Outsoucing and “Made in USA” An Ongoing Debate

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The following questions are proposed by students enrolled in FASH455 Spring 2016. Please feel free to leave your comment and engage in our online discussion.

L.L Bean: A Business Model for “Made in USA”?

L.L. Bean has been a strong business for hundreds of years, yet recently their sales of Bean Boots have skyrocketed because they are now seen as trendy. Even though L.L. Bean’s orders and demand has gone up, they still somehow manage to have their products being handmade, sourced locally, and all in the US.

#1: Can L.L. Bean become a model for other businesses looking to manufacture in the US? How has L.L. Bean managed to keep this business model up for so many years and why have they not changed or decided to outsource? 

#2: Why doesn’t L.L Bean look into other American cities for manufacturing options so they do not lose productivity by being exclusively made in Maine?

#3: Do you think it would be beneficial for L.L. Bean to outsource to foreign companies for their manufacturing? Would there still be as high of a demand if these boots were manufactured abroad?

Outsourcing v.s. “Made in USA”

#4: It is said that one reason why American brands choose to offshore their manufacturing is because there isn’t as many cutting edge machines readily available in the States as in other countries. Is it realistic for the American manufacturing market to invest in these machines for domestic manufacturing? If so, how can America make sure to stay relevant with these technologies and not fall behind as we have currently?

#5: One aspect commonly mentioned throughout these readings was the lack of skilled labor in the US in the fashion industry. Is the decrease in skilled areas, such as shoemaking and needle trade, due to the increase in skilled labor overseas? Are these professions considered outdated for young Americans to be learning? How can we jumpstart a desire for young people to take up these skills once again?

#6: One major problem the US has been facing regarding keeping production domestic has been the lack of skilled workers to work in factories. Is the cost of providing training to interested workers too high? Should it be required that all fashion majors should take a sewing class? Where does the decision to train apparel workers begin?

#7: Many American manufacturers refrain from manufacturing in the United States because it is too expensive because more people are formally educated and are not willing to work for a low wage, but only 15% of respondents actually are working towards that. Is it realistic to reach out to homeless communities looking to get back onto their feet to see if they would work in factories? Would this help promote American manufacturing and decrease importing?

#8: In today’s fast paced fashion world, trends come and go rather quickly. The striking disadvantage of manufacturing overseas is the slow turnaround time which could be up to 3-5 months. By manufacturing domestically, turnaround can be as quick as 2 weeks. Why do the majority of fashion companies still choose to manufacture overseas when there is a possibility the trend could be over by time they reach store shelves (Thus, a lack in profit)? When will trend pressures become too much for overseas production?

#9: Is it even worth it to bring manufacturing back to America if it is not benefitting the workers and creating jobs? If manufacturing in the US is simply machine based, what is the point of doing so when it could be cheaper elsewhere and benefit countries that need the jobs?

[Discussion is closed for this post].

Textile and Apparel Sector in the 2016 U.S. Trade Policy Agenda

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In the recently released 2016 President’s Trade Agenda, the textile and apparel (T&A) sector was mentioned four times (up from only once in 2015*):

1.Trade enforcement

“THE OBAMA ADMINISTRATION has a record of trade enforcement victories that have helped to level the playing field for American workers, businesses, farmers, and ranchers. In 2016, we will continue to aggressively pursue a robust trade enforcement agenda, including by using new and stronger tools under the bipartisan Trade Enforcement Act of 2015 to hold our trading partners accountable.

Ongoing disputes include challenges to:

  • China’s far-reaching export subsidy program extending across sectors and dozens of sub-sectors, including textiles, industrial and agricultural products.”

2.Trade preference programs

“Haitian Hemispheric Opportunity through Partnership Encouragement Act (HOPE) pro­gram, which supports nearly $900 million in garment imports from Haiti, is an essen­tial support for Haiti’s long-term economic growth and industrial development. HOPE supports thousands of jobs in Haiti’s textile and gar­ment sectors, while providing important pro­tections to workers. Early extension of this program will provide the necessary stability and continuity for companies to continue in­vesting in Haiti’s future.”

3.Benefits of trade to the American people

“More recent trends are similar, with families steadily gaining purchasing power as the price of traded goods, such as smart phones, apparel, and toys, falls. While all households benefit, the gains from trade have predominantly benefited lower-income Americans, who spend a greater portion of their incomes on highly-traded staples like food, shoes, and clothing.”

4.Trade and labor

Our engagement has produced an Imple­mentation Plan Related to Working and Liv­ing Conditions of Workers that is helping to address concerns about workers’ rights and working conditions in Jordan’s garment sec­tor, particularly with respect to foreign work­ers. Jordan has issued new standards for dormitory inspections, submitted new labor legislation to its parliament and hired new labor inspectors. USTR and Department of Labor continue to work with Jordan on the issues under the Plan.

Overall, it seems:1) Reflecting the global nature of the sector, T&A is a topic that involves multiple trading parties for the United States; 2) Economic development and foreign aid are important elements in the U.S. trade policy for T&A. 3) Social responsibility and labor practices in the T&A sector remain a grave concern and need further improvement through international collaborations. 4) The T&A sector is involved in some topics with divisive public opinions, such as the impact of imports.

* Textile and apparel mentioned in the 2015 U.S. Trade Policy Agenda:

Our engagement has produced an Implementation Plan Related to Working and Living Conditions of Workers that is helping to address concerns about workers’ rights and working conditions in Jordan’s garment sector, particularly with respect to foreign workers. Jordan has issued new standards for dormitory inspections, submitted new labor legislation to its parliament and hired new labor inspectors.

[Discussion is closed for this post]

The Global Journey of a Marks and Spencer Wool Suit

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An interesting BBC article describes the global journey of a Marks and Spencer (M&S) wool suit:

  1. The suit was designed by M&S in-house team in UK
  2. Wool that makes up the suit came from Australia
  3. Raw wool was shipped from Australia to China for topping.
  4. Wool top was shipped from China to Italy for dying
  5. Dyed wool was shipped from Italy to Romania to be spun into yarn
  6. Yarn was shipped to Yorkshire, UK to be woven into cloth
  7. Cloth was shipped from Yorkshire, UK to Cambodia to be made into finished suit
  8. Finished suit was shipped back to UK to be sold at M&S retail stores

As noted by the article, such a global-based production model for M&S’s suit is increasingly typical in UK. What makes the issue controversial, however is that, the suit is labeled as “100% British cloth”. As “defined” by M&S, “British cloth means it is woven, dyed and finished in the UK”.

Similar debates also exist in the United States. In the past, even if a garment was cut and sewn in California but made of imported items, the tag still had to say, “Made in USA of imported fabric, zippers, buttons and thread.” But a new law which takes into effect on January 1, 2016 allows California manufacturers to attach the “Made in USA” label as long as no more than 5 percent of the wholesale value of the garment is made of imported materials.

Discussion questions:

  1. What are the driving forces behind apparel companies’ global-based production model?
  2. Is the clothing label “Made in ___” outdated in the 21st century?
  3. Do you support the new law which allows apparel labeled “Made in USA” to contain certain value of imported material? Why? Do we need such a regulation at all? Why or why not?

Minimum Wage in the Apparel Industry Continues to Rise in Most Asian Countries in 2016

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Apparel producers across Asia may face a more than 5% minimum wage increase in 2016, according to an industry source. India, Malaysia, Thailand and Pakistan may see the biggest increase of minimum wage (up more than 15%) among the leading Asian apparel producers, whereas minimum wage in Bangladesh and Philippine may remain roughly unchanged from last year.

As noted by the industry source, this year’s minimum wage increase comes from various reasons. In Cambodia, the increase is mostly pushed by local labor unions. Indonesian government raises the wage aiming to shorten the gap between minimum and living wage in under-developed regions. Additionally, countries such as India adjust their minimum wages more based on economic factors such as inflation rate, GDP growth rate and consumers’ price index.    

Data further shows that the gap in minimum wage between Asian apparel producers somehow is widening. For example, monthly minimum wage in some parts of China has reached $321 USD in 2016, which is $253 USD higher than in Bangladesh ($68 USD/month), up from $225 USD in 2015. A wide gap in minimum wage is also found within some Asian countries. For example, in Philippine, Indonesia and China, the highest minimum wage could be almost twice as high as the lowest minimum wage in the country.

Despite the increase, minimum wage in Asia remains a fraction of the level in the developed countries. For example, minimum wage in the United States was $7.5/hour in 2015, meaning a worker’s monthly minimum wage shall no less than $1,200 (assume working 40 hours/week, 4 weeks/month).

Textile and Apparel (T&A)-Specific Rules of Origin in TPP—Apparel Products

Textile and apparel (T&A)-specific rules of origin (RoO) for most apparel articles under TPP are known as the nickname “yarn forward”. “Yarn-forward “means preferential treatment under TPP will be allowed if the component determining classification meet BOTH the following two criteria:

  • knit or woven in TPP countries FROM yarn spun or extruded in TPP countries;
  • apparel is cut or knit to shape or both + sewn or otherwise assembled in TPP countries

In other words, “yarn forward” RoO not only requires the activity of apparel manufacturing must happen in one or more TPP countries, but also requires certain textile material used to make the apparel products must come from the TPP region.

The following is an example of how TPP describes “yarn-forward” rules of origin:

“A good is an originating good if it is produced entirely in one or more TPP countries by one or more producers using non-originating materials and each of the non-originating materials used in the production of the good satisfies any production process requirement, any applicable change in tariff classification requirement or any other requirement specified.”

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The followings are details of T&A-specific RoO for apparel products in TPP compiled based on released TPP text. “Regular yarn-forward” means all textile material listed in the table must be TPP originating. Overall, TPP allows much fewer exceptions to “yarn-forward” rules than most existing free trade agreements in the United States (such as NAFTA, CAFTA-DR, and Columbia Free Trade Agreement).

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U.S. Department of Commerce Releases Factsheet on TPP and the U.S. Textile and Apparel Industry

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According to the factsheet released by the U.S. Department of Commerce, the Trans-Pacific Partnership (TPP) will create exciting new export opportunities for the U.S. textile and apparel (T&A) industry. The report highlights Vietnam and Japan as two promising markets in TPP for certain T&A products “Made in USA”, including:

Vietnam:

  • Cotton fiber, yarn, and Cotton woven Fabric (U.S. exported $394 million in 2014 with 16% market share only after China; tariff will be cut from 12% to zero on day one)
  • Non-woven fabrics (U.S. exported $23million in 2014, up 951% from 2009; tariff will be cut from 12% to zero on day one)

Japan

  • Synthetic fiber, yarn, and fabric (U.S. exported $61 million in 2014, up 61% from 2009; tariff will be cut from 2.7%-10% to zero on day one)
  • Industrial and advanced textile fabrics (U.S. exported $91 million in 2014, the fourth largest supplier after China, Taiwan, South Korea; tariff will be cut from 8.2% to zero on day one)
  • Men’s and boy’s apparel (U.S. exported $32.6milion in 2014, up 30.9% from 2009; tariff will be cut from 9.8% to zero on day one)

The factsheet also argues that TPP is a “balanced” deal for the U.S. T&A industry: long U.S. tariff phaseout schedule, strict “yarn-forward” rules of origin and textile safeguard mechanism in TPP will serve the interests of those stakeholders that seek protection of U.S. domestic T&A manufacturing, whereas duty savings from import tariff cut and the short supply list will create greater market access opportunities for U.S. fashion brands and retailers.

According to the report, the United States is the fourth largest textile exporter in the world. 54% of total U.S. T&A exports went to TPP markets in 2014. The United States is also the single largest importer of T&A in the world. 372,300 T&A manufacturing jobs remained in the United States in 2014.