Trade policy – Page 6 – FASH455 Global Apparel & Textile Trade and Sourcing

TPP: A Conversation with U.S. Trade Representative Michael Froman

The following summary of the event is written by Natalie Smith, a student in FASH455 Fall 2016.

Michael Forman continually talked about the benefits of passing the TPP during the end of Obama’s term and during the lame duck period. If the TPP is not passed during this time, the bill could sit in congress for years since the two presidential candidates are against free trade.
Michael Forman also mentions some outstanding issues that have surrounded the TPP. One main problem is the dairy industry, which is export and import sensitive and the need for a balance to set their needs. Additionally, the pork industry has problems with implementation, especially with Japan. There are also concerns with the financial services and data flows.
However, Michael Forman stated the urgency of implementing the TPP as quick as possible. If it is not implemented rapidly China has the ability to set the rules of trade. China, similar to the U.S. wants to move into the Asian Pacific market, however the TPP has different objectives then other Chinese trade agreements. The TPP has a focus on labor and environmental standards and IP standards. Although, it seems the goal is to eventually get China to join the TPP. Forman mentioned if China does not end up joining the TPP, we want them to be forced to live in a TPP world, which includes high standards.
Michael Forman further discusses the Trans-Atlantic Trade and Investment Partnership (T-TIP), which they hope to soon reach an agreement on with the European Union. They recently finished their thirteenth round of negotiations, the main outstanding problems with the TTIP are the uneven growth, Greek crisis, and euro skepticism. Nevertheless, the TTIP is a positive agenda item to help promote job growth in Europe.

A few things that stuck out to me from this dialogue included Forman’s belief of California being the state to benefit the most from the TPP. Currently, California exports $170 billions of goods and are strong in manufacturing, agricultural, entertainment, IP industries, etc. I also found it interesting that he continually reiterated that we have not lost jobs in the U.S. solely because of globalization but mainly because of automation.

Debate on the Trans-Pacific Partnership and the Textile and Apparel Industry: Questions from FASH455

#1 Overall, do you think the Trans-Pacific Partnership (TPP) reflect the commercial interests of the U.S. textile industry and/or U.S. apparel industry? Why?

#2 We know that the U.S. textile industry (such as NCTO) strongly supports a strict yarn-forward RoO in TPP whereas apparel retailers and fashion brands (such as USFIA and AAFA) say the yarn-forward style RoO is outdated and unworkable for apparel companies’ global apparel supply chain. If you were U.S. policymakers, what would you do to “balance” these two conflicting arguments?

#3 Research shows that many free trade agreements enacted in the United States are with a very low utilization rate. Will TPP face the same fate? Why or why not?

#4 It is said that TPP has the strongest protections for workers of any trade agreement in history, requiring all TPP Parties to adopt and maintain in their laws and practices the fundamental labor rights as recognized by the International Labor Organization (ILO). But why do most U.S. labor unions still oppose the agreement?

#5 Will TPP exert a negative impact on the Western Hemisphere supply chain? Why or why not? How should apparel manufacturers in the NAFTA and CAFTA-DR region respond to the potential impact of TPP, especially the intensified competition from Vietnam?

Please feel free to share your thoughts and recommend any additional articles/readings/resources relevant to the discussion. Please mention the question # in your reply.

Trade Adjustment Assistance (TAA) Program: An Overview

In the class, we briefly introduced the Trade Adjustment Assistance (TAA) program, which has played a critical role in the past decades both financially helping trade-displaced workers and tactically facilitating trade liberalization agendas in U.S. trade policy.

Rationale and purpose of TAA

It is widely acknowledged that trade liberalization can benefit consumers and create new market-access opportunities for export-oriented firms. However, expanded trade may also exert negative and often concentrated effects on domestic industries and workers that face increased import competition. Freer trade is not entirely free, but bears the cost of economic adjustment. TAA program therefore is designed to provide readjustment assistance to firms and workers that suffer dislocation (job loss) due to foreign competition or offshoring. To be noted, TAA has been a significant tool to assist workers in the U.S. textile and apparel industry.

According to official statistics, since 1974, 2.2 million American workers have benefited from the TAA program, which provides workers with opportunities to obtain the skills, credentials, resources, and support they need to obtain good jobs in an in-demand occupation — and keep them. TAA was last authorized in June 2015 to continue through June 30, 2021.

Eligibility for TAA

To be eligible for TAA, petitioning workers must establish that foreign trade contributed importantly to their loss of employment. The role of foreign trade can be established in one of several ways:

An increase in competitive imports: The sales or production of the petitioning firm have decreased absolutely and imports of articles or services like or directly competitive with those produced by the petitioning firm have increased.
A shift in production to a foreign country: The workers’ firm has moved production of the articles or services that the petitioning workers produced to a foreign country or the firm has acquired, from a foreign provider, articles or services that are directly competitive with those produced by the workers.
Adversely affected secondary workers: The petitioning firm is a supplier or a downstream producer to a TAA-certified firm and either (1) the sales or production for the TAA-certified firm accounted for at least 20% of the sales or production of the petitioning firm or (2) a loss of business with a TAA-certified firm contributed importantly to the workers’ job losses.

Additionally, workers who lost jobs from firms that have been publicly identified by the United States International Trade Commission (USITC) as injured by a market disruption (for example, in anti-dumping, countervailing duty or safeguard cases) or other qualified action can also submit TAA petition.

Workers’ Benefits under TAA

TAA benefits for individual workers include:

Training and reemployment services and income support for workers who have exhausted their unemployment compensation benefits and are enrolled in training.
Workers age 50 and over may participate in the Reemployment Trade Adjustment Assistance (RTAA) wage insurance program.
Certified workers may also be eligible for a tax credit for a portion of the premium costs for qualified health insurance.

Financial Cost of TAA

TAA is financially covered by the federal government (i.e. taxpayers’ money) through annual appropriations. Appropriations for the program in FY2016 were $861 million, of which $450 million was for training and reemployment services and the remaining $411 million was for income support and other activities.

Role of TAA in U.S. trade policy

TAA is “presented as an alternative to policies that would restrict imports, and so provides assistance while bolstering freer trade and diminishing prospects for potentially costly tension (retaliation) among trade partners.”(Hornbeck, 2013)

Back in 1992, newly elected President Clinton oversaw the implementation of the North America Free Trade Agreement (NAFTA), but did so only after a number of conditions were attached, including TAA. In 2002, President Bush and the Republicans pushed hard to renew the long-expired trade promotion authority (TPA), but Democrats were unwilling to provide it unless TAA was reauthorized. TAA was also directly linked to the passage of three free trade agreements (FTAs) by US Congress in 2011, including US-Korea, US-Columbia and US-Panama FTAs.

Concerns about TAA

Critics strongly debate the merits of TAA on equity, efficiency, and budgetary grounds:

Economic efficiency: some critics argue that economic efficiency was far from guaranteed given that subsidies can operate to reduce worker and firm incentives to relocate, take lower-paying jobs and in other ways to carryout necessary reform.
Equity: some critics argue that because many economic groups hurt by changing economic circumstances caused by other than trade policies were not afforded similar economic assistance (for example, domestic competition and technology advancement). For the sake of fairness, if society has a responsibility to help all those dislocated by economic change, then policies should not be narrowly restricted to trade-related harm only.
Administrative cost: it is argued by some economists that defining and measuring injury from tariff reduction would be inexact, if not arbitrary. Some studies also suggest that many firms, even smaller ones, could adjust on their own, and that workers could just as well rely on more broadly available unemployment and retraining programs. In addition, the high costs of TAA would dilute political support for the program.

Reference:

Collins, B. (2016). Trade Adjustment Assistance for Workers and the TAA Reauthorization Act of 2015, Congressional Research Service, R44153

Hornbeck, J.F. (2013).Trade Adjustment Assistance (TAA) and Its Role in U.S. Trade Policy, Congressional Research Service, R41922

CRS Releases Updated Study on the U.S. Textile Industry and the Trans-Pacific Partnership (TPP)

On September 1, the Congressional Research Service (CRS) released its updated study on the U.S. textile industry and the Trans-Pacific Partnership (TPP). According to the report:

First, TPP is suggested to have a limited impact on U.S. domestic textile and apparel manufacturing, because:

1) Automation rather than imports is found to be the top factor causing job losses in the U.S. textile industry in the past decade;

2) U.S. is one of the very few TPP members whose textile output mostly went into home textiles, floor coverings and other technical textile products rather than apparel.

3) More than 90% of apparel sold in the United States is already imported. Some companies maintain U.S. manufacturing of high-value products or products requiring quick delivery, which are not likely to be supplied by other TPP members.

4) A quantitative assessment conducted by the U.S. International Trade Commission (USITC) in May also suggests that U.S. imports of textiles will only climb 1.6% by 2032 if TPP enters into force in 2017. Over the same 15-year period, both output and employment in the U.S. textile industry could slightly shrink by 0.4% as a result of the implementation of TPP.

Second, TPP could challenge the Western-Hemisphere supply chain and negatively affect U.S. textile exports to the region:

1) TPP will make apparel manufacturers located in Mexico and Central America lose one important advantage—duty free access to the U.S. market, when competing with Asian TPP members such as Vietnam and Malaysia. The Central American-Dominican Republic Apparel and Textile Council also estimates the CAFTA-DR region could see a contraction of 15%-18% in industrial employment resulting from lost production orders in the first year after the TPP agreement is implemented.

2) The major products sourced by U.S. apparel companies from the Western Hemisphere region include basic, low-value knitwear garments such as shirts, pants, underwear, and nightwear, with a focus on men’s and boys’ wear. However, these products are with low time sensitivity but high price sensitivity, meaning Asian TPP members can easily offer a more competitive price and take away sourcing orders after the implementation of TPP.

3) Because of physical distance and abundance of local supply, leading Asian TPP apparel exporters such as Vietnam seldom use US-made yarns and fabrics. Supported by foreign investments, Vietnam is also quickly building up its own textile manufacturing capacity, which is expected to reach 2 million metric tons for fabrics and 650,000 metric tons for fibers by 2020. This implies that TPP may help little creating new export markets for US textile products, despite the restrictive yarn forward rules of origin.

Additionally, TPP could result in intensified competition in the technical textile area, which is of strategic importance to the future of the U.S. textile industry:

1) If the proposed agreement is implemented, those segments of the U.S. textile industry that supply industrial textiles are likely to face greater competition from rising imports from Japan.

2) TPP will allow Japanese industrial textiles to newly get duty free access to Mexico and Canada, which are the largest export markets for U.S. industrial fabrics in 2015. However, TPP won’t help US companies get more favorable access to China, which is the top export market for Japanese industrial fabrics.

2016 U.S. Fashion Industry Benchmarking Study Released

The 2018 U.S. Fashion Industry Benchmarking Study is now available.

The report can be downloaded from HERE

Key Findings of the study:

I. Business environment and outlook in the U.S. Fashion Industry

Overall, respondents remain optimistic about the five-year outlook for the U.S. fashion industry. “Market competition in the United States” is ranked the top business challenge this year, which, for the first time since 2014, exceeds the concerns about “increasing production or sourcing cost.”

II. Sourcing practices in the U.S. fashion industry

U.S. fashion companies are more actively seeking alternatives to “Made in China” in 2016, but China’s position as the No.1 sourcing destination seems unlikely to change anytime soon. Meanwhile, sourcing from Vietnam and Bangladesh may continue to grow over the next two years, but at a slower pace.
U.S. fashion companies continue to expand their global reach and maintain truly global supply chains. Respondents’ sourcing bases continue to expand, and more countries are considered potential sourcing destinations. However, some companies plan to consolidate their sourcing bases in the next two years to strengthen key supplier relationships and improve efficiency.
Today, ethical sourcing and sustainability are given more weight in U.S. fashion companies’ sourcing decisions. Respondents also see unmet compliance (factory, social and/or environmental) standards as the top supply chain risk.

III. Trade policy and the U.S. fashion industry

Overall, U.S. fashion companies are very excited about the conclusion of the Trans-Pacific Partnership (TPP) negotiations and they look forward to exploring the benefits after TPP’s implementation.
Thanks to the 10-year extension of the African Growth and Opportunity Act (AGOA), U.S. fashion companies have shown more interest in sourcing from the region. In particular, most respondents see the “third-country fabric” provision a critical necessity for their company to source in the AGOA region.
Free trade agreements (FTAs) and trade preference programs remain underutilized in 2016 and several FTAs, including NAFTA and CAFTA-DR, are utilized even less than in previous years. U.S. fashion companies also call for further removal of trade barriers, including restrictive rules of origin and remaining high tariffs.

The benchmarking study was conducted between March 2016 and April 2016 based on a survey of 30 executives from leading U.S. fashion and apparel brands, retailers, importers, and wholesalers. In terms of business size, 92 percent of respondents report having more than 500 employees in their companies, while 84 percent of respondents report having more than 1,000 employees, suggesting that the findings well reflect the views of the most influential players in the U.S. fashion industry.

For the benchmarking studies in 2014 and 2015, please visit: https://www.usfashionindustry.com/resources/industry-benchmarking-study

FASH455 Exclusive Interview with Julia K. Hughes, President of the United States Fashion Industry Association

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Julia K. Hughes is President of the United States Fashion Industry Association (USFIA), which represents textile and apparel brands, retailers, importers, and wholesalers based in the United States and doing business globally. Founded in 1989 as the United States Association of Importers of Textiles & Apparel with the goal of eliminating the global apparel quota system, USFIA now works to eliminate tariff and non-tariff barriers that impede the industry’s ability to trade freely and create economic opportunities in the United States and abroad. Ms. Hughes represents the fashion industry in front of the U.S. government and international governments and stakeholders.

Ms. Hughes has testified before Congress and the Executive Branch on textile trade issues. She is recognized as an expert in textile and apparel issues and frequently speaks at international conferences including the Apparel Sourcing Show, MAGIC, Foreign Service Institute, National Association of Manufacturers, Cotton Sourcing Summit, International Textiles and Clothing Bureau, Young Presidents’ Organization, World Trade Organization Beijing International Forum, and others.

Ms. Hughes served as the first President of the Organization of Women in International Trade (OWIT) and is one of the founders of the Washington Chapter of Women in International Trade (WIIT) and WIIT Charitable Trust. In 1992, she received the Outstanding Woman in International Trade award and in 2008, the WIIT Lifetime Achievement Award.

Ms. Hughes has an M.A. in International Studies from the Johns Hopkins School of Advanced International Studies and a B.S. in Foreign Service from Georgetown University.

Special thanks to Samantha Sault, Vice President of Communication for the U.S. Fashion Industry Association for facilitating and supporting this exclusive interview. Ms. Sault is responsible for the development and execution of the association’s communications strategy, including public relations, policy research and messaging, and social media. Prior to joining the association, Ms. Sault honed her communications expertise at DCI Group, a global public affairs communications firm headquartered in Washington, D.C. Previously, she worked in media as a web editor and fact checker at The Weekly Standard and an editorial assistant at Policy Review, the journal of the Hoover Institution. She began her career in the apparel industry at 17 at abercrombie kids in Bethesda, Maryland.

Interview Part

Sheng Lu: Our students are interested in knowing who the members of the U.S. Fashion Industry Association (USFIA) are. Can you name a few of your member companies?

Julia Hughes: Our members range from major global brands and fast-fashion retailers, to small importers and wholesalers. While all of our members must be doing business in the United States, our membership roster also includes some international companies with a retail presence in the United States. Some of our most actively engaged members include iconic brands and retailers like Ralph Lauren, Macy’s, Levi Strauss & Co., JCPenney, Urban Outfitters, PVH Corp., and American Eagle Outfitters. We also represent small and medium-size importers, wholesalers, and manufacturers that you might not know by name, but supply to many of your favorite brands and retailers—companies like Michar, MGF Sourcing, and Golden Touch Imports, to name a few.

Sheng Lu: The USFIA is an advocate for trade liberalization and removal of trade barriers. Can you talk with us about the benefits of free trade, especially for the fashion industry both in the United States and globally?

Julia Hughes: As you know, USFIA was originally founded in 1989 (then known as the United States Association of Importers of Textiles and Apparel) with the mission to eliminate the global quota system. We were successful! But of course, as you also know, that work is not over. The quotas may have gone away, but there still are import barriers that are unique to the apparel industry. USFIA member companies continue to face some of the United States’ highest tariffs. Textiles and apparel, combined with footwear, still account for some of the highest peaks in the U.S. tariff schedule, with many double-digit tariffs and a high of 32 percent.

Not only are these tariffs higher than on other products, but these tariffs also are a regressive tax. We believe it is simply wrong for a single mom to pay a 32 percent import tax for her baby’s onesies and a 16 percent tariff for her baby’s booties, while the wealthy pay a 1.2 percent tariff for their silk scarves. In total, apparel tariffs take more than $10 billion out of the pockets of hard-working Americans annually. So eliminating these tariffs would be an immediate benefit to American consumers and to American families.

But even removing these tariffs would not mean that there is “free trade.” For example, the fact that the United States maintains these peak textile and apparel tariffs creates problems for new policy initiatives to expand export markets for U.S. products. Market access for American brands and exports is hindered by prohibitively high tariffs in attractive third country markets such as India and Brazil. Our own peak tariffs only encourage other governments to maintain their own high apparel and textile tariffs to “protect” their domestic industries. American brands such as Levi’s and Polo are among the most recognized brands in the world. American yarn spinners and fabric makers operate highly efficient operations that make them among the world’s most competitive producers. For all of these companies, we need every opportunity to remove barriers to trade.

There is a great opportunity to create high-paying jobs here in the United States, too. Fashion brands and retailers offer quality design, product development, logistics, sourcing, and service jobs in the United States, along with manufacturing jobs. These jobs are supported by global value chains, and will be on track to grow IF free trade agreements contain rules of origin and market access provisions that will decrease the cost of those fashion products. This would not only help the brands and retailers grow and create more jobs, but also help consumers by providing access to affordable, high quality apparel.

Finally, free trade isn’t just about tariffs – but also non-tariff barriers like regulations, certifications, and testing requirements all represent non-tariff barriers to trade. And since today’s global brands are selling everywhere from the United States to the UK to Japan to Dubai, we are working to eliminate these barriers, too.

Sheng Lu: The Trans-Pacific Partnership (TPP) is a buzzword for the fashion industry, with Vietnam and China at the core of the discussion. Many people see Vietnam as an alternative sourcing destination to China for labor-intensive apparel and footwear products. You’ve visited both Vietnam and China recently. What’s your first-hand observation? How competitive is “Made in Vietnam” compared with “Made in China”?

Julia Hughes: The TPP is a top priority for USFIA and for our member companies. But unlike some, we do not see the TPP as creating an either/or scenario for sourcing apparel and footwear. China remains the top supplier to the U.S. market, and we do not see that changing any time soon. The breadth of manufacturing operations in China, combined with the state-of-the-art infrastructure and logistics operations, mean that sourcing executives are comfortable with placing orders and knowing that they will get the quality product that they want delivered on time.

However, you are correct that Vietnam is seen as an alternative sourcing destination.—not just by U.S. sourcing executives, but also for Chinese companies. Both the TPP and the EU-Vietnam Free Trade Agreement make Vietnam an especially attractive destination for making apparel and for investments in manufacturing yarns and fabrics. But Vietnam is not necessarily the destination for companies searching for lower prices.

Sheng Lu: In the 2015 USFIA Benchmarking Study, around one-third of respondents report sourcing from 6-10 different countries and another one-third report sourcing from 11-20 different countries. What are some of the reasons that U.S. fashion companies today would choose to have such a diversified sourcing base?

Julia Hughes: There are a couple reasons why companies have such diversified sourcing bases. First, it is a holdover from the quota era, because companies were pretty much forced to diversify their sourcing since they couldn’t import everything from China. Following the elimination of the quotas in 2005, companies had cultivated trusted suppliers all over the world in countries as diverse as Vietnam, Sri Lanka, Mexico, and Colombia, so there was no reason to leave these good suppliers after they had spent the time and resources developing their supply chain. Second, diversification is a method of risk management. There are lots of risks that could impact your supply chain—from natural disasters to labor strife to terrorist attacks. The last thing a company wants is to have all of their production in one place—because when disaster strikes, you won’t be able to get your product to your customers. By keeping a diverse supply chain, you can ensure that you’ll always have products moving to the shelves. Finally, different countries have different specialties—and truthfully, no one country can do it all. Companies don’t necessarily prefer to source fabric, yarn, zippers, and buttons from four different countries and ship to a fifth for cutting and sewing, but sometimes, that’s the way it must be done in order to produce the best product at the best price for your target customer.

Sheng Lu: We know that the African Growth and Opportunity Act (AGOA) has been extended for another 10 years. How has the U.S. fashion industry reacted to the AGOA extension? Are U.S. consumers going to see more “Made in Africa” apparel in the retail stores?

Julia Hughes: USFIA member companies are definitely looking at sourcing opportunities in Africa after the extension of AGOA. Today a little more than 1 percent of U.S. apparel imports come from Sub-Saharan Africa—and there are only a few countries that ship apparel to the U.S. market. Kenya, Lesotho, Mauritius, and Madagascar are the major producers of apparel today – representing 87% of the U.S. imports. The ten-year extension of AGOA is allowing companies to take a fresh look at what is available to source in Africa today, as well as to plan to long-term growth. Both PVH and VF, for example, have been very public about their commitment to develop a vertically integrated industry in Ethiopia.

What is exciting is that new sourcing supply chains are opening up in Africa. While the level of U.S. imports remains low there are some growing suppliers. For example, during March 2016–a month when the overall U.S. apparel imports plunged by -21 percent compared to March 2015—there were a few Sub-Saharan African suppliers that bucked the trend. U.S. imports from Madagascar jumped by 160 percent, from Ethiopia by 83 percent, and from Ghana by 371 percent!

Sheng Lu: Textile and apparel trade policy is always one of the most challenging topics for students in FASH455. Many students wonder why the rules governing the global textile and apparel trade are always far more complicated than most other sectors. For example, in the past, students had to learn about the quota system, from the Short-term Arrangement (STA) to the Multi-Fiber Arrangement (MFA). The quota system is gone, but it seems students now have to know even more “terms”: the yarn-forward rules of origin, short supply list, third country fabric provision, trade preference level (TPL) and earned import allowance… What makes the textile and apparel trade so unique in terms of trade regulations?

Julia Hughes: This is a great question–and one that does not have an easy answer. Absolutely, when I first started working with the industry, it was a revelation to understand about quotas and labeling requirements classification issues. Today, the industry is even more complicated. I think that a lot of the complexity today is due to protectionism. Negotiators looked for ways to limit the market opening impact of trade agreements, and to try to protect their domestic industry. This isn’t just an issue for the United States. Starting with NAFTA in the 1990’s, the rules are more complicated in every free trade agreement—and none of the free trade agreements exactly matches the others. But the complexity isn’t just for FTAs, of course. Today, we also face more regulations, different labeling requirements for different countries (and unfortunately sometimes even different labels are required in different states!), and more testing and certification requirements.

Sheng Lu: Looking ahead in 2016, what important sourcing trends and trade patterns shall we expect in the U.S. fashion industry? What are the policy priorities for the USFIA this year?

Julia Hughes: The implementation of the Trans-Pacific Partnership (TPP) remains at the top of our list of policy priorities. But implementation is still a long way off, especially since the U.S. Congress is unlikely to vote on the agreement before the November elections. We don’t expect to see a huge shift to sourcing in Vietnam, Malaysia, and the other TPP partners in 2016-2017, since duty-free treatment is a long way off, but we do expect to see companies taking a closer look at opportunities there—and it helps that Vietnam is already the #2 supplier to the United States, so many companies are already sourcing there. We’re also prioritizing completion of the Transatlantic Trade & Investment Partnership (T-TIP) between the United States and European Union. The EU is a great source for luxury brands and companies manufacturing leather goods, but this agreement has an even greater potential in terms of regulatory harmonization, making it easier for many of our members to break into the retail markets in Europe. We’re also focused on enhancing the African Growth & Opportunity Act (AGOA), cumulation of free trade agreements, and customs and ethical sourcing issues, too. As far as future trends, we’re looking forward to seeing the results of our third-annual Fashion Industry Benchmarking Study, which will give us a lot of insight into what brands are thinking about sourcing and expansion!

Sheng Lu: Last but not least, our students wonder what makes you and your staff personally interested in the fashion industry. Particularly, through your daily work, how do you see the impact of the fashion industry in the 21st century global economy?

Julia Hughes: My path to the world of fashion is from the policy side. I was always interested in international policy and after graduating from Georgetown University and SAIS, I was fortunate to hear about an opportunity to be the Washington Representative for Associated Merchandising Corporation (AMC). It was a terrific opportunity to be engaged in policy discussions, but also to spend time with the buyers, with the sourcing teams, and also with the overseas offices and vendors to understand the impact on trade policy on the clothes we wear. Let’s face it, it is a shock to realize the way that Congressional actions, and negotiations, can determine whether a jacket is made with down, or synthetic fibers, or cotton–or maybe it is manufactured to qualify as a shirt instead of a jacket. It also is inspiring to work with industry executives who are committed to fashion as well as doing good for the global economy. Textiles and apparel has always been an industry that can be a gateway for economic development–and I have seen the positive impact by creating jobs where there were none before–as well as expanding U.S. jobs in design, product development and compliance.

Samantha Sault: I have always loved fashion—in fact, my very first job in high school was folding clothes and working the register at abercrombie kids at the mall in my hometown!—but I never thought about fashion as a career until I had been working for a few years after college. I started my career in political media in D.C., and eventually started covering the intersection of fashion and politics for various publications, including exciting events like New York Fashion Week and President Obama’s first inauguration (and the First Lady’s fabulous dresses). After five years in media and public affairs, I found my way to USFIA and the business and policy side of the fashion industry. The most inspiring part about working in fashion has been getting to know our contacts at our member companies, and seeing how committed they are not only to their brands, but also to ethical sourcing and compliance. These are not just buzzwords—I’ve learned firsthand that many of the individuals at our member companies are deeply committed to ensuring that they are doing the right thing in their supply chains from the factory floor (especially for women) to the retail store, and it has made me appreciate these brands even more than I already did.

–The End–

African Growth and Opportunity Act and Textile & Apparel

(In the video: Gail Strickler, former Assistant US Trade Representative for Textiles, highlights the immense opportunities created by the renewal of AGOA for duty-free access to the massive US market for African textile and apparel producers.)

The African Growth and Opportunity Act (AGOA) is a non-reciprocal trade agreement enacted in 2000 that provides duty-free treatment to U.S. imports of certain products from eligible sub-Saharan African (SSA) countries. AGOA intends to promote market-led economic growth and development in SSA and deepen U.S. trade and investment ties with the region. (note: non-reciprocal means SSA countries do not need to offer equivalent benefits to imports from the United States.)

Because apparel production plays a dominant role in many SSA countries’ economic development, apparel has become one of the top exports for many SSA countries under AGOA. Like many trade agreements and trade preference programs, AGOA also set unique rules of origin for textile and apparel (T&A):

First, to enjoy the duty-free and quota-free treatment in the US market, eligible T&A products made in qualifying AGOA countries need to be one of the following categories:

Apparel made with US yarns and fabrics;
Apparel made with Sub-Saharan African (SSA) regional yarns and fabrics, subject to a cap;
Apparel made with yarns and fabrics not produced in commercial quantities in the United States;
Certain cashmere and merino wool sweaters; and
Eligible hand-loomed, handmade or folklore articles and ethnic printed fabrics.

Second, under a special rule called “third-country fabric” provision, AGOA countries with lesser-developed countries (LDBC) status can further enjoy duty-free access in the US market for apparel made from yarns and fabric originating anywhere in the world (such as China, South Korea, and Taiwan). This special rule is deemed as critical because most SSA countries still have no capacity in producing capital and technology-intensive textile products. [Note: Although the US imports of apparel made with third-country fabric are subject to a cap, the cap has never been reached].

According to a 2014 comprehensive study conducted by the USITC, the “third-country fabric” provision has three major benefits to the AGOA members:

1) Increase exports of apparel. This can be evidenced by the fact that most US apparel imports under AGOA came from those countries that are eligible for the “third-country fabric” provision, such as Lesotho, Kenya, Mauritius, and Swaziland. In comparison, because South Africa is not eligible for the “third-country fabric” provision, its apparel exports to the United States had significantly dropped since 2003 and only accounted for 0.6% among AGOA countries in 2013.

2) Encourage foreign investment. From 2003 to 2013, a total 21 T&A FDI projects were made in SSA, among which 18 projects (or 85.7%) were greenfield FDI. The third-country fabric provision is the main driver for these FDI projects. For example, many Chinese and Taiwanese investors had opened apparel factories in Ghana, Kenya, Lesotho, Madagascar, Malawi, Mauritius, Namibia, Nigeria and Tanzania as a source of exports to the United States and the EU.

3) Enhance trade diversification. Theoretically, relaxing rules of origin (RoO) such as the third-fabric provision can free up companies’ resources and allow them to expand export product lines. As observed by a few empirical studies, AGOA’s third-country fabric provision helped related countries increase the varieties of apparel exports between 39 and 61 percent.

AGOA receives new authorization in 2015, which will last for 10 years until 2025 (including the 3rd country fabric provision). This ten-year renewal of AGOA is regarded as critical and necessary to encourage more long-term investment in the region. As put by Florizelle Liser, Assistant US Trade Representative for Africa “What we know is that African producers of apparel, like producers of apparel all around the world, need to have the flexibility to source their input from wherever of those can be produced most effectively, cost effectively for the products that they are sewing. So we want through the “third country fabric” provision to give the African producers of apparel that flexibility. We do know in terms of establishing textiles business on the ground producing those inputs right there in Africa and that more of that indeed is going to happen. The reason is that as U.S. buyers of apparel and this is an enormous market for apparel… as U.S. buyers of apparel source more of their apparel from Africa, then investors in textile mills, which are very expensive, will be incentivized and are being incentivized to actually establish those fabric mills right there in Africa, and then be able to save time, in terms of getting those inputs that are needed for the clothing that is being produced. So we see that happening already: it’s happening in Kenya, it’s happening in Ethiopia and around the continent. And that is what we need to have more of as we go forward in this ten-year extension of AGOA.”

AGOA 1

AGOA 2

AGOA 3

Why NCTO and Euratex Disagree on the Textile and Apparel Rules of Origin in T-TIP?

In an April 13 press briefing, the National Council of Textile Organizations (NCTO) which represents the U.S. textile industry, insists the Trans-Atlantic Trade and Investment Partnership (T-TIP) shall adopt the so called “yarn-forward” Rules of origin (RoO). Yarn-forward (or “triple transformation”) in T-TIP means, in order to receive preferential duty treatment provided under the trade agreement, yarns used in textile production in general need to be sourced either from the US or EU. All 14 existing free trade agreements (FTA) in the United States adopt the yarn-forward RoO.

In comparison, in its position paper released in June 2015, the European Apparel and Textile Confederation (Euratex), which represents the EU textile and apparel industry, favors a so called “fabric forward” RoO in T-TIP instead of “yarn-forward”. Fabric-forward (or “double transformation”) in T-TIP means in order to receive preferential duty treatment provided under the trade agreement, fabrics used in apparel production in general need to be sourced either from the US or EU, but yarns used in textile production can be sourced from anywhere in the world.

Exploring data at the 4-digit NAICS code level can find that the United States remains a leading yarn producer. Value of U.S. yarn production (NAICS 3131) even exceeded fabric production (NAICS 3132) in 2014. This means: 1) U.S. has sufficient capacity of yarn production; 2) it will be in the financial interests of the U.S. textile industry to encourage more use of U.S.-made yarns in textile production in the T-TIP region (i.e. pushing the “yarn-forward” RoO).

However, data at the 4-digit NACE R.2 code level suggests that EU(28) was short of €5,643 million local supply of yarns (NACE C1310) for its manufacturing of fabrics (NACE C1320) in 2013 (latest statistics available). This figure well matched with the value of €4,514 million yarns that EU (28) imported from outside the region that year. Among these yarn imports (SITC 651), over half came from China (22%), Turkey (19%) and India (13%), whereas only 5% came from the United States. Should the “yarn-forward” RoO is adopted in T-TIP, EU textile and apparel manufacturers may face a shortage of yarn supply or see an increase of their sourcing & production cost at least in the short run.

Sheng Lu

TPP and the U.S. Textile and Apparel Industry: Questions from FASH455

tpp textile The following discussion questions are proposed by students enrolled in FASH455 (Spring 2016). Please feel free to join our online discussion.

#1 Is TPP successful in terms of “creating new market access opportunities” for the U.S. textile and apparel industry? Why or why not?

#2 Should the U.S. textile industry be worried that Vietnam is quickly building its own textile industry because of TPP?

#3 Compared with the case of Vietnam in TPP, why was there little discussion on Mexico and Central American countries developing their local textile industry and becoming less reliant on textile imports from the United States in the context of NAFTA and CAFTA-DR?

#4 If China joins the TPP, do you think they would support a “yarn-forward” rules of origin or a less restrictive one? Why?

#5 Given the grave concerns about the potential impact of TPP on the U.S. textile industry, what is the point of negotiating such a trade deal?

[Discussion is closed for this post]

Reference: TPP Chapter Summary: Textiles and Apparel

The Percent of U.S. Apparel Imports Entering under Free Trade Agreements Fell to a Record Low Level in 2015

FTA use 2015 1

Latest statistics from the Office of Textiles and Apparel (OTEXA) show that the share of U.S. apparel imports entering under free trade agreements (FTAs) fell to a record low level of only 15.4 percent in 2015. This figure was not only lower than 16.2 percent in 2014, but also was THE lowest one since 2006, despite the implementation of a few new FTAs during that period.

FTA use 2015 2

Among the major FTAs reached by the United States, the U.S.-Bahrain has the highest utilization rate of 99.7 percent in 2015 (note: utilization rate =value of imports entering under FTA from a particular country/value of imports from a particular country), whereas a couple of FTAs whose utilization rate is below 80 percent, such as CAFTA-DR (75.8 percent), U.S.-Korea FTA (75.2 percent), U.S.-Israel FTA (65.5 percent), U.S.-Australia FTA (53.7 percent) and U.S.-Morocco FTA (34.6 percent). A low utilization rate implies that U.S. companies did not claim the preferential duty benefits while importing apparel from these FTA regions.

FTA use 2015 3

On the other hand, CAFTA-DR and NAFTA altogether account for around 76 percent of U.S. apparel imports entering under FTAs in 2015. This result is consistent with the findings in the 2015 U.S. Fashion Industry Benchmarking Study which also finds that CAFTA-DR and NAFTA were the two most frequently utilized FTAs reported by the survey respondents.

As a result of the lower share of apparel imports entering under FTAs, the American Apparel and Footwear Association Apparelstat 2015 released this week found that the effective average U.S. apparel import duty reached 13.54 percent in 2014, which is even higher than 11.97 percent in 2001. In comparison, over the same period, the average U.S. import duty on ALL products dropped from 1.64 percent in 2001 to 1.40 percent in 2014.

by Sheng Lu

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

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:

[Discussion is closed for this post]

Changes in the Final Text of TPP Regarding Textile and Apparel Rules of Origin

tpp

The final text of the Trans-Pacific Partnership (TPP) released by the New Zealand Foreign Affairs & Trade in January 2016 has made a few changes to the textiles and apparel specific rules of origin compared with the USTR version released in November 2015:

“5407.94” is replaced by “5403.49”
“or heading 54.08″ is replaced by ” or heading 54.04 through 54.08″
Minor wording changes are made regarding 55.03 and 55.06-55.11
TPP originating input of “54.04 through 54.07” is now required for 54.08 (Woven fabrics of artificial filament yarn, including woven fabrics obtained from materials of heading 5405)
Rules of origin for HS96.19 (Sanitary towels (pads) and tampons, diapers and diaper liners for babies and similar articles, of any material are newly added.

Details of the changes can be downloaded from HERE

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.”

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).

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

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.

US Tariff Phaseout Schedule for Textile and Apparel in TPP by OTEXA Code

[This post is updated on July 1, 2016]

Please also read:TPP tariff phase-out can steer Vietnam sourcing plans

The United States includes as many as 38 different types of phaseout schedule in TPP and 8 of them apply to the textile and apparel (T&A) sector.

In general, T&A products with lower base tariff rate seem to be given more generous phaseout treatment than T&A that are subject to higher base tariff rate. For example, although T&A products under category EIF can immediately enjoy duty-free treatment once TPP takes into force, their base tariff rate is also the lowest (7.9% on average). In comparison, whereas T&A products under category US6, US7, US8 and US9 are subject to the highest base tariff rate, they are given the least generous tariff cut (i.e. 35%) once TPP takes into effect. This will makes average tariff rate applied to these products remain the highest almost throughout the whole phaseout period. It should be noted that even though US11 apparently seems to be the most restrictive phaseout category (i.e. 50% cut on day 1 and the resulting rate will remain unchanged until the end of year 12), its average tariff rate actually will be lower than phaseout category US6, US7, US8 and US9.

In the following table, the U.S. phaseout schedule for T&A in the released TPP text based on the 8-digit Harmonized System (HS) code is matched with the Office of Textiles and Apparel (OTEXA) product category. Results show that products equivalent to around 37.5% of the value of U.S. textile and apparel imports from Vietnam in 2015 will enjoy immediate duty-free treatment once TPP takes into force (i.e. EIF), approximately 4% will be subject to medium-level protection (i.e. EIF+B5) and 58.6% are under high (i.e. EIF+ any of the followings: US6, US7, US8, US9, US10, US11) or very high level of protection (i.e. any of the followings: US6, US7, US8, US9, US10, US11).

Note: “Level of protection” in the above table is defined as the following: 1) Low level of protection: EIF only; 2) Medium level of protection: EIF+B5; 3) High level of protection: EIF+any of the followings: US6, US7, US8, US9, US10, US11; 4) Very high level of protection: any of the followings: US6, US7, US8, US9, US10, US11 only.

Sheng Lu

Tariff Remains a Critical Trade Barrier Worldwide for the Textile and Apparel Sector

According to data from the World Trade Organization:

In 2013, average applied tariff rate remained at 10.73% for textiles and 18.25% for apparel worldwide. Compared with the average tariff rate for all sectors, the rate for textiles on average is 1.4 percentage points higher and the rate for apparel is 8.9 percentage points higher. This implies that although tariff may not be a critical trade barrier for some sectors anymore, it still significantly matters for the textile and apparel sector.
Least developed countries (LDC) overall set a higher tariff rate for textiles and apparel than the world average level. Ironically, many LDCs heavily rely on imports for textile supply. Should these LDCs lower their tariff rate for textiles, it may help apparel manufacturers there save sourcing cost for yarns and fabrics and improve the price competitiveness of finished apparel products.
At the country level, countries with the highest tariff rate for textiles include Ethiopia (27.8%), Sudan (27.4%), Argentina (23.3%, Brazil (23.3%), Gabon (19.8%), Cameroon (19.6%), Chad (19.6%) and Congo (19.6%). And countries with the highest tariff rate for apparel include Zimbabwe (72.26%), South Africa (41.02%), Namibia (41.02%), Swaziland (41.02%), Botswana (41.02%), Lesotho (41.02%), Bolivia (40.0%), Sudan (40.0%), Argentina (35.0%), Ethiopia (35.0%) and Brazil (35.0%). Interesting enough, many of these countries are members of the African Growth and Opportunity Act (AGOA) which are eligible for the third country fabric provision.

Sheng Lu

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

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:

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.

When Will TPP Take Effect? Let’s look at the History

With the conclusion of the Trans-Pacific Partnership (TPP) negation on Oct 5, people now wonder: when will the agreement eventually take effect?

As shown in the chart above, since the 1985 US-Israel Free Trade Agreement, the average time lag between signing and implementing a free trade agreement (FTA) in the United States is 25.5 months (over 2 years). However, since 2006 the average time lag increased to 48.8 months (around 4 years).

So looks like it will take a while…

USTR Adjusts Language of TPP Negotiation Objectives for Textile and Apparel

On September 22, the U.S. Trade Representative Office (USTR) releases a detailed summary of its latest TPP negotiation objectives. Specifically for the textile and apparel chapter, compared with the negotiation objectives released in 2014, some wording changes are made this time:

Does the change imply that the U.S. side has agreed to allow more exceptions to the “yarn-forward” rules of origin in TPP, but in the format other than “short supply list”? For example, will it be “earned import allowance” or tariff preference level (TPL)?

On the other hand, does the change imply that the “short supply list” under TPP will be stricter than previously expected? (in the 2014 version of the negotiation objectives, it read like the “short supply list” may include those products that are not commercially available in the US but are commercially available in other TPP members. However, in the 2015 version, only those products that are absolutely not commercially available in the whole TPP region are eligible for the “short supply list”.)

Sheng Lu

Does AGOA’s “third country fabric” provision discourage the development of Africa’s local textile industry?

The following Q&A is adapted from the 2015 AGOA Forum Preview (15m:44s)

Question: What is the principal obstacle to the development of a local yarn industry in an apparel exporting country such as Kenya? Does AGOA’s “third country fabric” provision in place for 13 years act as a disincentive to such a development?

Florizelle Liser, Assistant US Trade Representative for Africa: That’s a really good question, but the answer is no. What we know is that African producers of apparel, like producers of apparel all around the world, need to have the flexibility to source their input from wherever of those can be produced most effectively, cost effectively for the products that they are sewing. So we want through the “third country fabric” provision to give the African producers of apparel that flexibility. We do know in terms of establishing textiles business on the ground producing those inputs right there in Africa and that more of that indeed is going to happen. The reason is that as U.S. buyers of apparel and this is an enormous market for apparel… as U.S. buyers of apparel source more of their apparel from Africa, then investors in textile mills, which are very expensive, will be incentivized and are being incentivized to actually establish those fabric mills right there in Africa, and then be able to save time, in terms of getting those inputs that are needed for the clothing that is being produced. So we see that happening already: it’s happening in Kenya, it’s happening in Ethiopia and around the continent. And that is what we need to have more of as we go forward in this ten-year extension of AGOA.

What do you think?

Impact of TPP on U.S. Textile and Apparel Manufacturing: A Preliminary Estimation

Potential impact of the Trans-Pacific Partnership (TPP) remains a hot topic among the U.S. textile and apparel industry. A recent news report suggests that implementation of the agreement will negatively affect clothing manufacturers in LA, where most remaining U.S. apparel manufacturing capacity is located.

According to the news report, “small, independent apparel manufacturers (in LA) did not see big gains from TPP because they did not want to outsource their work, but it put them at a competitive disadvantage.” One local industry estimation quoted in the report claims that “Southern California’s apparel manufacturing will shrink an additional 20 percent if the TPP goes into effect.”

The report further says that “A key question for the apparel industry is whether the agreement includes a yarn-forward provision, which requires material to come from a TPP country in order to be duty-free.” However, the report does not explain why the “yarn-forward” rule could potentially benefit apparel manufacturing in the United States.

The followings are my personal preliminary estimation* of the potential impact of TPP on U.S. T&A manufacturing. Results show that, compared to the base year level in 2011:

TPP overall will have a negative impact on U.S. domestic textile and apparel manufacturing. In all simulated scenarios, the annual manufacturing output in the United States will decline by $846 million–$3,780 million for textile and $1,154 million–$1,828 million for apparel than otherwise.
The “yarn-forward” rule may not substantially benefit U.S. domestic textile and apparel manufacturing as some people had suggested, for two reasons: 1) results show that Vietnam is more likely to use Japanese textiles than U.S. textiles when yarn-forward rule is in place. 2) U.S. apparel imports from Vietnam directly compete with those imported from NAFTA and CAFTA regions, the largest export market for U.S.-made yarns and fabrics. When NAFTA and CAFTA’s market share in the U.S. apparel import market is taken away by Vietnam, U.S. textile exports to NAFTA and CAFTA will decline anyway, regardless of whether Vietnam uses U.S.-made textiles.
Results suggest that compared with the “yarn-forward” rule, development of Vietnam’s local textile industry will have an even larger impact on the future of U.S. domestic textile and apparel manufacturing. Particularly, when Vietnam becomes more capable of making textile inputs by its own, not only Vietnam’s overall demand for imported textiles will decline, but also Vietnam’s apparel exports will become even more price-competitive in the U.S. as well as the world marketplace.

*Note:1. The estimation is conducted based on the latest Global Trade Analysis Project (GTAP) 9.0 database which includes complete bilateral trade information, transport and protection linkages of 140 countries and 57 sectors. Four scenarios are estimated:

Scenario 1 (Tariff reduction only): assumes tariff rate for textile and apparel traded between the twelve TPP members are eliminated, whereas tariff rate for other textile and apparel trade flows remain unchanged.
Scenario 2 (Tariff reduction + yarn forward): assumes that in addition to tariff reduction among TPP members for T&A, Vietnam substantially increases tariff rate by 100 percent for textile imports from its leading suppliers that are non-TPP members (i.e. China, South Korea and Taiwan). This policy shock provides strong financial incentives for Vietnam to import less textile from non-TPP suppliers and instead import more from other TPP members—an equivalent effect as the yarn forward rule.
Scenario 3(Tariff reduction + Vietnam develops local textile industry): assumes that in addition to tariff reduction among TPP members for T&A, productivity of Vietnam’s textile industry increases by 10 percent whereas productivity of other sectors remain unchanged.
Scenario 4 (Tariff reduction + yarn forward + Vietnam develops local textile industry): this scenario combines all policy shocks mentioned in scenario 1-3, i.e. tariff rate for textile and apparel traded between the twelve TPP members are eliminated, Vietnam substantially increases its tariff rate by 100 percent for textile imports from its leading suppliers that are non-TPP members (i.e. China, South Korea and Taiwan) and productivity of Vietnam’s textile industry increases by 10 percent.

2. TPP1 includes Australia, New Zealand, Malaysia, Singapore, Burnie, Chile and Peru; NAFTA1 includes Canada and Mexico; CAFTA1 includes all other CAFTA members except the United States.

Sheng Lu

2015 US Fashion Industry Benchmarking Study Released

[Note: The 2016 U.S. Fashion Industry Benchmarking Study has been released]

The U.S. Fashion Industry Association (USFIA) released its 2015 benchmarking study today. The report examines the industry’s business environment and outlook, sourcing practices as well as U.S. fashion companies’ viewpoints on critical trade policy agendas. Among the key findings:

Overall, respondents remain optimistic about the five-year outlook for the U.S. fashion industry. Like last year, they are most concerned about increasing production or sourcing costs, but they expect increases to be more modest this year.
Consistent with our 2014 findings, U.S. fashion companies are NOT moving away from China, and Bangladesh remains a popular sourcing destination with high growth potential, though not quite as high as last year.
Companies continue to diversify their sourcing, though free trade agreements (FTAs) and preference programs remain underutilized.
The U.S. fashion industry is a critical Trans-Pacific Partnership (TPP) stakeholder, as close to 80 percent of respondents expect implementation will impact their business practices. However, the restrictive rules in the agreement limit the potential.
U.S. fashion companies continue to express interest in expanding sourcing in the United States in the next two years as they further diversify their sourcing. However, there is no evidence that companies are shifting their business models back to manufacturing.

This benchmarking study was based on a survey of 30 executives at the leading U.S. fashion companies from March 2015 to April 2015. The findings well reflect the views of the most influential players in the U.S. fashion industry, with 90 percent of respondents having more than 100 employees (including 60 percent with more than 1,000 employees).

The full report can be downloaded from HERE.

Two Years after the Rana Plaza Tragedy: What Has Changed?

Note: the followings updates are compiled based on the 2015 Bangladesh Development Conference held from June 5th to 6th at the Harvard University. The conference attracted over 100 attendants and speakers from various aspects of the apparel industry, government agencies, international organizations, non-government organizations and academia.

1. Overall, the industry side argues that tremendous efforts have been made to improve work safety in the Bangladesh apparel industry and things are gradually improving. However, representatives from some labor unions say that changes are not happening fast enough as they should.

2. Indeed, as one of the most noticeable changes after the Rana Plaza tragedy, the Bangladesh apparel factories are now facing more frequent safety inspection and audit from various parties:

In addition to the regular inspection conducted by individual fashion brand or retailer, the Accord on Fire and Building Safety in Bangladesh (the Accord) and Alliance for Bangladesh Worker Safety (the Alliance) were established in 2013 respectively (mostly funded by western apparel brands sourcing from Bangladesh) to maintain minimum safety standards in the Bangladesh apparel industry.
The Accord has a total five-year budget of $50 million to be used on factory safety inspection and improvement. However, it is far from being clear what will happen after the Accord agreement expires in 2018 and whether the inspection achievements can be maintained afterwards.
The International Labor Organization and International Finance Corporation launched the “Better Work” program in collaboration with Bangladesh government, apparel factory owners, workers, fashion buyers and other relevant stakeholders. The program intends to provide assessments of factory compliance with national law and core international labor standards, paired with transparent public reporting on findings.
Nevertheless, some people argue that audit itself is not the answer to the problem, just like “a pig will not gain weight simply by weighting it; instead, we have to feed it.” Reflecting on the limitation of inspection and audit, they refer to compliance as just a piece of paper whereas ethics is something that keeps people awake in bed.

3. Some foreign governments also have responded to the Rana Plaza tragedy, although in different ways:

Stick: the U.S. government decided to suspend Bangladesh’s Generalized System of Preferences (GSP) status in 2013 as a response to the Rana Plaza tragedy. Because textile and apparel are excluded from GSP, this measure has no direct impact on Bangladesh’s apparel exports to the United States. But the movement is symbolic and significantly increases the publicity of corporate social responsibility (CRS) issue in the Bangladesh apparel industry.
Carrot: in comparison, the European Union chooses to continue providing Bangladesh its GSP benefits. As a GSP beneficiary, Bangladesh’s apparel exports to EU can enjoy duty free treatment when competing with other Asian suppliers such as China and India. According to EU, from 2008 to 2012 EU28 imports from Bangladesh increased from €5,464 million to €9,212 million (+69%), which is more than half of Bangladesh’s total exports. While granting Bangladesh the benefit, EU also launches the GSP Action Plan and the Sustainability Compact to encourage responsible businesses in Bangladesh.

4. Training has been provided for Bangladesh officials to help them better understand building safety requirements.

5. More apparel factories in Bangladesh now have their own labor unions. According to the local law, 30 percent of the labor force in a factory can form its own labor union, meaning theoretically one factory can have up to three different unions. There has been more open discussions on “worker/women empowerment”, “social dialogue” and “stakeholder engagement” in the Bangladeshi society as well.

6. Some creative financial incentive mechanisms are suggested to improve the situation, such as offering factories with better compliance record with more attractive interest rate for bank loans; and adding building safety clauses in factory insurance contract.

7. Academia is actively engaged in finding a solution for improving the CRS practices in the Bangladesh apparel industry as well:

Based on analyzing the factory inspection data, some scholars start to evaluate the effectiveness of the current inspection system (eg: does who pay for the inspection matter for the result? Does violation go down overtime in inspection? What is the role of on-going people to people relationship in inspection?).
Some projects intend to develop an estimate of the true size of the Bangladesh apparel industry, given the fact that the worst work condition may exist in those undocumented factories. As a matter of fact, even the Bangladesh government doesn’t know how many garment factories they have in the country.
Some scholars propose the idea of linking a company’s social compliance data with its business financial data to evaluate the business implication of CRS practices.
Some studies compare the labor practices between Bangladesh and other developing countries in South Asia such as Cambodia and Sri Lanka.
Some people suggest using case studies to develop hypotheses for a policy change.
More and more studies are now conducted based on field trip and interview in Bangladesh.

8. Criminal charges recently are filed against a dozen individuals and companies identified responsible for the Rana Plaza tragedy.

9. Response to the Rana Plaza tragedy has further led to a discussion on the broader economic, social and political reform in Bangladesh.

Sheng Lu

From Trade Protection to Going global: the Changing Nature of the U.S. Textile Industry

Last week, Milliken & Company, one of the largest U.S. textile manufacturers founded in 1865, was featured in a Wall Street Journal article on the changing position of the U.S. textile industry on international trade. As you may remember in our case study, it was Roger Milliken, the chairman of the Milliken & Company, that founded the Crafted with Pride in the U.S.A. campaign in the 1980s. The campaign not only encouraged U.S. consumers to purchase more “Made in USA” products, but also intended to raise the public awareness of “import threat”. However, titled “free trade gains a convert”, the WSJ article argues that Milliken & Company today has “dropped protectionist stance as business went global”.

The article is a great reminder of the changing nature of the U.S. textile industry in the 21^st century. One of them is going global. According to the Hoover’s Academics (2015). Milliken & Company today operates about 40 manufacturing plants in the US, Belgium, China, France, and the UK, as well as sales and services offices worldwide. In particular, as mentioned in the WSJ article, China nowadays is seen as Milliken & Company’s future. The company opened an industrial-carpet factory near Shanghai in 2007 and also moved its Asia headquarters from Tokyo to Shanghai in 2012. And rather than using Chinese labor to make goods for export back to the United States, most Milliken & Company’s products made in China target the local market. As estimated by GlobalData, urbanization and an increase in house ownership in developing countries like China, India, Vietnam, Thailand and Indonesia have led to an annual 7.9% growth of carpets and rug sales in the region.

It is also important to recognize that Milliken & Company’s business model is no longer based on manufacturing basic yarn or fabrics used for apparel. Instead, the company mostly produces highly tech-driven and capital intensive industrial textiles as well as chemicals and colorants that offer more than 100 applications including infusing washable markers and liquid laundry detergent, killing bacteria, melting ice, and blocking UV rays. In many industry sources, Milliken & Comopany is even counted as a chemical company that directly competes with industry giants such as DuPont, Dow Chemical and Shaw industries. Overall, it is product and business innovation that drive this hundred-old company moving forward.

Additionally, we shall not misread title of the WSJ article—i.e. the U.S. textile industry 100% supports free trade with no condition. As a matter of fact, the rules regulating global textile and apparel trade are still very complicated and restrictive in nature. For example, the U.S. textile industry still insists strict yarn-forward rules of origin to be adopted in the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (T-TIP). However, many U.S. apparel companies and fashion brands see the restrictive yarn-forward rule of origin outdated and incompatible with the 21^st century global apparel supply chain.

No matter how, it is a noticeable change that the U.S. textile companies like Milliken start to shift their position on international trade, even just in a subtle way. Globalization has demonstrated its impact on shaping the new landscape of the U.S. textile industry and will continue to do so in the years to come.

TPP Textile Negotiation Updates (March 2015)

According to Inside US Trade, negotiators continued their work on the technical details of the textile chapter under the Trans-Pacific Partnership (TPP) during the latest round of negotiation in Hawaii. Although progress has been achieved, key issues remain unsolved. Exceptions to Yarn-Forward Rule of Origin Since the 807A program under the Caribbean Basin Imitative (CBI) enacted in 1998, the so called “yarn-forward” rule of origin has been adopted in almost all free trade agreement (FTA) and trade preference program (TPA) reached between the United States and its trading partners. “Yarn forward” rule requires that each step of apparel production from spinning of the yarn must take place in one of the FTA countries. At the same time, FTA/TPA often adopt exceptions in addition to “yarn-forward” rule so as to provide flexibility to importers, especially in the case when certain textile and apparel products are not available in commercial quantities from the FTA/TPA region. It is almost certain at this point that TPP will continue to adopt the “yarn forward” rules of origin. However, what kind of exceptions to the yarn forward rule will be allowed in TPP remain unclear: 1) How long will be the “short supply” list in TPP? Short supply list is a mechanism which allows fibers, yarns, and fabrics determined not to be available in commercial quantities in a timely manner from within the FTA partner countries to be sourced from outside the countries for use in qualifying textile and apparel products. According to Inside US Trade, some TPP countries want to declare the short-supply list complete as soon as possible so that they can shift the discussion to other possible exceptions to the yarn-forward rule. However, others doubt that the U.S. would be willing to contemplate additional exceptions and therefore believe that the best approach is to keep the short-supply list open and try to add as many products as possible. 2) Whether there will be other exception mechanisms in TPP in addition to the “short supply” list? According to Inside US Trade, there were some discussions on creating a separate mechanism such as the tariff-preference levels (TPL) in TPP. TPL allows for a certain quantity of textile and apparel goods (usually yarns, fabrics and cut pieces) from a third-country (a country who is not a party to the agreement) to qualify for the FTA benefits. Additionally, it is more than just Vietnam that is seeking more exceptions to the “yarn forward” rule in TPP. For example, Australia and New Zealand are also doing so, which may be in large part for tactical reasons — essentially holding up the textile talks as leverage to secure acceptable outcomes in other areas that are more important to them, for instance, agricultural market access or intellectual property. Tariff Phrase-out Mechanism Inside US Trade says that U.S. is sticking to the framework that it laid out in its initial tariff offer, which put products into three categories subject to different phrase-out schedule:

X-basket, which covers the most sensitive products that would be subject to an initial cut upon entry into force, but then remain in place until they are eliminated in the tenth year for knit apparel and fifteenth year for woven apparel
B-basket, which consists of slightly more sensitive apparel items that would be subject to a linear tariff phase-out over five years
A-basket, which consists of least sensitive items whose tariff rate would go to zero immediately upon TPP entries into force

Key questions remain as to which items the United States will place into what basket. Other issues in the textile chapter The TPP textile chapter may also include languages on the following two issues: 1) a special safeguard mechanism under which the importing country can raise tariffs up to the most-favored nation (MFN) level in the case of an import surge; 2) customs language on the inspection mechanism.

Mexican New Import Rules on Textiles and Apparel Raise Concerns

In January 2015, Mexico announced a set of new measures aimed at combating “unfair” trade practices in T&A imports and enhancing the competitiveness of domestic T&A sector in the face of increasing foreign competition.

The proposed measures will particularly target those imports considered to be “undervalued” by the Mexican government. According to Inside US Trade and Sourcing Journal Online, one of these measures is to establish a minimum reference price for imported T&A products. If shipments enter at below that price, they would be subject to an investigation by the Mexican government that could lead to the imposition of additional duties and taxes. To be noted, the proposed new measures will be taken separately from traditional trade remedy measures such as anti-dumping, countervailing duty and safeguard.

Other proposed measures intend to strengthen custom enforcement, including:

Mexico will required a mandatory registry for T&A imports. A similar registry system has been required for footwear;
Mexico will postpone the import duty reduction that was expected to be implemented at the beginning of 2016 on 73 apparel items and seven textile made-ups. Originally slated to enter into force on January. 1, 2013, the duty reduction from 25 percent to 20 percent has been twice postponed for one-year periods and will now be delayed until 2018;
Importers will be required to provide advance notice of shipments to the Mexican Economy Secretariat in the future;
Mexico will break down the current eight-digit tariff lines for textile and apparel products into 10 digits, which an industry source said would allow tariff rates to be more specific in light of the fact that apparel products have evolved to be more specialized;

Moreover, Mexico will implement a new financing mechanism with total available credit of 450 million pesos (around $30 million USD) over the next 12 months to help the domestic T&A industry (especially small- and medium-sized enterprises) upgrade their machinery and equipment, pursue innovative strategies and develop new products. The Mexican Service Agency for the Commercialization and Development of Agricultural Markets (Aserca) will further support the purchase of cotton from domestic growers by textile manufacturers.

According to WWD, the US T&A industry has three major concerns about Mexican’s proposed measures: one is the potential delay in custom clearance and more complicated documentation requirements; second is the additional tariff rate and increased cost of exporting from the United States or anywhere else in the world to Mexico; third is the lack of policy transparency adding to the potent business risks.

Industry Background

T&A industry accounted for 3.7 percent of Mexico’s GDP in 2013 (1.3 percent for textiles and 2.5 percent for apparel). About 415,000 workers directly employed in the sector in 2013, among which 74 percent worked for the apparel sector.

One important feature of Mexico’s T&A industry is the so called “Maquiladora” operation: simple sewing of garments made from imported fabrics and using cheap labor. The “Maquiladora” operation is largely coordinated by US-based apparel brands and retailers. Most of “Maquiladora” factories are located in the free trade zones, in which equipment and imported materials (such as fabrics) can be duty-free. Output of “Maquiladora” are exported, mostly to the United States.

Mexico imported $8.6 billion T&A in 2013, among which $2.4 billion were fabrics, followed by made-up textiles ($0.55 billion) and yarns ($0.39 billion). This pattern reveals Mexico’s heavy reliance on imported textiles due to limited domestic textile manufacturing capacity.

At the same time, Mexico’s apparel imports increased from $2.4 billion in 2008 to $2.9 billion in 2013. Particularly, Mexico’s apparel imports from China surged by 558.8 percent between 2008 and 2013. In 2013 alone, apparel imports from China went up by 42.1% to $0.97 billion. It is said that China is the main target of Mexico’s proposed new import measures.

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Textile and Apparel in the 2015 US Trade Policy Agenda

Two hearings were held on January 27 where US Trade Representative Michael Froman testified before the Senate Finance Committee and the House Ways & Means Committee on the 2015 US Trade Policy Agenda. During the Senate hearing, two questions were directly related to the textile and apparel (T&A) industry:

Senator Robert Menendez (D-NJ) expressed concerns that inclusion of several concessions requested by Vietnam regarding rule of origin and short supply list for T&A in the Trans-Pacific Partnership (TPP) will result in severe job losses and potentially hurt the T&A industry in the Western Hemisphere. In response, Froman said that:

“We worked in the textile area through the yarn forward rule, the short supply list, rules of origin and customer enforcement and corporation to take these things into consideration. We’ve worked very closely with textile manufacturers in the US who are part of this supply chain with Central America to get the best of our understanding of what are the sensitivities are and take that into account in our negotiations.”

John Isakson (R-GA) raised the question about China’s recent cotton reserve & subsidy policy and its negative impact on the world cotton price which “has declined from 83-85 cents/pound not a long ago to 55-57 cents/pound recently.” Isakson wondered if anything USTR would do to address the problem, such as bringing the case to the World Trade Organization (WTO) Dispute Settlement Body (DSB). In response, Froman said that:

“The whole pattern of agriculture subsidies has changed a lot over the last ten to fifteen years. When (WTO) Doha Round was first started, focus on the subsidy was really the United States and the European Union. But in both of those areas subsidies have come down, while subsidies from China and India in the agriculture area have been increased. By some measures, China is now the largest subsidizer of cotton. We are engaging with them. We have conversations in the last couple of days also about that, about taking a fresh look at where subsidies have been provided, how it distorted the market and how that should play into the global trading negotiations. It is important to update our views on where the subsidies come from and what impact it has. For poor farmers in Africa, it doesn’t matter whether the subsidies come from the US or from China. It matters that the subsidy exists and so we will be engaged with China on this and create some disciplines around us. We are looking at all options out there. We are not yet determined whether there will be a (WTO DSB) case brought in that area.”

Other hot topics covered by the hearing include passing Trade Promotion Authority (TPA) bill, creating jobs through trade, addressing agriculture, digital trade & data flow, State owned enterprises (SOE), currency manipulation, transparency and Intellectual property right (IPR) protection issues in TPP, strengthening trade enforcement, renewing African Growth and Opportunity Act (AGOA), and making further progress of Trade in Service Agreement (TiSA) and Information Technology Agreement (ITA) at WTO.

The followings are some personal comments on the overall atmosphere in the Senate hearing:

It doesn’t seem possible to be able to conclude TPP without TPA, for at least two reasons: 1) Congress doesn’t want to give up its authority on trade policy. If TPP negotiation were concluded before the passage of TPA, Congress would feel it had little influence on shaping TPP through the mechanism of TPA trade negotiating objectives. This will add to the difficulty of potentially passing the TPP implementing bill under expedited legislative procedures. 2) Other TPP members, such as Japan, are unlikely to put the final offer on the negotiation table, especially for politically sensitive issues, without having the assurance provided by TPA.
There is a growing call for “strong” labor and environmental provisions in TPP. This is not surprising given the fact that the general public is attaching greater importance to labor and environmental impact of international trade. NGOs, such as labor and environmental groups have become more critical players in trade politics nowadays as well. Practically, strong labor and environmental provisions are regarded as important means to create “a level playing field” for US products competing in the world marketplace. These provisions can also be used as leverages to push for better human right practices in some foreign countries. That being said, as noted by many trade experts, trade policy shall not be expected to solve environmental and labor problems.
Currency manipulation becomes a hot discussion topic again, but USTR doesn’t seem to be interested in including the currency provision in TPP. Many senators raised the currency issue during the hearing, however, it shall be noted that: 1) Free trade agreement (FTA) and even WTO is not an appropriate venue to deal with currency issues; 2) the business community actually does not see currency as a priority issue to address. They care more about things like market access, IPR protection, national treatment and dealing with SOEs. 3) Currency manipulation provision is not an effective way to solve currency concerns. For example, it would be impossible to determine what shall be the “right” exchange rate–ten economists may give twelve different answers. 4) It will be interesting to see what language the potential TPA bill will use to define currency issue as a trade negotiating objective.
Benefit of trade is still largely misunderstood. During the hearing, almost all support for TPA & TPP came from the export side: “export is good for the US economy”, “export can create higher-paid middle class jobs”, “US runs trade surplus with all FTA partners and all trade deficits came from those non-FTA partners”…However, nobody in the hearing talked about the benefits of imports and the global nature of supply chain in the 21^st Mercantilism is still a popular view in Congress.

Sheng Lu

Tariff or Not

Tariff is a tax levied on imports only. Tariff will make imports more expensive in the market. For example, if the original price of a “Made in China” T-shirt is $5, with a 20% tariff, it becomes $5*(1+20%)=$6 when sold in the U.S. market.

Tariff has multiple impacts. On one hand, tariff may protect the domestic industry from foreign competition and help government of the importing country gain some tax revenues. On the other hand, consumers will have to pay more (or consume less) because of increased market price as result of tariff. Tariff also hurts exporters and those sectors operating on a global basis. For example, a high tariff rate on imported fabrics may raise the production cost of a clothing manufacturer which sells its finished products to the world market. According to the World Trade Organization, nearly 60 percent of world trade today are inputs and components.

Questions for discussion:

How to explain the phenomenon that tariff rates are so different across different types of product in the picture? Should they be so different?
Should tariffs on flats, sneakers, boots and moccasins be lowered or eliminated in the U.S. or even world wide? What issues need to be considered?

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”.

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Tariff or Not

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