The Global Journey of a Marks and Spencer Wool Suit

english suit

global travel

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 Is the clothing label “Made in ___” outdated in the 21st century?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.

The Future of Asia-Pacific and Implications for the U.S. Textile and Apparel Industry

Asia Pacific

The following discussion questions are proposed by students enrolled in FASH455 (Global Apparel & Textile Trade and Sourcing) Fall 2015 after learning the unit on textile and apparel industry & market in the Asia-Pacific region. Please feel free to leave your comment and engage in our online discussion.

  1. We’ve heard so much about China’s superior involvement in the textile & apparel sectors globally, but how are these industries contributing to the local economy?
  2. As rules on working conditions and minimum wage have been enforced in Mainland China many business people have moved their operations to Southeast Asia, do you think the Southeast Asia will eventually become like mainland China forcing businessmen to seek low wages elsewhere?
  3. Will Vietnam shift its sourcing of yarns and fabrics from China to US after TPP? What are some setbacks associated with this? What are some potential opportunities?
  4. While Vietnam is currently one of the primary exporters of apparel to the United States, what should be the actions taken by the United States if they continue to “refuse” to cut out Chinese Textiles? Or, should the United States continue their trading patterns with Vietnam despite their reliance on Chinese Textiles?
  5. The Asia pacific region is made up of a variety of countries with different strengths and political infrastructure. How does the variety of policies and governments affect how we do business abroad, and is there a way to set standards that are not individualized to each country?
  6. China and the US can be seen as a threat to one another. However the president of China said the “Pacific Ocean has enough space for the two large countries”. Do you think they are threats to each other, or are they ultimately helping each other’s economies grow?
  7. What will happen as more and more countries that used to produce apparel move into producing more capital intensive production?
  8. What are the advantages or disadvantages of excluding China from international trade agreements such as TPP?
  9. If the T&A industry in China is envisioned by policymakers as beginning to focus more on technical textiles, how will the textile industry in China compete with the industry in the United States?
  10. Why has East Asia become one of the most economically interconnected regions in the world?
  11. What are some of the reasons that China still remains one of most price competitive export markets in the World? Also, does China face challenges in losing their top spot as leader in price competitiveness? If so, what are some of the reasons they are in danger of competition?
  12. How is the discussion about yarn forward rules of origin different in regards to TPP countries than the same discussion between the NAFTA/CAFTA-DR countries?

 [Discussion for this post is closed].

USTR Michael Froman Comments on the Textile and Apparel Chapter under TPP

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In an event hosted by the Council on Foreign Relations on October 15, 2015, U.S. Trade Reprehensive Michael Froman left a comment on the textile and apparel chapter (T&A) under TPP. He said that:”

“You know, we worked very hard to find solutions that could address the broad range of stakeholder interests here, even when we had conflicting interests here in the U.S. I’ll take textile as an example. You know, we have a domestic textiles industry that’s been investing in more production in the U.S., growing their employment in the U.S. And obviously we have a strong sector of our economy that brings in apparel from other countries, apparel importers and retailers. We worked very closely with both groups of stakeholders to come up with a solution, to come up with an outcome that we think both will be comfortable with and both will be supportive of. And that’s been very important to us to try and address the broad range of U.S. stakeholder interests, whether it’s labor, environment, importers, exporters, to make sure we’re covering everybody’s interests well.”

In the remarks, Forman also ruled out the possibility that TPP would be renegotiated. He said that:

“So this isn’t one of those agreements where, you know, you can, you know, reopen an issue or renegotiate a provision. This is one where, you know, every issue is tied to every other issue and every country’s outcome is balanced against every other country’s outcome. And so that’s the agreement that we’ll be putting forward under TPA for a vote by Congress.”

According to Inside U.S. Trade (October 9, 2015), the final TPP reflects some of the key priorities of the U.S. textile industry by allowing limited exceptions from the prevailing yarn-forward rules of origin and by including tariff phaseouts for “sensitive apparel items” of 10 to 12 years.

Besides the basket of goods that will become duty-free upon entry into force (which include cotton shirts and cotton sweaters), TPP sets up three other categories for tariff reductions on apparel:

TPP apparel

Major exceptions other than the “short supply list” mechanism under TPP include:

  • An “earned import allowance program for cotton pants made in Vietnam from third-country fabric by importing a specified amount of U.S. cotton pants fabric. This would allow cotton pants from Vietnam would enter the U.S. duty-free as soon as the agreement is implemented. It is said the ratio for the program is “close” to 1:1. However, for men’s cotton pants, there could be a 15 million square meter equivalents (SMEs) annual cap until year 10, after which it will increase to 20 million. There is no quantitative limit for the other types of cotton pants that can be shipped under the program, such as women’s, girls’ and boys’ pants.
  • A limited list of cut-and-sew items that Vietnam and other TPP countries can ship to the U.S. under the preferential TPP duty rate. These include synthetic baby clothes, travel goods including handbags, and bras.

Regional Production-Trade Network Remains an Important Feature of Global Textile and Apparel Trade

Regional production-trade network (RPTN) refers to a vertical industry collaboration system between countries that are geographically close to each other. Within a RPTN, each country specialized in certain portions of supply chain activities based on its respective comparative advantages so as to maximize the efficiency of the whole supply chain.

There are three major textile and apparel (T&A) RPTNs in the world today:

  • Asia: more economically advanced countries/regions such as Japan, South Korea, Taiwan, Hong Kong and China supply textiles to the less economically developed countries such as Vietnam, Bangladesh and Sri Lanka for apparel manufacturing, where the wage level was much lower. On the other hand, Japan is a leading apparel importer and consumption market in Asia.
  • Europe: among EU members, textile inputs can be supplied by developed countries in Southern and Western Europe such as Italy and Germany. In terms of apparel manufacturing in the European Union, low and medium-priced products can be undertaken by developing countries in Southern and Eastern Europe such as Poland and Romania, whereas high-end luxury products can be produced by Southern and Western European countries such as Italy and France. Furthermore, finished apparel can be shipped to developed EU members such as UK, Germany, France and Italy.
  • America: within the region, the United States as a developed country supplies textile materials to developing countries in North, Central and South America (such as Mexico and countries in the Caribbean region), which assemble imported textiles into apparel by taking advantage of the local low labor cost. The finished apparel articles are eventually exported to the United States for consumption.

Latest data from the World Trade Organization (WTO) shows that RPTN in the above three regions remain an important feature of today’s global T&A trade as the graphs shown below:

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(Note: Data comes from the World Trade Organization)

Particularly, three specific trade flows are worth watching:

One is Asian countries’ growing dependence on textile supply from within the region, which rose to 90.2% in 2014 from 87.7% in 2000. This is a reflection of a growing integrated T&A supply-chain in Asia. As a result, apparel “Made in Asia” is becoming even more price-competitive in the world marketplace today and this has posted pressures on the operation of the T&A RPTNs in EU and America.

Second one is the stable intra-region trade pattern both for textile and apparel in EU. In 2014, 58.8% of EU’s (28 members) textile imports and 46.2% of apparel imports came from other EU members; at the same time, 68.8% of EU’s (28 members) textile exports and 74.7% of apparel exports also went to other EU members.

Additionally, developing countries in North, Central and South America still heavily rely on regional supply of textile inputs; at the same time, their finished apparel are also mostly consumed within the region. Data show that 80.3% of American countries’ textile imports still came from within the region in 2014; at the same time, 88.9% of American countries’ apparel exports were also shipped to the region, mostly the United States and Canada as the final consumption market.

Sheng Lu