.

(1h:42’)Mike Thompson (D-CA) asked Froman to reevaluate the value of including the “yarn-forward” rules of origin (RoO) in the TPP. Thompson suggested that this rule only affects a small proportion of the US apparel imports nowadays (Note: according to Froman, it was $13 billion annually or 17% of the total US apparel imports) and no longer meets the needs of the US outdoor apparel industry which demands more flexible RoO in supporting of their business model. In response, Forman said that “the USTR’s approach to T&A is always being to ensure to strike a balance that helps the domestic producers continue to produce while allowing importers to import products that serve customers…”

(2h:06’) Earl Blumenauer (D-OR) asked Froman to reduce the trade barriers (tariff and NTB) on footwear imports, arguing that less than 1% of the footwear consumed in the US nowadays is domestically produced. He said that the high tariff rates both retard the ability of the US footwear industry to concentrate on those parts of the value chain that it enjoys competitive advantages and hurt the interests of the US consumers. In response, Forman said that footwear has been a sensitive and key issue to the US and among other TPP members. According to Forman, USTR has been working both with the domestic producers and the importers to develop an approach hoping to achieve the right balance that the domestic producers can continue to compete and also the importers can bring in high quality products (from overseas) for the US consumers. Additionally, Forman referred to the footwear industry an “outstanding area” in the TPP negotiation and said that discussion among all partners will continue.

Last but not least, (2h:30’) Bill Pascrell(D-NJ), also the chair of the house textile caucus, reiterated the importance of the yarn-forward RoO to the US textile industry and asked Froman to ensure that the USTR will “seek the longest possible duty phrase out for the most sensitive textile items” in the TPP negotiation. In his reply to Pascrell, Forman said that his team will work with all stakeholders of the US T&A industry to fully understand what these “sensitive textile items” are and will use tools like the “phrase out period” and “short supply list” to strike a right balance. Pascrell also expressed the concerns of the US textile industry about Vietnam’s wanting of immediate access to the US apparel market after the implementation of the TPP. However, Forman declined to give any concrete promise, just saying the USTR commits to create the “maximum number of jobs in the US” through the trade talks[Note: textile industry jobs? Apparel retail jobs?].

In addition to the T&A, other issues mentioned in the hearing include TPA, GSP, TAA, IPR, SPS & TBT, TTIP, SOE, TiSA, ITA and WTO.

Full hearing can be viewed here

Sheng Lu

National Export Initiative Priority Markets

95% of the consumers live outside the US, implying huge market opportunities for the US textile and apparel industry. Among the leading emerging markets for U.S. companies are China, Vietnam, India, Indonesia, Taiwan and Thailand. From watching the short videos below (prepared by the US Commerce Department), how do you see the importance of these markets? And what are the unique local business environment and culture in your view?

China

Vietnam

Thailand

India

Indonesia

Taiwan

Digital Economy and the Fashion Industry: A Macroview

Part I

Part II

Part III

CAFTA-DR Fixes

In 2011, the US Trade Representative Office announced a number of changes to the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR), or called “CAFTA-DR fixes”. The changes intend to expand export opportunities for the U.S. textile industry under the CAFTA-DR and encourage a vibrant textile and apparel supply chain in the Western Hemisphere. Among the changes of particular significance is the change clarifying that certain monofilament sewing thread is now required to originate or be produced in the United States or the CAFTA-DR region in order for goods to qualify for preferential tariff treatment. [You may think about within the territory of the CAFTA, which country actually has the capacity of making “thread”?] Before the fixes, some CAFTA-DR countries used cheaper threads from Asia which raised grave concerns by the textile manufacturers.

More technical details about the CAFTA-DR fixes can be found here.

PS–The Difference between Yarn and Thread:

A thread is a type of yarn
A thread is used for sewing while a yarn can be used for many purposes such as knitting, weaving, embroidering, and crocheting, and so on
A thread is lighter in weight than a yarn in general
While a thread is used to sew pieces of fabrics together, yarn is used to weave an altogether new fabric

Textile and Apparel–Key Trade Terms (updated October 2015)

The following important trade terms for textile and apparel are supplementary to what we’ve learnt in class:

Cumulation – Yarns and/or fabrics from one FTA partner country to be used in another FTA partner country and qualify for duty-free benefits (In NAFTA and the future TPP agreement, cumulation is among FTA partners only) . Example: in CAFTA certain woven fabrics from Mexico (NAFTA) can be used for the manufacture of apparel in the CAFTA region and qualify for CAFTA benefits, i.e. duty-free access to the U.S. market.

Tariff Preference Level (TPL) – An exception to the rule of origin in FTAs that allows for a certain quantity of textile and apparel goods (usually yarns, fabrics and cut pieces) from a third-country (a country who is not a party to the agreement) to qualify for the FTA benefits. Example: Under the U.S.-Bahrain FTA, Bahrain can use up to 65 million sme of yarns and fabric from any other country and the products made from those yarns and fabrics (up to the 65 million limit) still qualify for duty-free access to the U.S. market.

807: a commonly used term (formerly utilized by US Customs) to describe a category of apparel which has been assembled in an overseas country from fabric pieces cut in the USA from fabric formed in any country. The duty levied on apparel imported under 807 is based only on the value added to the goods overseas rather than the whole customs value of the goods. This provision is now specified under code 9802.00.8065 of the USA’s Harmonized Tariff Schedule (HTS). This outward processing arrangement benefits mainly countries which are close to the USA—particularly those in the Caribbean Basin

807A: a commonly used term (formerly utilized by US Customs) to describe a category of apparel which has been assembled in an overseas country from fabric pieces cut and formed in the USA. The duty levied on apparel imported under 807A, a modification of 807, is based only on the value added to the goods overseas rather than the whole customs value of the goods. Also, goods imported under 807A are provided with almost unlimited access to the US market. This provision is specified under code 9802.00.8015 of the USA’s Harmonized Tariff Schedule (HTS).

Short Supply/Commercial Availability — Fibers, yarns, and fabrics determined not to be available in commercial quantities in a timely manner from within the FTA partner countries may be sourced from outside the countries for use in qualifying textile and apparel products. For example, a fabric that is determined not to be commercially available under the U.S.-Australia FTA may come from a third-party, i.e. China, be cut-and-assembled into a garment in Australia, and imported to the U.S. duty-free.

Square Meter Equivalents (SME) – A notional, common unit of quantity, constant across apparel categories. Conversion factors are used to convert units of quantity into SME. Common measurement used to determine specific quantities of yarns, fabric, and apparel allowed under exceptions to the rule of origin, i.e. TPLs, cumulation.

Third Country – A country outside of the FTA or preferential trade arrangement, but is not a party to the agreement and is not required to adhere to the rules of origin under the agreement but may supply inputs to the FTA countries.

Earned Import Allowance Program (EIAP)– Certain amount of apparel assembled in a FTA partner using U.S. yarn and fabric will allow certain amount of apparel assembled in that country using third party yarn and fabric also to enter the U.S. duty free. For example, under CAFTA-DR, every two square meter equivalent (SME) of apparel assembled in Dominican Republic using U.S. yarn and fabric allows one SME of apparel assembled in Dominican Republic using third party yarn and fabric to enter the U.S. duty free.

Wholly-Assembled – A good is wholly assembled if all of its components, of which there must be at least two, pre-existed in essentially the same condition as found in the finished good and were combined to form the finished good. For example, the sewing together of the sleeves and the body of a shirt would be considered to be wholly assembled.

Knit-to-Shape — A good is considered “knit-to-shape” if 50 percent or more of the exterior surface area of the good is formed by major parts that have been knitted or crocheted directly to the shape used in the good, with no consideration being given to patch pockets, appliqués, or the like. Minor cutting, trimming, or sewing of those major parts shall not affect the determination of whether a good is “knit-to-shape.”

Source: US Trade Representative Office; Office of Textile and Apparel, US Department of Commerce

Berry Amendment may Extend to Athletic Shoes, Benefiting New Balance and Other US-based Shoemakers

According to the Wall Street Journal (WSJ), under the pressure from the domestic shoe industry and lawmakers, the US Department of Defense (DOD) is evaluating the possibility of procuring athletic (running) shoes 100% made in the USA. Under a provision of 1941 legislation known as the “Berry Amendment” , DOD must buy clothing, fabrics, fibers, yarns, other made-up textiles, boots and certain other items that are 100% US-made. The exception can be made, however, if US manufacturers do not have the capacity to meet the procurement needs. This exception has been applied to athletic shoes for boot camp.

US-based shoemakers are excited about this opportunity and trying to convince DOD that they have enough capacity to make shoes in the USA. Shoemakers say the initiative will add jobs both at their plants and at suppliers.

Statistics from the American Apparel and Footwear Association (AAFA) show that in 2012 98.6% of shoes consumed in the US were imported. The WSJ report cited the Boston-based New Balance Athletic Shoe Inc as the only US maker of athletic shoes with large-scale production in the US, although New Balance also imported 75% of its branded shoes from overseas.

On the other hand, the Berry Amendment itself is not without controversy and future challenges. Cited in a recent CRS report, some policymakers believe that the Berry Amendment contradicts free trade policies and produces negative effects such as reducing the business incentive to modernize, causing inefficiency due to a lack of competition and causing higher costs to DOD. Negotiations of new trade agreements also create uncertainties for the future of the Berry Amendment. For example, under the Trans-Atlantic Trade and Investment Partnership (TTIP) negation, the European Union is seeking removal of “buy America” requirements such as the Berry Amendment to get more access to the US government procurement market.

Updates:

The DOD announced on April 25, 2014 that it will require new recruits to use their footwear allowance to purchase athletic footwear that is compliant with the Berry Amendment, which requires the use of domestically sourced apparel and textile products.

Wolverine, which for the past several years has urged the Pentagon to procure athletic footwear manufactured in the US rather than purchasing foreign-made products, believes the move will significantly help support the country’s supply chain for US-made shoes.

The policy change comes after campaigns last year to require the Department of Defense (DOD) to treat athletic footwear like every other uniform item, including boots, and ensure that such items are bought from American manufacturers.

Estimates suggest the DOD has spent around $180m to date on the athletic footwear cash allowance programme. Until now it has issued cash allowances to new recruits for training shoes which are not required to be Berry-compliant.

Additional reading: Berry Amendment and the U.S. Textile Industry

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Exclusive Interview with Nate Herman, Vice President of the American Apparel and Footwear Association

(Photo: Courtesy of the AAFA)

Nate Herman is the Vice President of the American Apparel and Footwear Association (AAFA). Mr. Herman manages AAFA’s regulatory and legislative affairs activities, advocating on behalf of, and providing information to, the industry on international trade and corporate social responsibility issues. Mr. Herman also handles product safety, customs, transportation and other technical (slip resistance, safety toe, etc.) issues as well as labeling matters for AAFA’s footwear members as co-leader of AAFA’s Footwear Team. In addition, Mr. Herman develops all apparel and footwear industry data and statistics as AAFA’s resident economist. Prior to joining AAFA, Mr. Herman worked for six years at the U.S. Department of Commerce’s International Trade Administration (ITA) assisting U.S. firms in entering the global market. Mr. Herman spent the last two years as the Department’s industry analyst for the footwear and travel goods industries.

Interview Part

Sheng Lu: First of all, would you please make a brief introduction of AAFA to our students, including your history, your current members, your key missions and main functions?

Nate Herman: Representing more than 1,000 world famous name brands, the American Apparel & Footwear Association (AAFA) is the trusted public policy and political voice of the apparel and footwear industry, its management and shareholders, its four million U.S. workers, and its contribution of $350 billion in annual U.S. retail sales. AAFA was formed in 2001 following a merger of the American Apparel Manufacturers Association and Footwear Industries of America.

AAFA stands at the forefront as a leader of positive change for the apparel and footwear industry. With integrity and purpose, AAFA delivers a unified voice on key legislative and regulatory issues. AAFA enables a collaborative forum to promote best practices and innovation. AAFA’s comprehensive work ensures the continued success and growth of the apparel and footwear industry, its suppliers, and its customers.

We achieve these goals through aggressive advocacy on Capitol Hill and before the Administration on the issues most important to the U.S. apparel and footwear industry. AAFA also hosts more than 50 conferences, seminars, workshops, and webinars both in the United States and around the world to ensure the industry is able to comply with growing state, federal, and international regulations.

Sheng Lu: AAFA recently released a video clip “What do we wear”, which is very encouraging and eye-opening to our students. What makes AAFA create this video and what specific information you would like to deliver to the audiences?

Nate Herman: A few years ago, we were asked a question during a meeting with a top-ranking senator. “What is the economic impact of your industry?” We didn’t have an answer, which didn’t help policy makers see the important jobs within our industry and our significant contribution to the U.S. economy. That led to the launch of our “We Wear” brand.

You see, when we get dressed each day, we wear more than clothes and shoes. We wear four million U.S. jobs. We wear intellectual property. We wear social responsibility. Our new video is a visual reminder of our important mission and economic impact. We use it to educate policy makers, administration officials, the industry, and consumers about our industry and how vital we are to the overall health of the U.S. economy.

Sheng Lu: One phrase often used by AAFA is your member companies “produce globally and sell globally”. How should our students understand the global nature of today’s apparel industry?

Nate Herman: The apparel and footwear industry is on the frontlines of globalization. In fact, our industry’s supply chain is the most global supply chain in the history of commerce.

Simply put: We are a nation of 330 million importers. In 2012, 97.5 percent of the apparel and 98 percent of the footwear sold in the United States was produced internationally. This model allows families to spend less of their family budgets on clothing and shoes while still getting more bang for their buck.

Sourcing is made possible through strong and positive trade relationships with a variety of countries, including China, Mexico, Vietnam, Indonesia, Bangladesh, Colombia, Honduras, the Dominican Republic, Nicaragua, and more. Companies even source product from the United States. Sourcing decisions are often made through serious processes that evaluate a country’s trade programs, environmental record, social responsibility standards, intellectual property protections, material and labor costs, shipping time, and reliability of sourcing partners.

At the same time, don’t ignore the rest of the world. The United States only represents just five percent of the world’s population. So when a company sources from China or Vietnam, they are sending products all over the world through a complex supply chain. One of our goals at AAFA is to help ensure the entire world has access to world famous U.S. name brands.

Sheng Lu: The Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP) are two buzzwords nowadays. From the perspective of AAFA, why should the US apparel industry care about these two agreements?

Nate Herman: Trade agreements like the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP) offer U.S. name brands direct market access to new sourcing and retail markets. For example, the United States and the European Union, under TTIP, accounts for more than 40 percent of global clothes and shoes retail sales.

Trade agreements also provide opportunities to harmonize regulations to make it easier to do business in the global market. For instance, the United States maintains strict product safety standards. Through trade agreements, we can make regulations consistent to ensure if a shirt is safe in one country it’s safe in another. This prevents redundant testing costs, which ultimately makes clothes and shoes cheaper for consumers.

Sheng Lu: Last year, several tragedies happened in the Bangladesh garment factories raised the public awareness of the corporate social responsibility issues in the apparel sector. How has the tragedy changed the business practices in the apparel sector from your observation?

Nate Herman: Over the past year, the U.S. apparel and footwear industry has rallied together to address significant social responsibility challenges, including worker safety. In fact, we’ve never seen the industry come together so fully in a spirit of collaboration. Safety inspections, training, and fire safety prevention have been or are now part of many companies’ compliance programs. AAFA supported the creation of the Alliance for Bangladesh Worker Safety, an industry-led effort to prevent future tragedies in Bangladesh. While all these positive steps encourage us, we know our social responsibility and environmental work will never be finished. We can always do better.

Sheng Lu: Look ahead in 2014, what top issues in the apparel industry you would suggest our students to watch?

Nate Herman: 2014 is already shaping up to be a busy year for the U.S. apparel and footwear industry. One major trend we are watching is the continued growth of e-commerce and Omni-channel retail. You see, the point of sale is just the starting point of a long – and global – supply chain. We will see sourcing patterns and business models change as retail shifts away from brick-and-mortar shopping to online e-commerce. We are now beginning to focus on new ideas like online privacy and data security, terms the industry didn’t have to focus on 10 years ago.

Outlook for the US Textile Industry in 2014

In its latest industry analysis report, the Textile World (TW) presents a fairly optimistic outlook for the US textile industry in year 2014. According to the report:

Output of the US textile mills may increase 2 percent for basic products like fibers, yarns and fabrics; more highly fabricated items like industrial textiles could achieve an even higher growth rate.
US Imports of textiles may continue the pattern of flatness (i.e. limited growth) over the next 12 months whereas exports of US-made textiles will remain modest growth. As results, the US textile industry may see some fractional decline in trade deficit in the year ahead.
US textile mills may avoid meaningful upward fiber cost pressure, which includes cotton, rayon staple, acrylic staple, textured nylon and polyester. High cotton stock level worldwide and the weak demand for natural gas and petroleum are cited as the two major reasons for the minimum price change.
As another encouraging sign, the operating rate (production as a percentage of capacity) in the US textile industry has rebounded to above 70% which is accompanied with a robust growth of capital investment. As quoted in the report “US textile mills spent more than $1 billion each year to replace obsolete facilities and to take advantage of new, state of the art technology aimed at turning out new products and increasing overall efficiency”.
In terms of the job market, the picture seems to be mixed. Productivity growth as results of capitalization both reduces the real production cost as well as the overall demand for labor. According to the report, labor had only accounted for 19% of textile mills revenue dollars in 2013, implying the highly capital-intensive nature of the industry.
Additionally, the rising demand for product innovation and improvement create brightening growth opportunities for the US textile industry. According to the TW report, US consumers seem willing to pay a premium for “pluses functions” of the fabrics. Some 50 percent said they’d pay extra for wrinkle resistance, 51 percent for stain protection, 50 percent for easy care, 46 percent for fade resistance, and 45 percent for stretch. A number of US firms are further weaving sophisticated electronic extras into the fabric of garment sensors that can monitor a variety of personal vital signs.

Other highlighted issues to watch in 2014 include: made-in-USA factor, improved supply chain management, energy cost advantage and government policy support.

3D Printing and the Future of the Fashion Industry

How do you think 3D printing might shape the future landscape of the fashion industry (eg: impact on consumers’ shopping behavior, structure of the supply chain, demand for talents and fashion companies’ business models?)

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Global Textile and Apparel Trade Patterns (2002 vs 2012)

Based on our lectures, can you explain the pattern of global textile and trade as shown below? Please feel free to respond to any questions and share with your thoughts.

Study Compares Shopping Habits of Luxury Consumers in New York and Shanghai

An interesting study was recently conducted by ContactLab, a UK based consulting agency, which compared shopping habits of luxury consumers (clothing, shoes and fashion accessories) in New York and Shanghai, the fashion hub of the United States and China respectively.

The study was conducted based on a survey of 922 respondents in New York and 975 respondents in Shanghai aged between 25 and 54 years old. According to the study:

the Chinese market, seen from Shanghai, confirms its standing as a market offering enormous opportunities to companies that produce high-end products
in the last 12 months four out of five individuals in Shanghai have bought at least one luxury item, spending on average around $1,000 (in New York around $500) on their last purchase
one out of three users in New York (35%) as well as in Shanghai (31%) chooses to be kept informed through email communications sent by brands
two different consumption profiles emerge: fashion buying in China is closely linked to the display of one’s own spending capacity, while the New York consumers show greater affection for brand

A separate study released by the Fung Group in late 2013 suggests that foreign players largely dominate China’s luxury apparel market.

Bangladesh Apparel Industry: An Update

Note: The following update can be used as additional reference material for our case study 1 on the Bangladesh fire accident.

The export-oriented apparel sector has been the main source of growth in exports and formal employment for the past three decades in Bangladesh. The industry directly employs 3.1 million people, comprising 40 percent of manufacturing employment; indirectly more than 10 million people are dependent on the apparel sector.

According to the World Trade Organization (WTO, 2013), in 2012, Bangladesh’s apparel exports to the world reached $19.9 billion (4.7%), among which $10.6 billion (or 53.3%) went to the European Union (27) and $4.6 billion (or 22.4%) went to the United States. Cotton trousers, cotton shirts, cotton sweaters and cotton T-shirt [HS 620342, HS620462, HS620520, HS611010 and HS610910]account for around 75% of Bangladesh’s total apparel exports in 2009 (World Bank, 2012).

The unit prices of Bangladesh’s main apparel exports are much lower than the world average and even lower than the unit values of apparel exports from China, India and Sri Lanka. From 2004 to 2007, the average price of Bangladesh’s apparel exports to the world fell from $2.60 to $2.31 per unit, representing a decline of 11 percent over three years. More specifically, average unit prices for woven apparel fell from $3.26 to $2.92 (10% drop in price) and for knit apparel from $1.95 to $1.90 (3% drop in price) over the same period.

Bangladesh’s Local sources are able to meet about 80 percent of the domestic apparel industry’s demand for apparel accessories such as thread, buttons, labels, bags, tapes, shirt board, and cartons. But Bangladesh’s apparel sector relies on imported fabric and yarn inputs because the local textile industry is unable to supply its requirement in terms of quality, quantity, and variety.

Bangladesh’s main competitive advantage is low labor costs, one of the lowest among main apparel exporter countries in the world. Average apparel labor costs per hour in 2008 were $0.22; in comparison, rates in India were more than twice as high and four times higher in China. However, low wages are accompanied by relatively low levels of labor productivity. Average annual value addition per worker in Bangladesh was estimated at $2,500 compared to nearly $7,000 for a group of similar Chinese factories in 2005, according to a World Bank study.

Reference: Sewing Success? Employment, Wages and Poverty following the End of the Multi-Fiber Arrangement (World Bank, 2012). International Trade Statistics (World Trade Organization, 2013).

Exclusive Interview with Kim Glas, Deputy Assistant Secretary for Textiles and Apparel, US Department of Commerce

(source of photo: WWD)

Kim Glas is the Deputy Assistant Secretary for Textiles, Consumer Goods, and Materials at the U.S. Department of Commerce. She oversees programs and strategies to improve the domestic and international competitiveness of the broad product range of U.S. textiles, apparel, consumer goods, metals and mining forest products, and chemicals and plastics manufacturing sectors and industries. Ms. Glas also serves as Chairman of the Committee for the Implementation of Textile Agreements (CITA), which supervises the negotiation and implementation of textile and apparel agreements.

Prior to joining the Department of Commerce, Kim Glas served more than 10 years as a professional staff member in the U.S. House of Representatives. As Deputy Chief of Staff and Legislative Director for Representative Michael Michaud of Maine for over seven years, Ms. Glas managed the Congressman’s legislative agenda and was the key advisor on international trade and labor issues. In addition, Ms. Glas worked for Representative John LaFalce of New York during her tenure on Capitol Hill, advising on trade and labor issues.

Interview Part

Sheng Lu: Because almost all clothing consumed in the United States nowadays is imported, some people wonder if there is still a textile and apparel industry in this country. What is the reality? What does the general public should know about the US textile and apparel industry today?

Kim Glas: While imports still dominate U.S. consumption of textiles and apparel, we can expect to see a new trend going forward. Currently, the textiles and apparel industry in the country is experiencing a different manufacturing paradigm than 10 years ago. In 2012, textiles and apparel exports were $22.7 billion, up 37% from just 3 years earlier. This is indicative of a reassessment by American companies about manufacturing in the United States. Cost, time benefits, and international economic challenges have closed the international manufacturing gap making it more attractive to source at home. More and more U.S. companies are considering and many have moved production or part of their production back to the U.S. This return of manufacturing to the U.S. is expected to continue into the future. This means consumers can expect to find more quality and more affordable Made in USA textiles and apparel in the market in the years to come.

The United States has a strong and diverse textile industry, manufacturing a range of high quality products including fibers, yarn, fabric, and apparel. It is the fourth largest single country exporter of yarns and fabrics, with $13.6 billion in exports in 2012. The United States is also home to one of the largest providers of spun yarn in the world, Parkdale, Inc., with 29 manufacturing plants in the United States, Central America, Mexico, and South America.

Sheng Lu: From your view, what role does the OTEXA play in enhancing the competitiveness of the US textile and apparel industry in the 21st century global competition?

Kim Glas: OTEXA administers and enforces agreements and preference programs concerning the textile, apparel, footwear and travel goods industries and works to ensure fair trade and a level playing field for these industries to enhance their competitiveness in international markets. The office has an active Export Promotion Program that assists small- and medium-sized U.S. textile and apparel firms to develop and expand their export markets helping job retention and creation in this and related sectors.

Sheng Lu: There have been many discussions recently about manufacturing coming back to the United States given the rising labor cost in China. Yet, statistics from the US Bureau of Labor statistics show a continuous decline of employment in the manufacturing aspect of the US textile and apparel sector (i.e. NAICS 313, NAICS 314 and NAICS 315). What is your view on the future of textile and apparel “made in USA” as well as related job opportunities?

Kim Glas: The U.S. textiles and apparel industry employs over 380,000 people nationwide. Declining employment in this sector has been an ongoing trend for the past four decades, a development related mainly to productivity improvements and international competition. The adoption of new technologies has boosted productivity in this sector.

Advances in technology and manufacturing capabilities by capital-intensive U.S. textile and apparel firms have contributed towards competitiveness and productivity, increasing output and lowering labor costs.

The apparel industry has retained more skilled and higher-paying jobs in such areas as computer-aided design and manufacturing, marketing, and product development. Lower-skilled apparel production jobs have moved offshore, in support of our production-sharing operations in Mexico, Central America, and the Caribbean Basin, as well as to other countries with lower labor costs.

The continued upswing of re-shoring sentiments and companies moving textiles and apparel production back to the U.S., combined with increasing consumer demands for Made in USA products will help foster more U.S. production hence increasing high-skilled job opportunities in these sectors for the foreseeable future.

Sheng Lu: This year marks the 20th anniversary of the North American Free Trade Agreement (NAFTA), which has been both lauded and attacked in the United States. In your view, does the US textile and apparel industry a beneficiary of the agreement? What critical changes has the NAFTA brought to the US textile and apparel industry over the past 20 years, if any?

Kim Glas:The United States exported a total of $22.7 billion in textiles and apparel in 2012, including $5.3 billion to Mexico and $5.2 billion to Canada. Together, our NAFTA partners account for 46% of total U.S. exports of textiles and apparel.

The United States imported more than $113 billion in textile and apparel products in 2012, including $2.2 billion from Canada and $5.7 billion from Mexico. U.S. imports from our NAFTA partners have a high U.S. content and therefore help to preserve U.S. jobs and increase sales opportunities for U.S. producers.

U.S. textile and apparel firms have benefited from NAFTA provisions including the “yarn forward” rule of origin and Mexican production-sharing arrangements. This has allowed them to optimize production and manufacturing. U.S. investment in Canada and Mexico has increased by 57% since NAFTA was implemented, reaching $592 million in 2012. The United States remains the largest single-country supplier of textiles and apparel to Mexico.

Sheng Lu: Both the ongoing Trans-Pacific Partnership (TPP) and the Trans-Atlantic Partnership (TTIP) negotiations include a chapter specifically dealing with textile and apparel. What makes textile and apparel always a unique and sensitive sector in the free trade agreement negotiation? And what does the US textile and apparel industry can expect from the TPP and TTIP?

Kim Glas: The U.S. approach to free trade agreements (FTAs) has been to provide for specific rules that apply only to the textile and apparel sectors in several areas, including rules of origin and related matters, safeguards and anti-circumvention Customs cooperation commitments. Treating textiles and apparel in a separate chapter of an FTA provides more clarity and transparency, and therefore makes it easier for industries and traders in our FTA partner countries to make maximum use of the opportunities of the agreement while improving compliance.

As the largest market for imported textiles and apparel, and as one of the world’s largest markets for imported textiles and apparel, trade negotiations for this sector require experts with specialized knowledge. Textile issues have been addressed in a textile negotiating group in all of our major FTAs, past and pending, with full coordination with other relevant negotiating groups.

Sheng Lu: looking ahead in 2014, what are the key industry development trends and trade policy issues we shall watch?

Kim Glas: The turnaround in U.S. manufacturing of textiles and apparel is expected to continue to reshape the manufacturing landscape of this industry with improved industry strategies and planning. U.S. companies will be increasingly active in their efforts to innovate and improve to keep and stay viable in today’s highly competitive global market place. In addition to keeping up with innovations, we can expect to see improvements in companies’ sourcing, supply chain management, and development of niche product and improved quality. Moving forward, we can expect to see U.S. companies to be to be more lean, efficient and flexible with consumer and market demands.

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