free trade agreement – FASH455 Global Apparel & Textile Trade and Sourcing

Unlocking RCEP for Business: Opportunities for Garment and Textile Industry [Webinar]

The event is hosted by the Association of Southeast Asian Nations (ASEAN) Secretariat.

About the webinar: This webinar seeks to understand the opportunities offered by the Regional Comprehensive Economic Partnership (RCEP) Agreement for the garment and textile industry in the region. Considering that the garment and textile industry involves a large number of MSMEs in its supply chain, it would be important to understand how MSMEs can utilise the RCEP Agreement to grow their business and further integrate themselves into the global supply chain, noting that RCEP members are critical apparel-sourcing country for many big global players in the industry.

The first part of the event includes three presentations. 1) textile and apparel trade patterns in the RCEP region and how to read RCEP’s detailed tariff phaseout schedule. 2) RCEP rules of origin for textiles and apparel; and 3) customs procedure

In the second half, three companies from Cambodia, Thailand, and Indonesia shared their perspectives about the potential impact of RCEP on their businesses.

Speakers:

Dr. Sheng Lu, Associate Professor, Department of Fashion and Apparel Studies, University of Delaware (presentation starts at 17m41s)
Mr. Chy Sotharith, Chief of Non-Tariff Measures and Export-Import Policy Bureau, Department of Export-Import, General Department of Trade Support Services, Ministry of Commerce, Cambodia
Ms. Suchaya Chinwongse, Former Expert of Rules of Origin, the Customs Department of Thailand
Mr. Prama Yudha Amdan, Head of Corporate Communications and PR, Assistant President Director Asia Pacific Fibers
Mr. Kaing Monika Deputy Secretary General of Garment Manufacturers Association in Cambodia (GMAC)
Mr. Jumnong Nawasmittawong, Executive Advisory Board to Textile Industry Club, The Federation of Thai Industries.

Summary of CRS Reports in 2022: Selected Key Trade Issues for US Congress

US-China Phase One Trade Deal

Congress might assess the U.S. experience with the Phase One process as it debates the merits of the deal and how to leverage it, the effects of the tariffs, and options to advance U.S. economic interests and counter China’s persistent statist economic practices. Specifically:

In light of how difficult it was to secure China’s acknowledgment of its practices of concern and limited commitments in these areas, to what extent may the U.S. reasonably expect talks with Beijing to achieve outcomes that further U.S. policy objectives, when measured against the U.S. resources and efforts required? Does focusing on talks with China take U.S. focus and resources away from efforts to deploy or develop U.S. trade tools and joint approaches with other countries that might be required to protect and advance U.S. economic interests?
Is the executive branch fully using its authorities to address its concerns about China? Are other approaches and measures needed in addition to or separate from tariffs, and if so, what are they? Should the USTR use Section 301 to address other concerns, such as subsidies? What approaches could be pursued, such as prior efforts with Europe and Japan to address non-market economic distortions and subsidies?
Should Congress require the USTR to enforce the Phase One provisions and actively use the Phase One dispute process? Should the USTR challenge China’s industrial policies that appear to violate commitments not to require technology transfer, and its efforts to set global technology licensing and pricing terms, such as through its courts?
How might Congress weigh the tariffs’ effects on U.S. firms and consumers against issues of economic competitiveness? To what extent are tariffs inflationary compared to drivers such as food, energy, housing, labor and supply chain shortages, and monetary policy?
Could tariffs help diversify China-based supply chains and counter China’s subsidies by raising costs vis-à-vis U.S. and third-market products? Could tariffs on goods tied to China’s industrial policies help level the playing field, or would this violate U.S. trade commitments and encourage others to follow suit? USTR proposed but never enacted tariffs on consumer electronics. Could these tariffs counter China’s efforts to deepen technology supply chains in China?

Section 301 Exclusions on US Imports from China

Congress could engage with the Administration to develop and implement guidelines for when and how to grant and extend exclusions. This could potentially promote transparency, consistency, and proper application of standards in reviewing requests, thereby helping to ensure that the USTR carries out Section 301 objectives as prescribed by Congress

Indo-Pacific Economic Framework (IPEF)

What role should Congress play in the negotiation and consideration of an IPEF and other regional trade initiatives? What regional and other multilateral trade commitments would best serve U.S. economic and strategic interests in the region?
What types of enforcement mechanisms would an IPEF include and how would its commitments and enforceability compare to CPTPP and U.S. free trade agreements? What are the tradeoffs of these approaches and should they be pursued in tandem?
How does the expiration of U.S. Trade Promotion Authority (TPA) affect the Administration’s approach to scoping, negotiating, and enacting an IPEF and trade agreements?

Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)

What are the costs and benefits of different approaches to regional economic engagement (CPTPP, IPEF, RCEP)? Should other approaches be considered?
What scope exists for changes to CPTPP if the United States were to consider joining, and what are the implications of China’s potential membership?

African Growth and Opportunity Act (AGOA)

AGOA reauthorization. AGOA is authorized through September 2025. US Trade Representative Katherine Tai has urged consideration of improvements to encourage investment, and help small and women-owned businesses and more countries make use of the program. Congress may consider whether and when to reauthorize AGOA and if reforms are needed.
Free trade agreement (FTA) negotiations. An FTA with an AGOA-eligible country would have implications for AGOA and U.S. trade relations in the region. As the Administration, in consultation with Congress, determines whether to pursue trade negotiations in the region, including with Kenya, key considerations include: (1) what flexibilities from typical U.S. FTA commitments are appropriate; (2) potential effects on broader AGOA utilization; and (3) potential effects on regional initiatives like the African Continental Free Trade Area(AfCFTA).
Increased U.S. tariffs. The Trump administration imposed tariff increases (Section 232) on steel and aluminum imports. Congress may examine the tariffs’ effects on AGOA participants.
Third-party agreements. Reciprocal agreements between AGOA beneficiaries and third parties (e.g., EU-South Africa) may disadvantage U.S. exporters. Congress may examine possible U.S. responses.

US-Kenya Free Trade Agreement Negotiation

Congress may consider and advise the Administration on how to prioritize free trade agreement (FTA) talks with Kenya among other U.S. trade policy objectives; whether and in what form to seek renewal of the Trade Promotion Authority (TPA); the scope and extent of potential U.S.-Kenya FTA commitments to pursue; how to ensure an FTA with Kenya and its rules of origin support regional integration efforts and U.S. economic interests; and the potential types of support (e.g., trade capacity building funds) and flexibilities (e.g., phasing in of commitments) to include as appropriate to Kenya’s level of development)

U.S.-UK Trade Relations

Congress may continue to monitor U.S. trade and economic interests at stake in the UK-EU Trade and Cooperation Agreement (TCA)’s implementation. It may consider whether to press the Administration to continue to prioritize resolving specific trade issues and/or renew broader U.S-UK free trade agreement negotiations. In doing so, Congress may examine the potential benefits and costs of further U.S.-UK trade liberalization (or its absence) for the firms and workers in their districts and states.

Many in Congress and in the U.S. industry support a U.S.-UK FTA. Many Members tie their support to ensuring that Brexit outcomes do not undermine the Northern Ireland peace process. A potential TPA renewal debate could heighten these issues. If FTA talks proceed, Congress may monitor and shape them, and consider implementing legislation for a final agreement. Additionally, Members may examine other ways to engage further on bilateral and global trade issues of shared concern, e.g., sectoral regulatory cooperation or dialogues.

Generalized System of Preferences (GSP) Reauthorization and Reform

The GSP program expired on December 31, 2020. Congress is considering several bills to reauthorize and introduce new eligibility criteria to the program. Some of the proposed eligibility criteria include provisions on human rights, environmental laws, and good governance. Supporters of the proposed eligibility criteria consider it a modernization of the GSP program to address modern-day issues. Others raise concerns that adding new criteria may make the costs of complying with the program outweigh the benefits and discourage beneficiary developing countries’ participation. They may also undermine the core objectives of the program, which is to promote economic development through trade.

Other possible options for GSP include:

Support reciprocal tariff and market access benefit through free trade agreements (FTAs). Some U.S. policymakers have suggested that developing countries might benefit more through WTO multilateral negotiations, FTAs, or some form of agreement that could also provide reciprocal trade benefits and improved market access for the United States.
Authorize GSP only for Least-Developed Countries (LDCs). Narrowing the scope of eligibility could benefit the LDC that remains in the program by reducing competition in the U.S. market from more advanced developing countries. Assuming that many LDCs would continue to receive the GSP preference under AGOA, other LDCs that might benefit from an LDC-only GSP program are Afghanistan, Bhutan, Burma, Burundi, Cambodia, Congo (Kinshasa), Haiti, Kiribati, Mauritania, Nepal, Samoa, Somalia, South Sudan, the Solomon Islands, Timor-Leste,Tuvalu, and Vanuat.
Expand the application of GSP. For example, allow some import-sensitive products to receive preferential access (such as apparel). Increase the flexibility of rules of origin (ROO) requirements. For example, allow more GSP beneficiaries to cumulate inputs with other beneficiaries to meet the 35% domestic content requirement or lower the domestic content requirement. Eliminate competitive need limitations or raise the thresholds. Reauthorize GSP for longer terms or make the program permanent.
Restrict Application of Preferences. For example: Consider mandatory graduation for “middle income.” Strengthen provision that allows graduation of individual industry sectors within beneficiary countries. Reform eligibility criteria to strengthen provisions on worker rights as well as introduce new criteria, such as good governance, gender equality, and environmental law and regulation.

U.S.-EU Trade and Technology Council (TTC)

Congress may examine and weigh in on the TTC’s structure, priorities and scope, and prospects for “success.”

TTC’s anticipated prioritization of more recent or urgent issues (such as joint responses to Russia’s aggression in Ukraine), compared to other bilateral trade and technology issues (such as digital inclusion) that were priorities at the time of the TTC launch. Congress may explore potential trade-offs in priorities and/or opportunities to expand the TTC, such as by creating additional working groups or structures to sustain intensified cooperation on major bilateral trade issues. This may include a review of whether to modify the scope of the TTC’s working groups to address bilateral tariffs and other market access issues. Congress also may explore opportunities through the TTC to intensify U.S.-EU cooperation to remove regulatory barriers.
Congress may examine the TTC’s prospects for success and its ability to produce concrete outcomes, and also seek to establish the metrics by which to gauge the TTC’s effectiveness.

Congress may examine whether to pursue potential market opening opportunities through the TTC for future formal US-EU FTA talks, or pursue such talks separately. On one hand, potential FTA negotiations that develop out of the TTC could benefit from the intensified cooperation and renewed trust that the TTC may foster. On the other hand, such talks may be limited if they do not address bilateral tariffs or other market access issues.

Appendix: List of CRS reports on trade issues

USITC Reports the Economic Impacts of U.S. Free Trade Agreements

In June 2021, the U.S. International Trade Commission (USITC) released the 2021 Economic Impact of Trade Agreements Implemented under Trade Authorities Procedures report. By using both qualitative and quantitative methods, USITC assessed the impact of trade agreements on U.S. industries, including workers, since 2016. Below are the key findings related to the textile and apparel sector:

First, free trade agreements enacted in the U.S. have had a small but positive effect on the U.S. economy and trade. As of January 1, 2021, the United States has 14 free trade agreements (FTAs) with 20 countries in force. In the year 2017 (the base year), they led to an estimated increase in U.S. real Gross Domestic Product (GDP) of $88.8 billion (0.5 percent), and in aggregate U.S. employment of 485,000 full-time equivalent (FTE) jobs (0.3 percent). Real wages increased by 0.3 percent. Further, U.S. exports increased by $37.4 billion (1.6 percent), and imports increased by $95.2 billion (3.4 percent) because of these FTAs.

Second, USITC estimates that U.S.-free trade agreements have expanded the U.S. textile industry but hurt U.S. domestic apparel production. Thanks to the North American Free Trade Agreement (NAFTA, now the U.S.-Mexico-Canada Trade Agreement, USMCA) and the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR), the Western Hemisphere has become the single largest export market for U.S. textile producers. However, U.S. apparel manufacturers have to face intensified import competition.

Third, the textile and apparel-specific rules in U.S. free trade agreements are complicated and often hinder the usage of the trade agreements. As noted by USITC, the U.S. duty on imported textile and, especially, apparel goods are among the highest of all product categories. Despite the duty-saving incentives, only 12.1% of U.S. textile and apparel imports came in under FTAs in 2020, even lower than 16.7% in 2007 when fewer FTAs were in force.

The complexity of the textile and apparel-specific rules of origins (ROOs) is a significant cause of the low FTA utilization rate. As USITC noted, “No two FTAs using the tariff shift model contain the same ROOs for apparel goods…for some importers, the strict preference rules of origins (ROOs), along with the record-keeping and documentation requirements the rules entail, make the cost of compliance too great to take full advantage of the duty-free opportunities.” According to the annual USFIA fashion industry benchmarking study, the surveyed U.S. fashion companies consistently expressed the same concerns about the too restrictive ROOs in U.S. FTAs.

Related, the USITC report noted, “some U.S. domestic textile industry representatives state that the existing FTA rules follow a simple template designed to benefit upstream manufacturers in the textile and apparel supply chain.” Having to use more expensive domestic-made fibers and yarns reduces the price competitiveness of U.S. fabrics and home textiles in the export market.

Further, the USITC report explains the history of the “Short supply” and “Tariff-preference level, TPL” mechanisms in U.S. free trade agreements. However, the report does not provide an assessment of their trade impacts.

Trade statistics show that these exceptions to the restrictive “yarn-forward” rules of origin are critical for U.S. apparel sourcing from certain FTA partners. For example, more than 60% of U.S. apparel imports from Canada claimed duty-free benefits by using the TPL mechanism rather than complying with the USMCA/NAFTA “yarn-forward” rules in 2020. Around 8% of U.S. apparel imports from Mexico did the same. Likewise, in 2020, approximately 4% of U.S. apparel imports from CAFTA-DR members used the “short supply” mechanism, and the other 4% used the “cumulation” mechanism.

The Impact and Insights of Trade – the 2020 Shakeup & the 2021 Outlook for the Fashion Industry

The panel discussion is part of the 2020 Virtual Apparel and Textile Sourcing Show. Topics covered by the session include:

Impact of COVID-19 on US fashion companies’ businesses and sourcing strategies
Impact of the 2020 US presidential election on the fashion industry
Key US trade policy issues related to the fashion industry 2020-2021
Patterns of US apparel sourcing and trade 2020-2021
Sourcing from Asia vs. near sourcing from the Western Hemisphere

USTR Releases Negotiating Objectives of the Proposed U.S.-Kenya Free Trade Agreement

On May 22, 2020, Office of the U.S. Trade Representative (USTR) released the specific negotiating objectives of the proposed U.S.-Kenya Free Trade Agreement. Overall, the proposed free trade agreement (FTA) intends to “builds on the objectives of the African Growth and Opportunity Act (AGOA) and serve as an enduring foundation to expand U.S.-Africa trade and investment across the continent.” USTR also visions to conclude an agreement with Kenya that “can serve as a model for additional agreements in Africa, leading to a network of agreements that contribute to Africa’s regional integration objectives.”

Regarding the textiles and apparel (T&A) sector, USTR says it will “Secure duty-free access for U.S. textile and apparel products and seek to improve competitive opportunities for exports of U.S. textile and apparel products while taking into account U.S. import sensitivities.” The proposed agreement also will “Establish origin procedures that streamline the certification and verification of rules of origin and that promote strong enforcement, including with respect to textiles.” The same/very similar language is used in the proposed U.S.-Japan Free Trade Agreement and U.S.-EU trade negotiation.

Of the total $667million U.S. merchandise imports from Kenya in 2019, nearly 70% were apparel items, making the sector the single largest stakeholder of the proposed FTA. While still being a relatively minor supplier, Kenya’s apparel exports to the U.S. reached a record high of $453million in 2019, which was an increase of 132% from ten years ago. For many U.S. fashion companies, Kenya is also its single largest apparel-sourcing base in Sub-saharan Africa (SSA), accounting for one-third of the region’s total apparel exports to the U.S. in 2019.

However, how to design the textile and apparel chapter in the proposed U.S.-Kenya FTA is anything but easy. A preliminary content analysis of the 133 public comments submitted to the U.S. International Trade Commission (USITC) as of May 2020 shows that various stakeholders have proposed competing views on several complicated issues, ranging from the rules of origin to the tariff elimination schedule. Specifically:

First, the fashion apparel industry has expressed strong unanimous support for the proposed U.S.-Kenya FTA. Notably, Kenya is widely regarded as a growing sourcing destination for U.S. fashion brands and retailers. As noted by the U.S. Fashion Industry Association (USFIA) in its comment “there is a tremendous opportunity to expand trade between the United States and Kenya” through the elimination of both tariff and non-tariff barriers under the FTA.

Second, the fashion apparel industry calls for the proposed U.S.-Kenya FTA to “do no harm” to the existing supply chain established based on AGOA and ensure a seamless transition between the two trade programs. For example, PVH, one of the largest U.S. fashion corporations, says in its comment, “no change should be made with respect to market access and duty‐free treatment for apparel made in Kenya effective from the date of entry into force of the agreement.” Likewise, USFIA calls for the new FTA to “Preserve the commercial opportunities developed through AGOA benefits.” The American Apparel and Footwear Association (AAFA) further proposes to extend AGOA for another ten years after 2025, regardless of the status of the U.S.-Kenya FTA.

Third, despite the overall support for the agreement, industry stakeholders hold different views on how liberal the apparel-specific rules of origin should be in the U.S.-Kenya FTA and how long to keep it. Data shows, between 2015 and 2019, 99.7% of U.S. apparel imports from Kenya claimed the AGOA benefits. Of these imports, almost 100% took advantage of the so-called “third-country” fabric provision, which allows lesser-developed SSA countries like Kenya to enjoy duty-free access to the U.S. market for apparel made from yarns and fabrics originating from anywhere in the world (also known as the “cut and sew” or “single transformation” rules of origin).

On the one hand, some argue that without AGOA-like liberal rules of origin, Kenya won’t survive as an apparel sourcing destination for U.S. fashion companies because of the lack of local textile manufacturing capacity. For example, according to the African Coalition for Trade representing businesses in several SSA countries, “Africa does not currently have the capacity to produce the volume and variety of yarn and fabric necessary to support its apparel industry. Any tightening of the third-country fabric rule of origin in the post-AOGA model FTA would decimate the African apparel industry and lead to the loss of hundreds of thousands of jobs.”

However, some other industry stakeholders suggest that U.S.-Kenya FTA should gradually adopt the more restrictive “yarn-forward” rules of origin to encourage the development of the local textile industry in Kenya and the broader SSA region. Should U.S.-Kenya FTA adopt the “yarn-forward” rules of origin, garment factories in Kenya would have to either import yarns and fabrics from the United States, an option that is commercially infeasible given the long-distance, or use textile inputs locally-made. PVH, in its comment, explains the rationale behind the proposal, “we should move to a yarn forward rule of origin in phases…to allow the orderly verticalization of the apparel industry (in Kenya).” AAFA further adds, “A strong, vertical supply chain for the apparel and footwear industry in Kenya will reduce costs, minimize disruption and improve efficiency.”

Notably, the National Council of Textile Organizations (NCTO), which represents the voice of the U.S. textile industry, has not commented on U.S.-Kenya FTA yet but may potentially join the rules of origin debate. For years, NCTO insists that all U.S. free trade agreements should adopt the strict “yarn-forward” rules of origin. NCTO is most likely to hold the same position for the proposed U.S.-Kenya FTA because of two reasons: 1) avoid setting a “bad precedent” that may have implications for future U.S. FTA negotiations; 2) prevent the case when U.S. apparel imports from Kenya substantially increase and negatively affect apparel suppliers in the Western Hemisphere (such as Mexico and countries in Central America).

Furthermore, the debate on rules of origin is connected with the discussion on how to promote a regional textile and apparel supply chain in SSA and enhance regional economic integration. Several stakeholders, including AAFA, urge that U.S.-Kenya FTA should support regional supply chain collaboration rather than intensify the competition between Kenya and other AGOA members in the U.S. apparel market. The Atlantic Council, a well-known think tank also argues, “the bilateral (FTA) approach should not undercut the US’ longstanding support for regional integration in African markets and the progress that has been made in the East African Community (EAC) and the African continental free trade agreement area (AfCFTA).” Mauritius embassy echoes and suggests that the U.S.-Kenya FTA “could be made conductive to regional integration in Africa by allowing cumulation provisions in the agreement that would allow the use of materials sourced from other African partners to achieve the rules of origin requirements.”

Fourth, industry stakeholders also suggest that U.S.-Kenya FTA could include modern trade agendas to make the agreement more relevant to the needs of the fashion apparel industry in the 21^st-century world economy. The most commonly mentioned issues include: 1) Sustainability, labor, and environmental standard; 2) E-commerce, digital trade, and data protection; 3) Strengthened intellectual property rights (IP) protection; 4) Transparency and trade facilitation. The released USTR negotiation objectives have covered most of these topics.

Additionally, how to deal with Kenya’s secondhand clothing import restriction could be another thorny issue relevant to fashion apparel in the U.S.-Kenya FTA negotiation. In its submitted comment, the Secondary Materials and Recycled Textiles Association (SMART), whose members export 8-10 million kilograms of used clothing each year, urged the proposed U.S.-Kenya FTA to “prohibit the imposition of any import ban on secondhand clothing” and “phase-in duty eliminations on secondhand clothing.” However, SMART’s position could be at odds with apparel manufacturers in Kenya, along with U.S. fashion brands and retailers interested in expanding apparel sourcing from the country.

Further readings:

Lu, S. (2019). Challenges for sub-Saharan Africa as an apparel sourcing hub. Just-Style.
Kendall Keough and Sheng Lu. (2020). U.S.-Kenya Free Trade Agreement: Comments from the Fashion Apparel Industry. Just-Style.

U.S.-Japan Trade Agreement (Updated: September 2019)

US_Japan_flags

On 16 September 2019, the Trump administration notified U.S. Congress of its intent to enter into a trade agreement on “tariff barriers” with Japan as well as an “executive agreement” on digital trade. According to the announcement, the Trump administration plans to utilize Section 103(a) of the 2015 Trade Promotion Authority law, which allows the president to modify tariffs WITHOUT congressional approval. While details of the tariff agreement are not yet available, U.S. Trade Representative Robert Lighthizer in August said the deal with Japan would focus on beef, pork, wheat, dairy products, wine, and ethanol, as well as on industrial goods.

The 16 September notification also says the Trump administration will “further negotiations with Japan to achieve a comprehensive trade agreement that results in more fair and reciprocal trade between the United States and Japan.” Such a more comprehensive trade agreement, however, will require congressional approval.

On December 21, 2018, Office of the U.S. Trade Representative (USTR) released negotiating objectives of the proposed U.S.-Japan Free Trade Agreement (USJTA). Overall, USJTA aims to address both tariff and non-tariff barriers to achieve fairer and more balanced trade between the two countries. Regarding the textiles and apparel sector, USTR says it will “secure duty-free access for U.S. textile and apparel products and seek to improve competitive opportunities for exports of U.S. textile and apparel products while taking into account U.S. import sensitivities” during the negotiation. USJTA also will “establish origin procedures for the certification and verification of rules of origin that promote strong enforcement, including with respect to textiles.”

Should the newly announced U.S.-Japan trade deal remove the tariffs for textiles and apparel traded between the two countries, the overall economic impact on related trade flows could be modest. Data from the UNComtrade shows that in 2018 U.S. imported $656 million textiles (SITC 26 and 65) and $88 million apparel (SITC 84) from Japan, accounting for 2.1% and 0.1% of total U.S. textile and apparel imports respectively. Meanwhile, in 2018 Japan imported around $353 million textiles and $121 million apparel from the U.S., accounting for 3.7% and 0.4% of Japan’s total textile and apparel imports that year respectively.

In comparison, over 70% of U.S. textile and apparel exports went to the Western-Hemisphere and U.S. imported textiles and apparel mostly from NAFTA & CAFTA-DR members and other Asian countries (such as China and Vietnam). Likewise, Japan also has a much closer trade tie with other Asian countries because of the regional textile and apparel trade patterns (or commonly known as “factory Asia”).

On the other hand, the elimination of tariffs and potentially non-tariff barriers under the U.S.-Japan trade deal could expand the bilateral trade flows for technical textiles. Notably, the top categories of U.S. textile and apparel exports to Japan in 2018 were mostly technical textiles such as specialty and industrial fabrics, filament yarns, and non-woven textiles. Likewise, the top categories of Japan’s textile and apparel exports to the U.S. in 2018 also include special-purpose fabric, non-woven fabric, and synthetic filament fabrics.

Additionally, the textiles and apparel-specific rules of origin (RoO) is likely to remain a heated debate in the US-Japan trade negotiation. To protect the interests of the U.S. textile industry and the Western-Hemisphere regional textile and apparel supply chain, most free trade agreements enacted in the United States adopt the so-called “yarn-forward” RoO. Even though the U.S.-Japan trade agreement may not be a too big deal economically, the U.S. textile industry is unlikely to give up the RoO fight. However, most free trade agreements enacted in Japan adopt more liberal fabric-forward rules of origin (or commonly called “double transformation”). As textile and apparel production in Japan is increasingly integrated with other Asian countries, the strict “yarn-forward” RoO could prevent Japanese textile and apparel exporters from enjoying the preferential duty benefits under the U.S.-Japan trade agreement fully.

Trade Wars, Tariffs and Strategic Textile and Apparel Sourcing

Lenzing Texworld USA Winter 2019 Educational Series

Speaker: Gail Strickler, President of Global Trade Brookfield Associates, LLC & former Assistant U.S. Trade Representative for Textiles;

Topics covered:

The state of trade in textiles and apparel
Trans-Pacific Partnership (TPP)—what is now without the United States?
Latest on the U.S. Section 301 tariff against China
Updates on free trade agreements and textile and apparel (including USMCA, KORUS, US-EU FTA, CAFTA-DR, and AGOA)

Textile and Apparel and the Proposed U.S.-EU Free Trade Agreement

I. Background

On October 16, 2018, the Trump Administration notified U.S. Congress its intention to negotiate the U.S.-EU Free Trade Agreement. Between 2013 and 2016, the United States and EU were also engaged in the negotiation of a comprehensive free trade agreement– Trans-Atlantic Trade and Investment Partnership (T-TIP) with the goal to unlock market access opportunities for businesses on both sides of the Atlantic through the ambitious elimination of trade and investment barriers as well as enhanced regulatory coherence. The T-TIP negotiation was stalled since 2017, although the Trump Administration has never officially announced to withdraw from the agreement.

II. Negotiating Objectives

On January 11, 2019, the Office of the U.S. Trade Representative (USTR) released the negotiating objectives of the proposed U.S.-EU Free Trade Agreement after seeking inputs from the public. Overall, the proposed agreement aims to address both tariff and non-tariff barriers and to “achieve fairer, more balanced trade” between the two sides.

Regarding textiles and apparel, USTR says it will secure duty-free access for U.S. textile and apparel products and seek to improve competitive opportunities for exports of U.S. textile and apparel products while taking into account U.S. import sensitivities” during the negotiation. The proposed U.S.-EU free trade agreement also will “establish origin procedures for the certification and verification of rules of origin that promote strong enforcement, including with respect to textiles.” T-TIP had adopted similar negotiating objectives for the textile and apparel sector.

III. Industry viewpoints on the agreement

As of January 2019, leading trade associations representing the U.S. apparel industry and the EU textile and apparel industries have expressed support for the proposed U.S.-EU Free Trade Agreement. In general, these industry associations recommend the agreement to achieve the following goals:

First, eliminate import duties. For example:

American Apparel and Footwear Association (AAFA): “We support the immediate and reciprocal elimination of the high duties that both countries maintain on textiles, travel goods, footwear, and apparel.”…” We also support the immediate elimination of any retaliatory duties imposed by the E.U., as well as any duties imposed by the U.S. (that led to that retaliation). The duties impose costs on activities, including manufacturing activities in the U.S., and undermine markets for U.S. exporters in Europe.”

European Apparel and Textile Confederation (Euratex): “The European Textile and Clothing sector faces high tariffs while exporting to the US market from 11% to up to 32% for some products, namely sewing thread of man-made filaments, suits, woven fabrics of cotton, trousers and t-shirts. Zero customs duties while ensuring modern rules of origin will allow EU companies to boost exports and offer more choice to American consumers and professional buyers.”

Second, promote regulatory coherence (Harmonization). For example:

AAFA: “The E.U. and the United States both maintain an extensive array of product safety, chemical management, and labeling requirements regarding apparel (including legwear), footwear, textiles, and travel goods.”…” Yet they often contain different requirements, such as testing or certification, that greatly add compliance costs.”…” We believe the U.S.‐E.U. trade agreement presents an important opportunity to achieve harmonization or alignment for these regulations.”

Euratex: “Maintaining high level of standards while eliminating unnecessary burdens, removing additional requirements and facilitating customs procedures that impede business are top priorities. Mutual recognition of the EU and US standards will preserve high level of consumer protection on both sides of the Atlantic. Convergence on labelling (fibre names, care symbols and wool labelling), consumer safety on children products and flammability standards is key for the T&C sector.” “EURATEX believes the EU and US standardization bodies should cooperate on setting standards for Smart Textiles taking into account the industry views for facilitating development and trade of such products of the future.”

Third, adopt flexible/modern rules of origin. For example:

AAFA: “We should also support higher usage of the agreement by making sure the rules of origin reflect the realities of the industry today…”the yarn forward” rules, although theoretically promote usage of trade partner inputs, in practice they operate as significant barriers that restrict the ability of companies to use a trade agreement in many cases”…” We need to incorporate sufficient flexibilities into the rules of origin so that different supply chains –and the U.S. jobs they support – can take advantage of the agreement.”

Euratex: “Zero customs duties while ensuring modern rules of origin will allow EU companies to boost exports and offer more choice to American consumers and professional buyers.”

The National Council of Textile Organizations (NCTO), which represents the U.S. textile industry, hasn’t publically stated its position on the proposed U.S.-EU Free Trade Agreement. However, NCTO had strongly urged U.S. trade negotiators to adopt a yarn-forward rule of origin in T-TIP. NCTO also opposed opening the U.S. government procurement market protected by the Berry Amendment to EU companies.

IV. Patterns of U.S.-EU textile and apparel trade

The United States and the EU are mutually important textile and apparel (T&A) trading partners. For example, the United States is EU’s largest extra-region export market for textiles, and EU’s fifth largest extra-region supplier of textiles in 2017 (Euratex, 2018).

Meanwhile, the EU is one of the leading export markets for U.S.-made technical textiles as well as an important source of high-end apparel products for U.S. consumers (OTEXA, 2018). Specifically, in 2017, U.S. T&A exports to the European Union totaled $2,572 million, of which 73.2% were textile products, such as specialty & industrial fabrics, felts & other non-woven fabrics and filament yarns. In comparison, EU’s T&A exports to the United States totaled $4,163 million in 2017, among which textiles and apparel evenly accounted for 48.7% and 51.3% respectively.

V. Potential economic impact of the agreement

By adopting the Global Trade Analysis Project (GTAP) model, Lu (2017) quantitatively evaluated the potential impact of a free trade agreement between the U.S. and EU on the textile and apparel sector. According to the study:

First, the trade creation effect of the agreement will expand the EU-U.S. intra-industry trade for textiles. Meanwhile, the agreement is likely to significantly expand EU’s apparel exports to the United States.

Second, the trade diversion effect of the U.S.-EU Free Trade Agreement will affect other T&A exporters negatively, including Asia’s T&A exports to the U.S. market and EU and Turkey’s T&A exports to the EU market.

Third, the U.S.-EU Textile and Apparel Trade might affect the intra-region T&A trade in the EU region negatively but in a limited way.

Overall, the study suggests that the EU T&A industry will benefit from the additional market access opportunities created by the U.S.-EU Free Trade Agreement. One important factor is that the U.S. and EU T&A industries do not constitute a major competing relationship. For example, the United States is no longer a major apparel producer, and EU’s apparel exports to the United States fulfill U.S. consumers’ demand for high-end luxury products. The U.S.-EU Free Trade Agreement is also likely to create additional export opportunities for EU textile companies in the U.S. market, especially in the technical textiles area, which accounted for approximately 40% of EU’s total textile exports to the United States in 2017 measured in value. Compared with traditional yarns and fabrics for apparel making purposes, technical textiles are with a greater variety in usage, which allows EU companies to be able to differentiate products and find their niche in the U.S. market.

Further, the study suggests that we shall pay more attention to the details of non-tariff barrier removal under the U.S.-EU Free Trade Agreement, which could result in bigger economic impacts than tariff elimination.

Recommended reading:
Lu, S. (2017). Trans-Atlantic Trade and Investment Partnership: An Opportunity or a Threat to the EU Textile and Apparel Industry? Journal of the Textile Institute, 109 (7), 933-941.

2018 U.S. Fashion Industry Benchmarking Study Released

The 2019 U.S. Fashion Industry Benchmarking Study is now available. cover

The report can be downloaded from HERE

Key findings of this year’s study:

Business challenges facing U.S. fashion companies: Protectionism is the top challenge for the U.S. fashion industry in 2018. More companies worry about increases in production or sourcing cost, too. For the second year in a row, “protectionist trade policy agenda in the United States” ranks the top challenge for U.S. fashion companies in 2018.

Industry outlook: Despite concerns about trade policy and cost, executives are more confident about the five-year outlook for the U.S. fashion industry in 2018 than they were a year ago, although confidence has not fully recovered to the level seen in 2015 and 2016. In addition, 100 percent of respondents say they plan to hire more employees in the next five years, compared with 80-85 percent in previous studies; market analysts, data scientists, sustainability/compliance related specialists or managers, and supply chain specialists are expected to be the most in-demand.

U.S. fashion companies’ sourcing strategy: When it comes to sourcing, diversification is key for many companies.

Most respondents continue to maintain a diverse sourcing base, with 60.7 percent currently sourcing from 10+ different countries or regions, up from 57.6 percent in 2017.
Larger companies, in general, continue to be more diversified than smaller companies.
Reflecting the U.S. fashion industry’s growing global reach, respondents report sourcing from as many as 51 countries or regions in 2018, the same as in 2017. Asia as a whole continues to take the lead as the dominant sourcing region. Meanwhile, with the growing importance of speed-to-market and flexibility, the Western Hemisphere is becoming an indispensable sourcing base.
Keeping a relatively diverse sourcing base will remain a key element of U.S. fashion companies’ sourcing strategy. Nearly 80 percent of respondents plan to source from the same number of countries, or more countries, in the next two years. However, respondents are equally divided on whether to increase or decrease the number of suppliers they will work with.
“China plus Vietnam plus Many” has become an ever more popular sourcing model among respondents. And this model is evolving as companies further diversify their China production. In particular, China now typically accounts for only 11-30 percent of companies’ total sourcing value or volume, compared with 30-50 percent in the past.
Although China’s position as the top sourcing destination is unshakable, companies are actively seeking alternatives to “Made in China.” This does not seem to be due to concerns about cost, but rather the worries about the escalating U.S.-China trade tensions.
Benefiting from the diversification away from China, Vietnam and Bangladesh are expected to play a bigger role as apparel suppliers for the U.S. market in the near future.

Rules of origin and the utilization of trade agreements for sourcing: Rules of origin, and exceptions to the rules of origin, significantly impact whether companies use free trade agreements (FTAs) and trade preference programs for sourcing.

While FTAs and trade preference programs remain largely underutilized by U.S. fashion companies, more companies are using NAFTA (65 percent), CAFTA-DR (58 percent) and AGOA (50 percent) than in the past two years.
Still, it’s concerning that companies often do not claim the duty-free benefits when sourcing from countries with FTAs or preference programs. Companies say this is primarily due to the strict rules of origin.
Exceptions to the “yarn-forward” rules of origin, including tariff preference levels (TPLs), commercial availability/short supply lists, and cumulation, are priorities for respondents; 48 percent say they currently use these mechanisms for sourcing. These exceptions provide critical flexibilities that make companies more likely to use FTAs and source from FTA regions.

NAFTA: U.S. fashion companies call for a further reduction of trade barriers and urge trade negotiators to “do no harm” to NAFTA, the most-utilized free trade agreement by respondents.

Respondents predominantly support initiatives to eliminate trade barriers of all kinds, from high tariffs to overcomplicated documentation requirements, to restrictive rules of origin in NAFTA and future free trade agreements.
More than half of respondents explicitly say NAFTA is important to their business—and they have grave concerns about the uncertain future of the agreement.

Sourcing in sustainable and socially compliant ways: Overall, U.S. fashion companies are making more commitments to sustainability and social responsibility.

85 percent of respondents plan to allocate more resources for sustainability and social compliance in the next two years, in areas including providing training to suppliers and internal employees, adding more employees, and working more closely with third-party certification programs on sustainability and social compliance. However, the availability of operational budget remains the primary hurdle for companies that want to do more.
100 percent of respondents map their supply chains (i.e., keep records of name, location, and function of suppliers), up from 90 percent in 2017. Over 80 percent of respondents track not only Tier 1 suppliers (i.e., factory where the final product is assembled), but also Tier 2 suppliers (i.e., subcontractors or major component suppliers, such as fabrics). However, it’s less common for companies to map Tier 3 (i.e., yarn spinners, finding and trimming suppliers) and Tier 4 suppliers (i.e., raw materials suppliers, such as cattle/pig hides, rubber, cotton, wool, goose down, minerals/metals and chemicals).
100 percent of respondents audit their suppliers for issues including building safety, fire safety, and treatment of workers. The vast majority of respondents (96 percent) currently use third-party certification programs to audit, with both announced and unannounced audits.

The US Fashion Industry Benchmarking Study from 2014 to 2017 can be downloaded from HERE

New CRS Report: U.S. Trade with Free Trade Agreement (FTA) Partners

Key findings:

Between 1985 and 2011, the United States entered into 14 free trade agreements (FTAs) with 20 countries. Data from the Census shows that U.S. merchandise trade (or trade in goods) with FTA partner countries represents nearly 70% of all U.S. exports in goods and services, and more than 80% of all U.S. imports of goods and services.
In 2016, the United States ran a merchandise trade deficit of -$71.3 billion with the 20 FTA partner countries and a services surplus of $68.9 billion. The share of the U.S. trade deficit with FTA partners, however, has fallen by nearly half over the 2007-2017 period, from 18% to only about 10% of the total -$734.4 billion U.S. merchandise trade deficit.

Regarding the economic impact of FTAs on the United States, a study conducted by the U.S. International Trade Commission suggests that bilateral and regional trade agreements increased U.S. aggregate trade by about 3%, but less than 1% for U.S. employment (or 159,300 full-time equivalent employees). Specifically, the study finds that rising imports, due in part to the Agreement on Textiles and Clothing (ATC), accounted for most of the reduction in U.S. employment in the apparel industry between 1998 and 2014.
Current trade data treat exports and imports as though the full value of an export was produced domestically and the full value of an import was produced abroad. However, the rapid growth of global value chains and intra-industry trade (importing and exporting goods in the same industry) has significantly increased the amount of trade in intermediate goods in ways that can blur the distinction between domestic and foreign firms and goods. For example, foreign value added accounts for about 11% of the content of U.S. exports in 2010. As a result of the growth in value chains, traditional methods of measuring trade may obscure the actual sources of goods and services and the allocation of resources that are used in producing those goods and services.

Trade agreements of the type currently being negotiated by the United States comprise a broad range of issues that could have significant economic effects on trade and commercial relations over the long run between the negotiating parties, particularly for developing and emerging economies. However, the negative effects of international trade and trade agreements, particularly potential job losses and lower wages, often are distributed disproportionately with the effects falling more heavily on some workers and on some firms.

The full report can be downloaded from HERE

Regional Textile and Apparel Supply Chains–Questions from FASH455

NAFTA and Textile and Apparel Rules of Origin

#1 How do rules of origin (RoO) and free trade agreement (FTA) regulations affect speed to market in apparel sourcing? Do countries who are part of an FTA find it to be easier to get to market in a shorter amount of time if they are working with other FTA members? Or could RoO slow down the production process because producers have to be more careful about compliance with the complicated RoO?

#2 Why or why not the “yarn forward” rules of origin remains an effective way to promote textile and apparel production in the Western-Hemisphere? What other options are available to improve the competitiveness of the Western-Hemisphere textile and apparel supply chain?

#3 What would happen to the Western-Hemisphere textile and apparel supply chain should NAFTA no longer exist?

#4 Should NAFTA be responsible for the loss of US apparel manufacturing jobs? Any hard evidence?

#5 If you were U.S. trade negotiators, what would you do with TPL in NAFTA given the competing views from the U.S. textile industry and U.S. fashion brands and retailers?

The Outlook of “Factory-Asia”

#6 From the perspective of the U.S. textile and apparel industry, is it a good idea for the United States to reach free trade agreement (FTA) with Asian countries? If so, what countries should be included in the new FTA? If not, why?

#7 How can U.S. companies get involved in the Asia-based textile and apparel supply chain?

#8 Why or why not is the “Flying geese model” unique to Asia? Can the model be replicated in America too?

(Welcome to join our online discussion. Please mention the question number in your reply)

CPTPP Tariff Phaseout Schedule for Textiles and Apparel

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), signed on March 8, 2018, is a new free trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. Once the CPTPP enters into force, it will be one of the largest free trade agreements in the world and will provide enhanced market access to key Asian markets. Below is the detailed tariff phaseout schedule for textile and apparel products by CPTPP members:

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by Sheng Lu

USTR Lighthizer Discusses Philosophies behind Trump Administration’s Trade Policy

At an event hosted by the Center for Strategic and International Studies (CSIS) on September 18, U.S. Trade Representative Robert Lighthizer addressed the U.S. trade policy in the Trump Administration, particularly Trump’s beliefs on trade:

Philosophy 1: The reason why some Americans oppose free trade is NOT that they were “ill-informed.” Rather, it is because the U.S. trade policy for decades has failed to create a “level playing field.” The Trump Administration will proactively use all instruments to “make it expensive” for U.S. trading partners to engage in the non-economic behavior, convince U.S. trading partners to treat U.S. workers, farmers, and ranchers fairly and demand “reciprocity” both in the home and international markets.

Philosophy2: Trade deficits matter. Although trade policy is not the only cause for the trade deficit, it can be a major contributor, such as high tariffs that deny the market access for U.S. products, not imposing the border adjustment tax and currency manipulation.

Philosophy 3: China is the top challenge. According to Lighthizer, “the sheer scale of China’s coordinated efforts to develop their economy, to subsidize, to create national champions, to force technology transfer, and to distort markets in China and throughout the world is a threat to the world trading system that is unprecedented.”

Philosophy 4: The Trump Administrations will exam all existing trade agreements to make sure they provide “roughly equivalent” measured by trade deficits. “Where there the numbers and other factors indicate a disequilibrium, one should renegotiate.”

During the Q&A session, Lighthizer further shared his views on some cutting-edge trade issues:

Regarding the NAFTA renegotiation, Lightlizher said that the negotiation is “moving at warp speed, but we don’t know whether we’re going to get to a conclusion, that’s the problem.” The consultation process with U.S. Congress is complicated and time-consuming, but it is unavoidable.
The Trump Administration prefers bilateral trade deal over regional and multilateral ones. Given the size of the U.S. economy, Lighthizer believes that bilateral trade agreement will provide more negotiation leverages and ensure better enforcement.
The Trump Administration will still stay very much engaged in Asia.
The WTO Dispute-Settlement mechanism doesn’t work well—it has both imposed new obligations for the U.S. and reduced a lot of U.S. benefits.
Regarding the outlook for the Trans-Atlantic Trade and Investment Partnership (T-TIP) negotiation, Lighthizer stressed the importance of the US-EU trade relations. He said that the series of elections in EU is a reason why the negotiation of the agreement hasn’t moved forward.
Regarding TISA (Trade in services agreement), the U.S. objective is to open markets and eliminate market access barriers for U.S. companies.

USTR Hearings on the Renegotiation of NAFTA: Textile and Apparel Industry

Panel:

Augustine Tantillo, President, and CEO, National Council of Textile Organizations
David Spooner, Counsel representing the U.S. Fashion Industry Association
Stephen Lamar, Executive Vice President, American Apparel and Footwear Association
Randy Price, VP, Managing Director Product Supply—Americas, VF Corporation
Marc Fleischaker, Trade Counsel, Rubber and Plastic Footwear Manufacturers Association
Reece Langley, VP of Washington Operations, National Cotton Council
Richard Gottuso, Vice President and General Counsel, Bracewell, LLP-Hunter Douglas

Are US Textile and Apparel Imports Using Free Trade Agreements? (Updated February 2017)

Free trade agreements (FTAs) are arrangement among two or more countries under which they agree to eliminate tariffs and non-tariff (NTB) barriers on trade among themselves (Cooper, 2014). Theoretically, companies shall be interested in increasing imports from FTA regions because of the duty-free treatment (i.e., the trade creation effect). Particularly, not paying import tariff duty can be a great cost advantage for textile and apparel (T&A) companies given the fact that the average US import tariff rate was still as high as 8% for textiles and 11.6% for apparel in 2016 (WTO, 2017).

Despite the potential benefit of using FTAs, data from the Office of Textiles and Apparel show that 85.7% of US T&A imports came from non-FTA regions in 2016. Interesting enough, although more FTAs have taken effect in the United States, T&A imported under FTA as a percent of total T&A imports dropped from 15.1% in 2008 to 14.3% in 2016.

Among the FTAs in force, the North American Free Trade Agreement (NAFTA) and the Dominican-Republic-Central America Free Trade Agreement (CAFTA-DR) altogether accounted for 75.9% of the value of total U.S. T&A imports under FTAs in 2016.

Statistics further reveal that sometimes companies did not claim duty free benefits of FTAs even though they imported T&A from the FTA region. For example, in 2016 about 29.9% of U.S. T&A imports from South Korea, 24.3% from CAFTA-DR and 16.3% from NAFTA and 12.9% from Columbia did not enjoy the duty free treatment granted by the respective FTAs.

Some industry experts say the complex T&A rules of origin is a major factor why US T&A companies are not using FTAs enough. According to the Office of Textiles and Apparel (OTEXA), there are more than 20 different tariff lines dealing with various T&A rule of origin situations under respective FTAs.

Additionally, U.S. T&A importers seem to use the “short supply list” mechanism–an exception to the yarn forward rules of origin under FTAs, more actively. For example, in 2016 around 2.4% of US T&A imports under FTAs took advantage of the “short supply list” mechanism, increased from only 1.2% in 2008. Similarly, a record high of 6.2% of U.S. T&A imports under the CAFTA-DR used the short supply list in 2016.

Sheng Lu

Made in the USA Textiles and Apparel:Facts and Future

The presentation is the outcome of Jillian Luetje‘s honor project in FASH455 (Fall 2016). In the project, Jillian explored the facts and future of “Made in USA” textile and apparel based on her research of existing literature and interviews with U.S. trade officials. The presentation intends to help the audience (especially those new to the area of textile and apparel trade and trade policy) have a basic understanding of the topic.

Key findings:

Textile and apparel manufacturing in the USA is NOT totally gone.
The U.S. textile industry in particular relies on the Western Hemisphere supply chain and related free trade agreements
Made in the USA apparel is not going to increase any time soon.

Welcome for any comments and suggestions!

ILO Evaluates Trade Impact of Labor Provisions in Free Trade Agreements

The International Labor Organization (ILO) releases a new study, which looks at how the increasing number of labor provisions in free trade agreements are impacting the world of work. According to the study:

Labor provisions in free trade agreements take into consideration any standard which addresses labor relations or minimum working terms or conditions, mechanisms for monitoring or promoting compliance, and/or a framework for cooperation. (See appendix: evolution of labor provisions in US free trade agreements).

As of December 2015, there were 76 trade agreements in place (covering 135 economies) that include labor provisions, nearly half of which came into existence after 2008. This represents more than one-quarter (28 percent) of the trade agreements which the World Trade Organization (WTO) has been notified of, and which are currently in force. Over 80 percent of agreements that came into force since 2013 contain such provisions. Countries most active in promoting labor provisions in free trade agreements include: Canada, the European Union, the United States, Chile, New Zealand and Switzerland. Some South-South free trade agreements also include labor provisions.

The study finds that there is NO evidence to support the claim that implementation and enforcement of labor standards leads to reduced trade. The findings show that trade agreements, with or without labor provisions, boost trade between members of the agreement to a similar extent. For country-partner pairs that have a trade agreement with labor provisions in force, bilateral trade is estimated to be on average 28 percent greater than what would be expected without such an agreement.

Results further show that, on average, trade agreements that contain labor provisions impact positively on labor force participation rates, bringing larger proportions of male and female working-age populations into the labor force and, particularly, increasing the female labor force. The study assumes that labor provisions in trade agreements can raise people’s expectations of better working conditions, which in turn increases their willingness to enter the labor force.

However, the study found NO statistically significant relationship between labor provisions and labor market outcomes such as wages, share of vulnerable employment or gender gaps at the aggregate level (i.e. consider all countries). On the one hand, this implies that labor provisions at least do not lead to the deterioration of other labor standards in a country. On the other hand, it indicates that labor provisions in free trade agreements have limited impact on the outcomes of the labor market.

Additionally, the study stresses that interaction among stakeholders, capacity-building and monitoring mechanisms – with the support of social dialogue are critical to achieve positive outcomes in the labor market. In a case study on the Cambodia–US Textile Agreement specifically, the report finds strong firm-level intervention, such as monitoring and compliance, improved wages at the firm level, including a notable reduction of the gender wage gap. In another case study, it is found that capacity-building measures brought to Bangladesh after the Rana Plaza tragedy have resulted in some visible improvements with respect to the number of trade unions, building safety and amendments in labor law in the country.

Appendix: Evolution of labor provisions in US free trade agreements

Source: http://www.thirdway.org/memo/tpp-in-brief-labor-standards

USITC Studies the Impact of Trade on Manufacturing Jobs in the U.S. Textile and Apparel Industry

In its newly released Economic Impact of Trade Agreement Implemented under Trade Authorities Procedures, 2016 Report, the U.S. International Trade Commission (USITC) provides a quantitative assessment on the impact of trade on manufacturing jobs in the U.S. textile and apparel industry. According to the report:

Manufacturing jobs in the U.S. textile and apparel industry have been declining steadily over the past two decades. Between 1998 and 2014, employment in the NAICS 313 (textile mills), NAICS314 (textile product mills) and NAICS 315 (apparel manufacturing) sectors on average decreased annually by 7.6 percent, 4.3 percent and 11.2 percent, respectively.
Rising import is found NOT a major factor leading to the decline in employment in the U.S. textile industry (NAICS 313)–as estimated, imports only contributed 0.4 percent of the total 7.6 percent annual employment decline in the U.S. textile industry. Instead, more job losses in the sector are found caused by improved productivity as a result of capitalization & automation (around 4.6 percent annually) and the shrinkage of domestic demand for U.S. made textiles (around 3.5 percent annually) between 1998 and 2014.
Rising imports is the top factor contributing to job losses in apparel manufacturing (NAICS 315), however. As estimated by USITC, of the total 11.2 percent annual employment decline in apparel manufacturing, almost all of them is affected by imports (10.8 percent). On the other hand, increased domestic demand for apparel (such as from U.S. consumers) is found positively adding manufacturing jobs by 2 percent annually in the United States from 1998 to 2014.
To be noted, USITC did not estimate the impact of trade on employment changes in the retail aspect of the industry. According to the U.S. Bureau of Labor Statistics, approximately 80 percent of jobs in the U.S. textile and apparel industry came from retailers in 2015. These retail-related jobs are typically “non-manufacturing” in nature, such as: fashion designers, merchandisers, buyers, sourcing specialists, supply chain management specialists and marketing analysts.

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

headshot_USFIA-hughes_300x300px

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–

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

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

Potential Impact of the Trans-Atlantic Trade and Investment Partnership (T-TIP) on Related Textile and Apparel Trade Flows

The presentation was delivered at the 2015 International Textile and Apparel Association (ITAA) Conference in Santa Fe, New Mexico on November 13, 2015. Welcome for any suggestions and feedback.

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

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

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

[Discussion for this post is closed].

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

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

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

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

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

(Note: Data comes from the World Trade Organization)

Particularly, three specific trade flows are worth watching:

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

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

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

Sheng Lu

Euratex Released Position Paper on Textile and Apparel Rules of Origin in T-TIP

The European Apparel and Textile Confederation (Euratex) recently released its position paper on textile and apparel (T&A) rules of origin in the Trans-Atlantic Trade and Investment Partnership (T-TIP). According to the paper:

First, Euratex supports “double transformation rules” as the basis of T&A rules of origin in T-TIP, with the accompany of flexibilities in some cases. In general, “double transformation” is equivalent to “fabric-forward” rules of origin, which is less restrictive than the “yarn-forward” rules of origin adopted in the United States. Euratex believes that “double transformation rules” is “aligned with market realities and developments of the European industry.”

In contrast, the National Council of Textile Organizations (NCTO) which represents the interests of the U.S. textile industry insists that T-TIP shall adopt the strict “yarn-forward” rule. Particularly, NCTO is worried that a less restrictive rules of origin in T-TIP will have ramifications for the negotiation of future FTAs, including the Trans-Pacific Partnership (TPP).

Second, Euratex opposes applying the “value-added rule” to the T&A sector in T-TIP. Based on the value-added approach, country of origin can be granted when “manufacture in which the value of all the materials used does not exceed certain % of the ex-works price of the products.” Value added is typically calculated based on a subtraction formula, i.e. value added=ex-works price of the product obtained minus the value of all the non-originating material.

Euratex does not think the “value added rule” will work for T&A, because: 1) “variability of the value of originating/non-originating products (fibers, yarns or fabrics) used in spinning or weaving or making-up” will make it practically difficult to calculate value added. 2) “the value added principle is uncontrollable as the added value can be influenced by many factors such as raw materials price, financing, exchange rate manipulations etc.”

Appendix:

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.

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