FASH455 Global Apparel & Textile Trade and Sourcing

China Apparel Retail Market (updated in December 2014)

According to Fung Group’s latest China apparel market report:

1. China’s apparel retail market remains strong despite slower growth. China’s apparel retail sales reached 1,141billion RMB (or $187 billion USD) in 2013, rose by 11.6 percent from 2012. On average, each urban household in China spent 1,902 RMB (or $306USD) on clothing in 2013, accounting for 10.6 percent of their total annual expenditure. [note: in the US, clothing accounts for around 3 percent of household annual expenditure]. It is estimated that China will replace the United States and become the world’s largest apparel retail market in 2017.

2. Women’s wear is the largest contributor to China’s total apparel sales. A survey of 100 major retailers in China shows that women’s wear accounted for 32.7 percent of their clothing sales from 2012 to 2013. However, women’s wear is a highly fragmented and competitive market in China. For example, the top ten brands altogether only accounted for 21.43 percent of market share in 2013.

3. Children’s wear and sportswear are the two growing areas in China’s apparel market. Specifically, retail sales of children’s wear in China reached 6.3 billion RMB (or $1 billion USD) in 2013, registered growth of 12.7 percent. Because Chinese government has relaxed its “one-child policy”, China is estimated to add 1-2 million extra kids over the next few years, suggesting further market expansion possibility. Thanks to Chinese consumers’ increasing interest in sports and outdoor activities, sales of sportswear enjoyed 35 percent growth from 2012 to 2013. Functional products with fashionable designs are the key to win the market. While international brands (such as Nike and Adidas) are mainly concentrated in tier 1 and tier 2 cities, domestic brands are still dominating the lower-tier cities where more growth potential is involved.

4. Department stores and specialty stores remained the main channels for apparel distribution in China, accounting for 36.3 percent and 29.7 percent of market share respectively in 2013. Specifically, department store remains the main channel for mid to high-end apparel sales in China, although specialty stores are increasingly preferred by apparel brand owners. As a common business practice in China, apparel brand owners manage their self-operated specialty stores in key cities while leaving other locations to franchisees as distributors. On the other hand, hypermarkets and supermarkets are popular retailing channels for lower-priced apparel, many of which are with poor brand recognition or unbranded.

5. Online retailing is the fastest growing retail channel in China for apparel. According to one source, the total online apparel transaction value in China reached 434.9 billion RMB (or $36.2 billion USD) in 2013, increased by 42.6 percent from 2012. Similar as the emerging of “omni-channel retailing” in the US, apparel companies operating in China are making more efforts to explore“O2O” (online and offline integration). It shall be noted that more and more overseas apparel brands see e-commerce as a strategic means to reach Chinese consumers. For example, even luxury brands such as Burberry and Hugo Boss have opened online store through a B2C platform (like Tmall) in China.

Some additional personal thoughts:

Western apparel brands and retailers shall realize that China is a highly fragmented market with diverse market characteristics from region to region (for example, tier 1 v.s. tier 3 &4; urban v.s. rural; north v.s. south).
Chinese consumers are getting more and more sophisticated, yet price is still a key factor to win this market.
Given the size and sophistication of China’s apparel market, western apparel brands and retailers may consider building an independent China operation system (from design to distribution). Also, successful business models at home market may not work in China at all.

Apparel Industry is Not All about Labor Cost

While most discussions on improving corporate social responsibility practices in the apparel industry still focus on conventional solutions like higher labor standards and more effective monitoring programs, a recent Boston Consulting Group report suggests supply chain innovation also has its role to play.

One key argument of the report is: Although cost still matters in apparel sourcing, lower-cost can be achieved through means other than seeking cheap labor. For example:

Engendering end-to-end supply chain efficiency through managing raw materials. Apparel companies may work with their suppliers further down the supply chain to optimize fabric selection, which usually account for as much as 60-70 percent of the total cost of a finished garment (v.s. 30-40 percent of labor cost). Some apparel companies have started to use fewer yarns and weight classes so as to reduce fabric count and lower down sourcing cost. Some other companies are realizing significant cost reduction by timing orders so as to level the load over the course of the year. [Note: looks like Uniqlo’s model]

Building an integrated supply chain. As cited in the report, to balance sourcing cost and speed to market, one major apparel retailer builds 15 to 20 percent of the season’s styles and pre-positions about two-thirds of its raw material before the season (both in-house and from production partners). During the season, the company analyzes sales, staying in constant communication with its stores and with the design team. It resupplies items that are selling well through accelerated production and delivery, usually within three to four days. Designers then create new styles by adapting the best sellers using the pre-positioned material. [Note: looks like Zara’s model]

Innovating ways of production. The report suggests that bonding and gluing technologies (i.e. use bonded adhesive films and processes such as ultrasonic heating and high-frequency radiation to fuse together layers of fabric) can produce an entire small garment in 30 to 40 percent less time than conventional cut-and-sew. Digital technologies such as digital prototyping of textile designs can also significantly help apparel makers reduce waste and boost efficiency in pattern making. The potential application of 3D printing may further allow apparel makers to produce smaller batches, and possibly even allow for made-to-order production of individually designed and sized garments. This would not only allow companies to match the market’s growing need for speed, but also reduce the costs of retail inventory surpluses and associated price reductions.

Two additional thinking based on the report:

First, much attention has been given to the changing business environment of the apparel industry, such as rising labor cost in Asia, shifting market growth towards emerging economies and more sophisticated consumers’ demand in the era of omni-channel retailing. But what if the nature of the apparel industry is also changing: if one day labor cost is no longer a key factor in deciding where to produce and apparel production itself is no longer labor-intensive at all? Although automation of apparel production was not achieved in the 20^st century, it may not be something totally impossible in the 21^st century. We need to have bold thinking here.

Second, while the apparel industry is innovating its business model (i.e. the way to produce, the way to deliver products and the way to serve its customers), T&A educational programs also need to embrace innovative thinking. For example: are traditional course offerings sufficient enough (or still relevant) to prepare students’ job readiness in the 21^st century? How to proactively respond to the changing nature of the apparel industry which has started to adopt more and more new technologies? What if we redefine the meaning of “T&A” majors and redesign the model of preparing the workforce for the apparel industry? (just like the question: for wearable technology, shall IT companies make apparel or apparel companies make IT products?)

US Department of Labor: 28 countries were Found Using Child or Forced Labor in Making Textiles and Apparel

In its updated List of Goods Produced by Child Labor or Forced Labor (ILAB) released on December 1, 2014, the U.S. Department Labor said that at least 28 countries are found using child or forced labor in making textiles and apparel. All countries on the list appear to be developing countries. Particularly, the problem of using child labor or forced labor was found most serious in the cotton sector (18 countries), followed by garment manufacturing (9 countries).

Bangladesh, a focus of corporate social responsibilities practices these days, was found using child labor in making garment according to ILAB.

(Data compiled by Sheng Lu)

Note: * ILAB maintains a list of goods and their source countries which it has reason to believe are produced by child labor or forced labor in violation of international standards. The List is intended to raise public awareness about child labor and forced labor around the world, and to promote and inform efforts to address them. A starting point for action, the List creates opportunities for ILAB to engage and assist foreign governments. It is also a valuable resource for researchers, advocacy organizations and companies wishing to carry out risk assessments and engage in due diligence on labor rights in their supply chains

Follow up:

After the release of the ILAB report, four House Democrats sent a letter to USTR Michael Forman on December 4th, 2014, asking him to provide details on labor provisions in the TPP. As noted by the lawmakers in the letter: “Vietnam, Mexico, Peru, and Malaysia, one-third of the nations included in the TPP, were all cited for labor abuses in the report…”. “We are following up with you because we believe it is important that you take action to ensure that real, meaningfully enforceable labor protections are in the TPP”.

U.S. Textile and Apparel Exports in 2013 (Updated in November 2014)

U.S. textile and apparel (T&A) exports increased by $543 million (3 percent) to $19.8 billion in 2013. However, because import increased by $3.2 billion (3 percent) to $97.5 billion, U.S. trade deficit in T&A increased rose to $97.5 billion in 2013. Imports supplied about 98 percent of U.S. consumer demand for T&A in 2013.

Textiles account for 83 percent of all U.S. T&A exports in 2013. Exports of these textiles products (particularly fabrics and yarns) are used primarily as intermediate inputs for finished products manufactured abroad, which are then imported back into the United States (USITC, 2014). In terms of value, specialty & industrial fabrics, spun yarns & thread, felts & other non-woven textiles and other made-up textile articles altogether account for nearly half of U.S. T&A exports in 2013. Statistics further show that U.S. apparel exports also grow fast in recent years. However, it shall be noted that a good proportion of them might be used clothing.

Mexico and Canada remain the top two largest export markets for U.S. T&A in 2013. 66 percent of U.S. T&A exports in 2013 went to the Western Hemisphere (i.e. North America, Central America, South America, and the Caribbean countries). However, this share has declined from 77.6 percent in 2000. Other leading export markets for U.S. T&A include Honduras, China and Japan.

Reference:

USITC (2014). Shifts in U.S. Merchandise Trade. http://www.usitc.gov/press_room/news_release/2014/er1112ll232.htm

OTEXA (2014). U.S. Imports and Exports of Textiles and Apparel. http://otexa.trade.gov/msrpoint.htm

Think Big about International Trade

I hope you all enjoy the guest lecture given by Ambassador Friedrich Löhr on his global travel stories as a career diplomat over the past 37 years. Actually, topic of our class is closely connected with “international relations”. As observed by Michael Forman, US Trade Representative, “trade is what most of international relations are about and trade policy is national security policy”; “leaders have come to see the economic clout that trade produces as more than merely a purse for military prowess; they now understand prosperity to be a principal means by which countries measure and exercise power”.

Several readings/case studies/discussions in our class have touched the strategic aspects of international trade in the 21^st century. For example, I hope at this point you not only understand the technical aspects of the Trans-Pacific Partnership (TPP) such as “yarn-forward” and “short supply list”, but also can see TPP as a strategic movement for the US to become more deeply embedded in the Asia-Pacific region. Similarly, the Trans-Atlantic Trade and Investment Partnership (T-TIP) is a free trade agreement, but a successful conclusion of T-TIP will also send “an unmistakable signal to the world about the strength of the US-EU bond—a timely reminder as the crisis in Ukraine has triggered deep unease across the continent.”

The strategic aspects of international trade can also be understood from the development perspective. There is a direct correlation between integration into the multilateral trading system and economic growth and between growth and poverty reduction. What then UN Secretary Kofi Annan said remains very true “The main losers in today’s very unequal world are not those who are too much exposed to globalization. They are those who have been left out”. No example can be more convincing than the case of textile and apparel (T&A) to illustrate this point. In many low-income countries in the world, T&A accounts for two-thirds of local employment and over 60 percentage of total merchandise exports. This is why trade preference programs such as AGOA, GSP and HOPE play a critical roles in providing greater market access opportunities to those most vulnerable countries.

To understand the strategic aspects of trade, you may further recall our case study 2 and the discussions on the necessity of maintaining a sound operation of the GATT system in the setting of 1970s. Without a rule-based multilateral trading system, international trade simply couldn’t happen. Yet the current multilateral trading system established shortly after World War II needs an update to better reflect the changing nature of world economy and format of trade. This is why so much attention has been given to mega-trade agreements such as TPP and TTIP. These free trade agreements will have a huge impact shaping the future rules of the game, no matter in terms of adding new agendas such as state-owned enterprises, digital trade and facilitating supply chain, or more effectively establishing a level playing field for issues such as environmental and labor standards.

So think strategically about international trade and think big about the impact of our T&A industry in the 21^st century global economy.

Japan’s Textile Exports to Vietnam Keep Growing Fast

According to a recent report released by the Textile Outlook International, Japan’s textile and apparel (T&A) exports increased by 9.6% to a five-year high in 2013 (¥763,307 million or $8,571 million USD), added by a sharp depreciation in the value of the yen (Note: Yen or “¥” is Japan’s currency) against US dollar. Specifically, Japan’s textile exports increased by 9.8%, from ¥729,761 million in 2012 to ¥801,450 million in 2013. Japan’s apparel exports rose by 3.7%, from ¥33,546 million in 2012 to ¥34,792 million in 2013. Textiles account for a lion’s share of Japan’s total T&A exports– 95.8% in 2013 and 95.6% in 2012 in terms of value.

Statistics also show that Vietnam not only is Japan’s second largest T&A export market, but also is one of the fastest growing export markets for Japan. In 2013, 9.1% of Japan’s T&A exports went to Vietnam (mostly were textiles), increased from 8.5% in 2012. In terms of absolute value, Japans’ T&A exports to Vietnam has also kept growing fast in recent years: 17.1% increase in 2013, 9.7% in 2012 and 27.3% in 2011, much higher than the growth rate of Japan’s overall T&A exports over the same period. Additionally, about 26% of Japan’s textile exports to Vietnam in 2013 were man-made fiber fabrics (SITC 653), followed by special yarns and fabrics (SITC 657) which accounted for 21% in terms of value. This product structure well matches with Japan’s overall textile exports to the world.

On the other hand, Japans’ T&A exports to the US also grew by 8.1% in 2013, following a 3.2% rise in 2012. Fastest growing category of Japan’s T&A exports to the US in 2013 include blue denim fabric, non-textured filament yarn, wool knitted shirts and blouses and miscellaneous manufactured products made from man-made fibers.

However, the solid performance of Japan’s T&A exports in 2013 “failed to reinvigorate domestic production”. According to the report, Japan’s total T&A exports declined by 2.0% from 2012 to 2013, following a 2.3% fall a year earlier. However, production of miscellaneous textile products in Japan went up 0.6% in 2013.

Questions for discussion:

Will Japan further strengthen its ties with Vietnam in T&A production and trade because of TPP?
Should the US textile industry care about Japan in the TPP?

Welcome for any comments and suggestions.

Lectra Report: The Need for Transformation-An Analysis of the Fashion and Apparel Industry’s Evolution

As the saying goes, change is the only constant in the fashion apparel industry. According to a newly released market report by Lectra*, “the pace of fashion has never been faster and neither has the pace of change”.

Lectra’s report highlights a few factors driving the changes in the fashion apparel industry:

1. Consumers

Consumers has much more control than in the past, implying the fashion industry can no longer define what to make and sell without taking consumers’ inputs into consideration. Some companies have alter their business models to be completely demand-driven, i.e. allowing integrating all their resources to meet the customized needs of all consumers.

Social and economic changes like internet access and growing prosperity, have also spurred the growth of new fashion markets in emerging countries that had typically been only supplier region, creating new opportunities for western fashion brands and retailers to expand business.

2. Globalization

Historically, local brands dominate local market. However, because of the strategies of geographic expansion and international growth of many fashion brands, in more and more markets, local brands have to face competition from foreign brands. (for example: the Australian fashion industry is worried about the competition from H&M).

But globalization does not reduce diversity and localized consumer preferences. On the contrary, increased internationalization means that populations are more heterogeneous than in the past and retailers have to bring a localized response to individual markets.

3. Technology

New social media and mobile technologies have given consumers the power of instantaneous sharing and buying without restriction of time, place and in many cases, price. The availability of new technologies such as RFID, product life cycle management (PLM) and many other supply chain management tools have also enabled brands, retailers and manufacturers to reduce product development cycle, improve efficiency and better collaborate across the global process.

For example, digital prototyping gives companies the agility they need to adapt to changes in the market and test new products before they start to incur real production costs. PLM facilities the collaboration between design and development departments and breaks the silo mentality that has reigned for so long in the fashion and apparel industry, eliminating bottle- necks that resulted from outdated linear processes and increasing decision making power earlier on in product development.

4. Change of Business models**

In response to the application of new technologies and consumers’ updated demand, companies start to seriously reconsider their business models, especially the process of design, product development, production and distribution. As noted in the report, fashion brands, which have traditionally gone through retailers who sell on their behalf, have developed retail operations with the purpose of capturing a higher percentage of the final sale price and achieving complete control over the presentation, distribution and final price of their merchandise. Many retailers, however, also start to offer more and more private brands and exclusive products that can more effectively segment market and attract targeted consumers.

The traditional manufacturers are also looking for ways to cut costs and increase efficiency because of the pressure from retailers/brands. Manufacturers also have realized that selling directly to the end consumers is the most powerful way to protect revenue. As quoted by the report, roughly 60% of Chinese apparel manufacturers have launched their own brands. Armed with all that know-how, a growing number of Chinese manufacturers are now turning their efforts toward developing an offer for the domestic market and some are even setting their sights abroad. (recall the topic of “upgrading” in our lecture)

*: Lectra is a company which provides fashion-focused technology solutions such as the CAD system and the product life-cycle management (PLM) system.

What does Vietnam’s Textile Factory Actually Look Like?

Vietnam attracts a lot of attention these days in the textile and apparel world. But what does Vietnam’s textile and apparel factory actually look like?

This video features PPC (Phong Phu Corporation), one of the largest textile mills in Vietnam. It is said that PPC accounts for over 50% of Vietnam’s total textile exports.

Anything in the video interests you or surprises you?
How is PPC different from textile mills in the US?( You may think about the video we watched in class about the textile mills in NC. For example, are there any differences in working environment, the facility, what it is producing, required labor skills, efficiency and productivity?)
How should the US textile industry treat Vietnam? A competitor? A threat? A potential partner? or a great opportunity for investment?

Please feel free to share your thoughts.

[Please leave no more comment for this post unless you have NEW ideas to share]

Unleashing Fashion Growth City by City

According to a recent study conducted by McKinsey, the global women’s apparel market growth rate is forecasted to increase by 50 percent over the next 12 years, largely driven by the increasing weight of emerging markets such as China and Russia. Historically, the global women’s apparel market has grown at just over 3 percent per year; However, by 2025 the growth rate is expected to approach 5 percent per year. By 2025, women’s apparel is expected to account for 55% of global apparel sales and 60% of sales growth.

For fashion players, cities are mattering more than any other product category. Top 600 growth cities will account for 62% of women’s apparel market’s growth by 2025; and 16 out of top 20 growth cities are from the emerging markets, adding an additional $100 billion to the global women’s apparel market.

However, when looking at total size, mature-market cities will still have half the women’s apparel market worldwide, according to McKinsey. Particularly, growth in the luxury markets is still heavily dependent on the mature market, where 70 percent of top growth cities are located.

With the help of city level analysis, rather than discussing Europe or Asia as alternative destinations, or even the U.K. versus France, companies can now ask themselves, “in what 10 key cities should we next establish a strong presence?”

Exclusive Interview with William L. “Bill” Jasper, Chairman & Chief Executive Officer, Unifi Inc.

William L. “Bill” Jasper has been Unifi’s Chairman of the Board since February 2011 and has served as Unifi’s Chief Executive Officer (CEO) and member of Unifi’s Board of Directors and the Company’s Executive Committee since September 2007. Prior to his role as Chairman of the Board, he served as President and CEO, Vice President of Sales and General Manager of Unifi’s polyester division. He joined the company with the purchase of Kinston polyester POY assets from INVISTA in September 2004. Prior to joining Unifi, Mr. Jasper was the Director of INVISTA’s DACRON® polyester filament business. Before working at INVISTA, he held various management positions in operations, technology, sales and business for DuPont since 1980.

Bill Jasper is also a University of Rhode Island alumni! He graduated in 1977 with a Master of Science in Mechanical Engineering.

Founded in 1971 and Headquartered in Greensboro, NC, Unifi, Inc. is a leading producer and processor of multi-filament polyester and nylon textured yarns. Unifi provides innovative, global textile solutions and unique branded yarns for customers at every level of the supply chain. Unifi’s core business consists of the manufacturing of POY (partially-oriented yarn), the texturing, air-jet texturing, twisting, and beaming of polyester and the texturing and covering of nylon filament yarns. Branded products of Unifi include aio® — all-in-one performance yarns, SORBTEK® A.M.Y.®, MYNX® UV, REPREVE®, REFLEXX®, INHIBIT® and SATURA®, which can be found in many products manufactured by the world’s leading brands and retailers.

Interview Part

Sheng Lu: How would you describe the current status of the U.S. textile industry? What’s your outlook for the industry in the next 5 years? What are the top challenges the U.S. textile industry is facing?

Bill Jasper: The industry has undergone a revival after years of decline, so the current status is strong and I believe we’ll see that environment continue for several more years in this region. The industry is expanding in practically every key economic indicator, including output, employment, exports and investment.

U.S. textile shipments topped $56 billion in 2013, up more than 5% from 2012
U.S. textile exports were $17.9 billion in 2013, up nearly 5%
- The U.S. has also enjoyed an investment surge in new plants and equipment. Over the past year, 8 foreign companies have made public announcements regarding their intention to invest more than $700 million in new U.S. textile facilities and equipment. These investments are projected to provide approximately 1,900 new jobs in North Carolina, South Carolina, Georgia and Louisiana.
- This $700 million does not include the ongoing re-investment activities that domestic textile companies have made.

The U.S. industry is also benefitting from several domestic advantages, including reliable and relatively inexpensive energy supplies, infrastructure, access to raw materials, and proximity to markets. We are gaining competitive advantages due to conditions outside the U.S., including rising costs in Asia, high shipping costs, and port capacity restraints. In addition, you’ve probably seen Wal-Mart’s advertising and P.R. blitz that it is committing to buy hundreds of billions of additional dollars in American-made products over the next decade to help support and spur U.S. manufacturing and innovation. With Wal-Mart leading the way, there is definitely a movement afoot to “reshore” some U.S. manufacturing, including textiles and apparel.

Finally, I believe a major driver of recent investments and one of the biggest contributors to the renaissance described above is also one of the biggest challenges the industry is facing. Virtually all of our free trade agreements to date have been based on a yarn forward rule of origin. This means that all processes, including the yarn extrusion, spinning, texturing, fabric formation, and the dyeing, finishing and assembly of the finished garment must take place in a free trade agreement member country to receive duty-free benefits. This rule has benefited the U.S. industry especially in NAFTA and DR-CAFTA, as U.S. yarn and fabric producers have dramatically increased our exports to the region under this regime.

As the U.S. negotiates the Transpacific Partnership Agreement (TPP), if this same rule of origin is undermined by single transformation rules or other loopholes, it could erode the entire supply chain in this hemisphere. In addition, careful attention must be paid to market access for potential TPP members like Vietnam, who is already the second largest exporter of textiles and apparel to the U.S. The domestic industry has requested reasonable duty phase-out periods in market access for our most sensitive products under the TPP so that our partnerships in this region have an adequate adjustment period. The TPP is considered to be the model for all future trade agreements with the U.S., thus it is critically important that our negotiators consider the profound consequences it can have on U.S. jobs and the U.S. textile industry.

Sheng Lu: “Made in USA” is a very hot topic these days, yet we also live in a globalized world today. From the textile business perspective, what is the relationship between “Made in USA” and “going global” in the 21st century? Do US textile companies today still have to make a choice between the two?

Bill Jasper: Most apparel brands and retailers utilize a balanced sourcing strategy that incorporates production in this hemisphere, as well as Asia, Africa, or other global manufacturing and/or assembly. I do not feel that U.S. textile producers today must necessarily make a choice between the two, but must have a business plan that addresses the realities of the global market. In fact, nearly 98 percent of the clothing purchased in the U.S. is imported from abroad. Only two percent of clothing bought in this country is manufactured here in the U.S., and I doubt there is a business plan in any U.S. textile company that doesn’t reflect that reality.

Unifi, for example, works with downstream customers who want research and development, innovation, speed to market, sustainability, etc., from yarn and fabric production in this hemisphere. It is important that we provide flexibility and these same innovative products anywhere in the world our customers choose to do business. Thus, we export yarn to more than 30 countries from our domestic plants (not counting the exports of fabric from domestic weavers and knitters that use our inputs). Unifi also operates a wholly-owned subsidiary in Suzhou, China, where we focus on the development, sales and service of Unifi’s premium value-added yarns for the Asian market. Our expanding network of manufacturing facilities, sales and sourcing initiatives enables us to drive and capture growth in every major textile and apparel region in the world.

Sheng Lu: We know many products of Unifi are textile intermediaries like fibers and yarns. So how is Unifi’s brand promoted? How much can consumers recognize your product as “made in USA”?

Bill Jasper: As an upstream producer, making that connection with the ultimate consumer can be a challenge. Unifi has succeeded on several fronts. We have differentiated our product offering with premium value-added products, like REPREVE®, which we supply to our global customers wherever they are producing. Our downstream sales and marketing teams work extensively with brands and retailers to help them promote the unique properties of Unifi fibers and yarns. Some ways we do this includes, on product-labeling, hangtags, point of sale, cobranding, advertising and various consumer promotions. The “Made in the USA” message is and can be part of this effort, and I think we’ll see more demand for that as the brands and retailers move more of their sourcing from Asia back to this hemisphere over the next few years.

We recently began marketing directly to the consumer through the launch of our REPREVE #TurnItGreen campaign, which focuses on raising awareness around the importance of recycling and the products that can be created from plastic bottles when they are recycled. The initial launch took place at ESPN’s X Games Aspen in January 2014, where we literally and figuratively helped turn the event green using REPREVE-based product and color. At X Games Aspen, we recycled more than 100,000 plastic bottles to make X Games signage, lanyards and other merchandise. As we grow the REPREVE brand at retail and in the consumer space, we will continue these efforts with various partners, including current partners who have joined the REPREVE #TurnItGreen initiative, including NFL team, the Detriot Lions, where we will recycle more than 200,000 plastic bottles to help turn their stadium green on December 7^th, 2014. We’re also driving recycling education by helping turn the live action event, Marvel Universe Live!, green through apparel for the cast and crew, merchandise items and banners, all made with REPREVE recycled fiber.

Sheng Lu: Unifi has opened factories in Brazil and Colombia. Why did Unifi decide to invest in South America? What is the connection between Unifi’s US-based operation and your operations in South America?

Bill Jasper: Both of these manufacturing plants were established in the mid to late 90s as wholly owned subsidiaries of Unifi, Inc. We purchased the small Colombia plant to give us more spandex covering capacity for our yarns that come back to the U.S. for use in pantyhose and socks. The Brazil operation was set up when we saw an opportunity to capture a share of the growing synthetic apparel market in that country. The majority of the textured polyester we make in Brazil stays in Brazil. Over the past several years we have introduced our premium value-added yarns in that market and hope to see strong growth in those product lines as the economy picks up down there.

Unifi also opened a 120,000 square foot polyester yarn texturing facility in El Salvador in 2010 to take advantage of the duty benefits in the DR-CAFTA trade pact and to better serve our growing customer base in the region.

Sheng Lu: What is the market potential of Asia and particularly China for Unifi and the US textile industry in general?

Bill Jasper: The expected growth in China and other Asian markets is enormous, and Unifi’s strategic plan reflects that. By 2020, China’s consumer market is expected to reach 22 percent of total global consumption, second only to the U.S. at 35 percent. Our wholly owned subsidiary (UTSC) is located at the center of one of China’s most important textile regions, Suzhou. UTSC customers will have quick access to new product introductions with the quality and technical service they have come to expect with Unifi. UTSC was established to provide the domestic Chinese market with a full complement of our specialty branded products, not only for their growing appetite for branded apparel, but for growth in their automotive and home furnishing markets.

The U.S. textile industry in general has invested heavily to take advantage of the growth in Asia by adding to their manufacturing facilities here or putting plants in Asia or China. Countries like Vietnam also offer strong manufacturing platforms due to lower wages than China and the prospect of duty-free exports to the European Union, the U.S. and Japan when announced trade agreements like TPP are completed. The growth of the Asian textile market certainly ups the ante in regard to whether there will be a yarn forward rule under TPP. Failure to include a strong yarn forward rule in this key agreement will likely cede key Asian markets to textile suppliers that are not a party to the TPP. To the contrary, inclusion of a yarn forward provision in that agreement will drive investment to partner countries and provides opportunities for U.S. fabrics and yarns to supply production meeting those guidelines.

Sheng Lu: How do you see “sustainability” as a game changer for the textile industry? What has Unifi done in response to the growing awareness of sustainability among consumers?

Bill Jasper: Reducing our environmental footprint through the entire supply chain has been an important focus of the industry for several years, driven by industry leaders like Unifi and our suppliers and customers.

Unifi has an on-site environmental team constantly reviewing everything we do to see how we can reduce, reuse, recycle and conserve. All of our U.S.-based plants are currently landfill-free; we recycle our shipping pallets, we have installed energy-efficient lighting and increased efficiency around our compressed air usage, for example.

In 2010, Unifi opened our state-of-the-art REPREVE Recycling Center, where we use our own industrial yarn waste, recycled water bottles and even fabric waste to make REPREVE® recycled polyester fibers and yarns which go back into high end consumer apparel, like fleeces made by Patagonia, shoes and apparel by Nike, The North Face jackets, and eco-friendly Haggar pants. You can also find REPREVE® in Ford vehicles, including the 2015 Ford F150. In 2013, REPREVE® turned more than 740 million recycled bottles into fiber, and since 2009, we have recycled more than two billion plastic bottles to make REPREVE. Unifi’s recycled process offsets the need to use newly refined crude oil, uses less energy and water, and produces fewer greenhouse gas emissions compared to making virgin synthetic fibers.

Moreover, for Unifi at least, this is much more than a marketing concept. Our focus on environmental sustainability is now an engrained part of our culture. We believe that sustainability must be an unwavering core value of responsible manufacturing in the 21^st century.

Sheng Lu: Given the changing nature of the US textile industry, what kind of talents will be most in needs by the US textile industry in the years ahead? Do you have any advice for textile and apparel majors in terms of improving their employability in the job market?

Bill Jasper: The U.S. textile industry is a diverse, technology driven, capital intensive, innovator of high quality products that is able and ready to compete effectively in the 21^st century global marketplace, and a prepared workforce is critical in meeting the needs of this competitive industry. Not only do we look for skills in textile technology, we look for workers with high math and science aptitudes, technical and chemical engineering skills, process improvement, and industrial engineering capabilities. The ability to think strategically and globally is a big advantage in driving sales and creating marketing programs that meet the needs of our customers world-wide.

–The End–

Five Key Trends in Luxury Goods

Five key trends in Luxury Goods

Luxury market remains optimistic with forecast sales set to reach $405 billion USD by 2019.
The United States remains the largest luxury goods market in the world, valued at $78 billion USD in 2014.
Designer apparel accounted for the most sales of all luxury categories in 2014.
Luxury jewelry and timepieces grew by 63% and 42% respectively in the last 5 years.
China dropped from 3rd to 4th place in the global rankings, due to the government clampdown on extravagant spending and slowing growth of the economy.

According to a featured story written by Just-Style on the Euromonitor report, global luxury goods sales in 2013 rose 3% year-on-year in value terms and most of this growth came from emerging markets such as China, India, Indonesia and Malaysia. Data shows that luxury spending in the BRIC countries experienced a massive increase of 104% over the last five years, compared to just 18% in developed markets. It is further suggested that BRIC countries will account for more than 35% of projected global sales of luxury goods from 2014-2018. Specifically, India is forecast to grow by a further 86% in constant value terms over the five years to 2018, followed by China at 72%, Brazil at 31% and Russia at 28%.

The outlook for the luxury goods industry over the short to medium term is positive. A rapidly expanding A and B class across sub-Saharan Africa, Latin America and emerging Asia, with incomes 150% to over 200% higher than the average gross incomes of individuals aged 15 and over, is fuelling a new culture of luxury aspiration, leading to an increase in luxury spend.

Source: Euromonitor International; Just-Style

US Fashion and Apparel Industry Releases Position Paper on the Transatlantic Trade and Investment Partnership (T-TIP)

The American Apparel and Footwear Association (AAFA) and the US Fashion Industry Association (USFIA) , the two leading industry organizations representing the US fashion and apparel industry, jointly released a position paper this week on the Transatlantic Trade and Investment Partnership (T-TIP), which is currently under negotiation between the United States and the European Union.

The position paper spells out a few priorities deemed by the US fashion apparel industry for the T-TIP:

Full, immediate and reciprocal elimination of tariffs, meaning import duties on all apparel products shall be eliminated on day one without phrase-out periods.
Flexible rules of origin, meaning restrictive rules of origin such as “yarn-forward” which requires companies to use textile inputs from certain regions so as to enjoy the duty free market access shall be abandoned and replaced by simpler and more flexible ones.
Regulatory coherence, such as harmonization on labeling regulations, harmonization of product safety and test method regulations, and establishing of a harmonized list of prohibited substances.
Emphasis on facilitative customs provisions, meaning improving predictability, simplicity and uniformity in border procedures.

The European Branded Clothing Alliance is also a party of the joint statement; however, the European Textile and Apparel Confederation (Euratex) is not involved.

On the other hand, in May 2014, the National Council of Textile Organizations (NCTO), which represents the interests of the US textile industry, announced its priorities for the T-TIP negation, including:

Adopt the “yarn-forward” rules of origin in T-TIP
Set phrase-out periods for sensitive textile and apparel products
Protect the Berry Amendment (which requires all US military uniforms have to be 100% made in USA)

Study Suggests Positive Social Impact of the Garment Sector on the Lives of Bangladesh Women

While our case study 1 focused on the problem of corporate social responsibility practices in the Bangladesh garment sector, a recent study based on examining 1,395 households in 60 Bangladeshi villages in 2009 suggests that the growth of the garment sector has resulted in positive impacts on the lives of Bangladeshi women.

Specifically, the study finds that:

1) Girls exposed to the garment sector delay early marriage and childbirth at early ages (12-18). Many studies have suggested the negative welfare implications of early marriage and childbirth.

2) Girls exposed to the garment sector gain extra years of education. According to the study, on average, one additional year of working in the garment sector statistically will lead to a 0.48 years of education for girls. The authors further suggest that increased demand for skills in garment factories was one of the main driving forces behind such a positive correlation.

As argued by the authors, in developing countries such as Bangladesh, social policies such as education are often tied to trade policy and industrial policy.

However, one another interesting finding is that the average wage level of respondents working in the garment sector was almost 22% lower than those working in the non-garment sector in Bangladesh.

So, based on our case study and the above research findings, do you have any new thoughts about improving the corporate social responsibility practices in the global apparel industry? Do you think Western retailers shall stop sourcing apparel from Bangladesh because of the reported problem of factory safety and workers’ working condition? Please feel free to share your views.

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

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