Apparel Specific Rules of Origin in NAFTA 2.0 (US-Mexico-Canada Free Trade Agreement)

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The full article is available HERE

Key findings:

First, in general, USMCA still adopts the so-called “yarn-forward” rules of origin. This means that fibers may be produced anywhere, but each component starting with the yarn used to make the garments must be formed within the free trade area – that is, by USMCA members. 

Second, other than the source of yarns and fabrics, USMCA now requires that some specific parts of an apparel item (such as pocket bag fabric) need to use inputs made in the USMCA region so that the finished apparel item can qualify for the import duty-free treatment.

Third, USMCA allows a relatively more generous De minimis than NAFTA 1.0.

Fourth, USMCA seems to be a “balanced deal” that has accommodated the arguments from all sides regarding the tariff preference level (TPL) mechanism:

  • 1) Compared with NAFTA, USMCA will cut the TPL level, but only to those product categories with a low TPL utilization rate;
  • 2) Compared with NAFTA, USMCA will expand the TPL level for a few product categories with a high TPL utilization rate.

Fifth, USMCA will make no change to the Commercial availability/short supply list mechanism in NAFTA 1.0.

Sixth, it remains to be seen whether USMCA will boost Made-in-the-USA fibers, yarns and fabrics by limiting the use of non-USMCA textile inputs. For example, while the new agreement expands the TPL level for U.S. cotton/man-made fiber apparel exports to Canada (currently with a 100 percent utilization rate), these apparel products are NOT required to use U.S.-made yarns and fabrics. The utilization rate of USMCA will also be important to watch in the future.

About USMCA

On 30 September 2018, The United States reached an agreement with Canada, alongside Mexico on the updated North American Free Trade Agreement (NAFTA), now called the United States-Mexico-Canada Agreement (USMCA)

Before taking into effect, USMCA still needs to be ratified by all member countries. In the United States, the earliest that President Trump can sign the agreement will be 11/29/2018 (i.e., 90 days after notifying the Congress). The U.S. International Trade Commission has until 3/14/2019 (i.e., 150 days after President signing the agreement) to release an assessment of the new trade agreement. Afterward, the Trump Administration will need to work with the Congress to develop legislation to approve and implement the agreement.

Sourcing Strategies of U.S. Fashion Brands and Apparel Retailers: Discussion Questions from FASH455

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#1 Assume you are a sourcing manager for a major US fashion brand, how would you rank the followings regarding importance when determining a sourcing destination: 1) Speed to Market; 2) Sourcing Cost; 3) Risk of Compliance; 4) other factors (please specify). Why would you rank them as such?

#2 According to the 2018 US Fashion Industry Benchmarking Study, some apparel retailers report sourcing from more than 10 or even 20 different countries or regions. What are the benefits of adopting such a diversified sourcing base? Is it necessary?

#3 How has President Trump’s trade policy agendas affected U.S. fashion brands and apparel retailers’ sourcing strategy? What could be the long-term effect and why?

#4 U.S. fashion brands and retailers plan to source less from China and move towards other apparel suppliers like Vietnam or Bangladesh. Is this a short-term response or a reflection of companies’ adjustment of its long-term sourcing strategy? Why?

#5 Most U.S. apparel companies have already shifted their businesses to non-manufacturing activities such as design, branding, sourcing and retailing. Why or why not do you think it is still meaningful to give attention to apparel manufacturing in the U.S.?

#6 Based on the 2018 US Fashion Industry Benchmarking study, why or why not do you think U.S. fashion brands and apparel retailers have given enough attention to sustainability and social responsibility issues in their sourcing practices? What could be done further?

#7 Any other topics/questions do you think next year’s US Fashion Industry Benchmarking Study could include and why?

[For FASH455: 1) Please mention the question number in your comments; 2) Please address at least two questions in your comments]

Textile and Apparel Items Removed from USTR’s Original Proposed Product List for the Section 301 Action (September 2018)

On September 17, 2018, President Trump formerly announced to take the Section 301 action against another $200 billion worth of imports from China. The additional tariffs will be effective starting September 24, 2018, and initially will be in the amount of 10 percent.  Starting January 1, 2019, the level of the additional tariffs will increase to 25 percent.

The $200 billion imports from China targeted include 5,745 full or partial lines of the original 6,031 tariff lines that were on a proposed list of Chinese imports announced on July 10, 2018. Included among the products removed from the original proposed list are certain consumer electronics products such as smart watches and Bluetooth devices; certain chemical inputs for manufactured goods, textiles and agriculture; certain health and safety products such as bicycle helmets, and child safety furniture such as car seats and playpens.

Below are the textile and apparel related products removed from the original proposed list:

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Data source: CCCT (2018) 

However, the final $200 billion product list still covers several textile and apparel-related products such as backpacks, handbags, purses, wallets, baseball gloves, hats and leather, and fur apparel, as well as textiles and machinery that are used for domestic manufacturing. In general, the final $200 billion product list includes about 20% consumer products (v.s. only 1% in the $50 billion already subject to the 25% additional tariff), 50% intermediary goods and 30% capital goods.

Debate on Used Clothing Import Ban: Discussion Questions from FASH455

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Background: In a proclamation released by the White House on July 30, 2018, President Trump announced to suspend Rwanda’s duty-free treatment for all African Growth and Opportunity Act (AGOA)-eligible apparel products until Rwanda “comes back into compliance with the AGOA eligibility requirements.” Losing the AGOA benefits means Rwanda’s apparel exports to the United States now will be subject to the most-favored-nation (MFN) tariff rate, which averaged 12.8% for knitted apparel (HS chapter 61) and 10.1% on woven apparel (HS chapter 62). 

Back in June 2017, the U.S. Trade Representative Office (USTR) announced to conduct an out-of-cycle review of Rwanda, Tanzania, and Uganda’s AGOA eligibility in response to a petition filed by the Secondary Materials and Recycled Textiles Association (SMART). The SMART petition asserts that a March 2016 decision by the East Africa Community (EAC), which includes Kenya, Rwanda, Tanzania, and Uganda, to phase in a ban on imports of used clothing and footwear is imposing significant economic hardship on the U.S. used clothing industry. 

Discussion questions:

#1 Is it worth it to ban imports of used clothing in East Africa? Isn’t reusing or repurposing used clothing will be beneficial to the environment, and will promote trade, and provide lower priced to the less fortunate?

#2 Why or why not do you believe that the import ban on used clothing will boost the cotton, apparel, textile, and leather local textile industries in EAC countries and allow for an increase in jobs and economic growth there?

#3 Notably, almost none of the used clothing exported from the US to EAC countries are actually “Made in USA”—they were originally imported from Asian countries such as China, Vietnam, and Bangladesh. Also, most U.S. used clothing exports to EAC were “free giveaways” by U.S. consumers. Is it ethical for SMART to oppose the used clothing import ban so that its own can make a profit?

#4 Most EAC members are the least developed countries. Should they have the rights to reject used clothing from developed countries and start the industrialization process, or should the principle of “free trade” apply to used clothing trade?

#5 If all parties involved in the dispute on the second-hand clothing ban were to come to a compromise, what could that potentially look like and how might we go about it? Is it even possible?

#6 Why or why not do you think the booming of the used clothing trade challenges the stage of development theory we learned in week one (i.e., a country’s textile and apparel industry theoretically will go through six development stages)?

[For FASH455: 1) Please mention the question number in your comments; 2) Please address at least two questions in your comments]

Recommended reading: Why is the used clothing trade such a hot-button issue

Trade War Looms over New York Fashion Week

Discussion questions:

  • Why does the U.S. textile industry call for additional tariffs on textile and apparel imports from China whereas U.S. fashion brands and apparel retailers oppose the tariffs?
  • Based on the trade theories we have learned so far, why or why not would you recommend President Trump to impose 25% punitive tariffs on imports from China?

Appendix: Comments on the Proposed Section 301 Tariffs on Imports from China (August 2018)

For the complete timeline of the U.S. Section 301 tariff action against China, please click HERE

BIS Released Assessment Report of the U.S. Textile and Apparel Manufacturing Sector

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The Bureau of Industry and Security (BIS) under the U.S. Department of Commerce recently released its assessment report of the U.S. textile and apparel (T&A) manufacturing sector. The report was based on a survey of 571 U.S. T&A manufacturers in summer 2017. These respondents include 230 textile mills (NAICS 313), 128 textile product mills (NAICS 314), and 213 apparel manufacturers (NAICS 315).

Below are the key findings of the study:

The state of the U.S. textile and apparel (T&A) manufacturing sector

  • U.S. T&A manufacturing has shrunk significantly: the value of T&A shipments (seasonally adjusted) in 2016 ($68 billion) was almost 56% decrease in real terms since 1995 ($153 billion).
  • U.S. T&A manufacturing has undergone substantial structural change: textiles and textile products accounted for 82% of the total shipments of the U.S. T&A industry as of 2016, compared to 57% in 1995. Notably, only 18% of shipments came from apparel manufacturing in 2016, compared to 43% in 1995.
  • U.S. T&A manufacturing sector is hiring less: Between 1990 and 2016, total employment decreased by 79%, from 1.7 million to 352,000 workers; over the same period, over 86% of apparel manufacturing jobs disappeared.
  • U.S. T&A manufacturers are making more capital investments: The overall total Capital Expenditures (CAPEX) of the 571 respondents increased 90 percent from 2012 to 2016 (from $1.6 billion to $3.1 billion). Particularly, the CAPEX of textile mills grew by 80 percent over that period—mostly on “Machinery, Equipment, and Vehicles.”
  • North Carolina hosted the largest number of U.S. T&A facilities (22 percent of the respondents), followed by Georgia (10 percent), and South Carolina (9 percent).
  • China, Mexico, and Canada are the most popular destinations for foreign investments by U.S. T&A manufacturers.

Competition landscape and factors

  • Respondents listed a total of 1,309 U.S. competitors and 552 non-U.S. competitors. Chinese companies were cited as the number one source of foreign competition.
  • “Quality,” “Lead Time,” and “Innovation” were the top three competitive advantages of U.S. T&A manufacturers as they related to foreign competition. “Labor Costs” was regarded as the top disadvantage of U.S. T&A manufacturing.
  • 43 percent of respondents believed that reshoring was occurring in U.S. T&A manufacturing. Almost all of these respondents believed that “Shorter Lead Times” and the “Marketability of the ‘Made in USA’ Label” were the factors driving the trend.
  • The Affordable Care Act (ACA), Minimum Wage regulations (Federal, State, and Local), and U.S. Trade Policy were the top governmental regulations and provisions cited as negatively impacting the competitiveness of U.S. T&A manufacturers.
  • 61 percent of respondents reported that they had difficulties hiring and/or retaining employees for their T&A operations, specifically production line workers such as operators and machine technicians. The skill gaps in the labor market for those positions were by far the biggest ones identified for the industry.
  • 43 percent of respondents believed that reshoring was occurring in T&A manufacturing (i.e., the practice of transferring a business operation that was moved to a non-U.S. location back to the United States.) Textile manufacturers were more likely to be aware of reshoring.

Trade and U.S. textile and apparel manufacturing

  • On average, respondents say 48 percent of their textile and textile products are “100 percent made in the U.S.”, while for apparel it was around 54 percent.
  • U.S. T&A exports dropped 10 percent between 2012 and 2016, from $2.2 billion to $1.98 billion. On average, exports accounted for only 12 percent of respondents’ total sales.
  • 33 percent of respondents considered themselves to be dependent on foreign sources for supplies, which was highest among textile mills.
  • 37 percent of respondents reported that they considered themselves to be dependent on non-U.S. sourcing for their machinery or equipment.

Berry Amendment and U.S. textile and apparel manufacturing

  • For textile mills, an average of 12 percent of U.S. output was Berry Amendment-related; for textile product mills the average was 21 percent, and for apparel production, it averaged 26 percent. 67 percent of respondents believed that the Berry Amendment had a positive impact on their organization’s business.