2020 USFIA Fashion Industry Benchmarking Study Released

The full report is available HERE

Key findings of this year’s report:

Impact of COVID19 on Fashion Companies’ Businesses

The overwhelming majority of respondents report “economic and business impacts of the coronavirus (COVID-19)” as their top business challenge in 2020. The business difficulties caused by COVID-19 will not go away anytime soon, and U.S. fashion companies have to prepare for a medium to the long-term impact of the pandemic.

COVID-19 has caused severe supply chain disruptions to U.S. fashion companies. The disruptions come from multiple aspects, ranging from a labor shortage, shortages of textile raw materials, and a substantial cost increase in shipping and logistics.

COVID-19 has resulted in a widespread sales decline and order cancellation among U.S. fashion companies. Almost all respondents (96 percent) expect their companies’ sales revenue to decrease in 2020.

As sales drop and business operations are significantly disrupted, not surprisingly, all respondents (100 percent) say they more or less have postponed or canceled sourcing orders. Nearly half of self-identified retailers say the sourcing orders they canceled or postponed go beyond the 2nd quarter of 2020. Another 40 percent expect order cancellation and postponement could extend further to the fourth quarter of 2020 or even beyond. The order cancellation or postponement has affected vendors in China, Bangladesh, and India the most.

Impact of COVID-19 and US-China Trade War on Fashion Companies’ Sourcing

As high as 90 percent of respondents explicitly say, the U.S. Section 301 action against China has increased their company’s sourcing cost in 2020, up from 63 percent last year.

COVID-19 and the trade war are pushing U.S. fashion companies to reduce their “China exposure” further. While “China plus Vietnam plus Many” remains the most popular sourcing model among respondents, around 29 percent of respondents indicate that they source MORE from Vietnam than from China in 2020, up further from 25 percent in 2019.

As U.S. fashion companies are sourcing relatively less from China, they are moving orders mostly to China’s competitors in Asia. All respondents (100 percent) say they have “moved some sourcing orders from China to other Asian suppliers” this year, up from 77 percent in 2019.

However, no clear evidence suggests that U.S. fashion companies are sourcing more from the Western Hemisphere because of COVID-19 and the U.S.-China trade war.

Emerging Sourcing Trends

Sourcing diversification is slowing down, and more U.S. fashion companies are switching to consolidate their existing sourcing base. Close to half of the respondents say they plan to “source from the same number of countries, but work with fewer vendors,” up from 40 percent in last year’s survey.

China most likely will remain a critical sourcing base for U.S. fashion companies. However, non-economic factors could complicate companies’ sourcing decisions. Benefiting from U.S. fashion companies’ reduced sourcing from China, Vietnam and Bangladesh are expected to play a more significant role as primary apparel suppliers for the U.S. market.

Given the supply chain disruptions experienced during the pandemic, U.S. fashion companies are more actively exploring “Made in the USA” sourcing opportunities to improve agility and flexibility and reduce sourcing risks. Around 25 percent of respondents expect to somewhat increase sourcing locally from the U.S. in the next two years, which is the highest level since 2016.

US-Mexico-Canada Trade Agreement (USMCA)

For companies that were already using NAFTA for sourcing, the vast majority (77.8 percent) say they are “ready to achieve any USMCA benefits immediately,” up more than 31 percent from 2019. Even for respondents who were not using NAFTA or sourcing from the region, about half of them this year say they may “consider North American sourcing in the future” and explore the USMCA benefits. Some respondents expressed concerns about the rules of origin changes. These worries seem to concentrate on denim products in particular.

African Growth and Opportunity Act (AGOA)

Close to 37 percent of respondents say they have been sourcing MORE textile and apparel from sub-Saharan Africa (SSA) since the latest AGOA renewal in 2015, a substantial increase from 27 percent in the 2019 survey. More than 40 percent of respondents say AGOA and its “third-country fabric provision” are critical for their sourcing from the SSA region. More than 40 percent of respondents say AGOA and its “third-country fabric provision” are critical for their sourcing from the SSA region.

However, respondents still demonstrate a low level of interest in investing in the SSA region directly. Around 27 percent of respondents say the temporary nature of AGOA and the uncertainty associated with the future of the agreement have discouraged them.

With AGOA’s expiration date quickly approaching, the discussions on the future of the agreement and the prospect of sourcing from SSA begin to intensify. Among the various policy options to consider, “Renew AGOA for another ten years with no major change of its current provisions” and “Replace AGOA with a permanent free trade agreement that requires reciprocal tariff cut and continues to allow the third-country fabric provision” are the most preferred by respondents.

COVID-19 and U.S. Apparel Imports (Updated: August 2020)

The latest statistics from the Office of Textiles and Apparel (OTEXA) show that while the negative impacts of COVID-19 on U.S. apparel imports continued in June 2020, there appeared to be early signs of economic recovery. Specifically:

While the value of U.S. apparel imports decreased by 42.8% in June 2020 from a year ago, the speed of the decline has slowed (was down 60% year over year in May 2020). Nevertheless, between January and June 2020, the value of U.S. apparel imports decreased by 30.4% year over year, which has been much worse than the performance during the 2008-2009 global financial crisis (down 11.8%).

The latest trade statistics support the view that U.S. fashion companies continue to treat China as an essential apparel-sourcing base, despite COVID-19, the trade war, and companies’ sourcing diversification strategy. As the first country hit by COVID-19, China’s apparel exports to the U.S. dropped by as much as 49.0% from January to June 2020 year over year. In February 2020, China’s market shares slipped to only 11%, and both in March and April 2020, U.S. fashion companies imported more apparel from Vietnam than from China. However, China’s apparel exports to the U.S. are experiencing a “V-shape” recovery: as of June 2020, China had quickly regained its position as the top apparel supplier to the U.S., with a 29.1% market share in value and 43.4% share in quantity.

Moreover, U.S. apparel imports from China are also becoming more price-competitive—the unit price slipped from $2.25/Square meters equivalent (SME) in 2019 to $1.88/SME in 2020 (January to June), or down more than 16% (compared with a 4.6% price drop of the world average). As of June 2020, the unit price of U.S. apparel import from China was only 65% of the world average, and around 25—35 percent lower than those imported from other Asian countries. On the other hand, the official Chinese statistics report a 19.4% drop in China’s apparel exports to the world in the first half of 2020.

Despite Covid-19, Asia as a whole remains the single largest source of apparel for the U.S. market. Other than China, Vietnam (20.3% YTD in 2020 vs. 16.2% in 2019), ASEAN (34.4% YTD in 2020 and vs. 27.4% in 2019), Bangladesh (8.9% YTD in 2020 vs.7.1% in 2019), and Cambodia (4.5% YTD in 2020 vs. 3.2% in 2019) all gain additional market shares in 2020 from a year ago.

However, still, no clear evidence suggests that U.S. fashion brands and retailers have been giving more apparel sourcing orders to suppliers from the Western Hemisphere because of COVID-19 and the trade war. In the first six months of 2020, only 8.8% of U.S. apparel imports came from CAFTA-DR members (down from 10.3% in 2019) and 4.2% from NAFTA members (down from 4.5% in 2019).

Notably, U.S. fashion companies source products from Asia (including China) and the Western Hemisphere for different purposes. In general, US companies tend to source either price-sensitive or more sophisticated items from Asia, where factories overall have higher productivity and more advanced production techniques. Meanwhile, the Western Hemisphere is typically used to source products that require faster speed-to-market or more frequent replenishments during the selling season. Some studies further show that there is more divergence in the products imported into the United States from Asian countries and the Western Hemisphere from 2015 to 2019. In contrast, over the same period, China, ASEAN, and Bangladesh appear to be exporting increasingly similar products to the United States.

That being said, as USMCA enters into force on July 1, 2020, a more stable trading environment could encourage more U.S. apparel sourcing from Mexico down the road (assuming garment factories there can gradually resume production and no further COVID-19 related shutdown).

As a reflection of weak demand, the unit price of U.S. apparel imports dropped in the first six months of 2020 (price index =100, meaning the same nominal price as in 2010). The price index was 104.7 in 2019. The imports from Mexico (price index =87.1 YTD in 2020 vs. 112.1 in 2019) and China (price index = 69.9 YTD in 2020 vs. 83.5 in 2019) have seen the most notable price decrease so far.

by Sheng Lu

WTO Reports World Textiles and Apparel Trade in 2019

According to the World Trade Statistical Review 2020 newly released by the World Trade Organization (WTO):

First, the volume of world textiles and apparel trade reduced in 2019 due to weakened demand and the negative impacts of trade tensions. According to the WTO, the value of the world textiles (SITC 65) and apparel (SITC 84) exports totaled $305bn and $492bn in 2019, respectively, decreased by 2.4% and 0.4% from a year ago. The world merchandise trade also fell by nearly 3% measured by value and 0.1% measured by volume 2018-2019, in contrast with a positive 2.8% growth 2017-2018. Put these numbers in context, the year 2019 was the first time that world merchandise trade fell since the 2008 global financial crisis, and the decline happened even before the pandemic. As noted by the WTO, the economic slowdown and the escalating trade tensions, particularly the tariff war between the United States and China, were among the major contributing factors for the contraction of trade flows. 

Second, the pattern of world textile exports overall stays stable in 2019; Meanwhile, China and Vietnam continue to gain momentum. China, European Union (EU28), and India remained the world’s top three exporters of textiles in 2019. Altogether, these top three accounted for 66.9% of the value of world textile exports in 2019, almost no change from two years ago. Notably, despite the headwinds, China and Vietnam stilled enjoy the positive growth of their textile exports in 2019, up 0.9%, and 8.3%, respectively. In particular, Vietnam exceeded Taiwan and ranked the world’s seventh-largest textile exporter in 2019 ($8.8bn of exports, up 8.3% from a year earlier), the first time in history. The change also reflects Vietnam’s efforts to continuously upgrade its textile and apparel industry and strengthen the local textile production capacity are paying off.

Third, the pattern of world apparel exports reflects fashion companies’ shifting strategies to reduce sourcing from China. China, the European Union (EU28), Bangladesh, and Vietnam unshakably remained the world’s top four exporters of apparel in 2019. Altogether, these top four accounted for as much as 71.4% of world market shares in 2019, which, however, was lower than 74% from 2016 to 2018—primarily due to China’s reduced market shares.

China is exporting less apparel and more textiles to the world. Notably, China’s market shares in world apparel exports fell from its peak of 38.8% in 2014 to a record low of 30.8% in 2019 (was 31.3% in 2018). Meanwhile, China accounted for 39.2% of world textile exports in 2019, which was a new record high. It is important to recognize that China is playing an increasingly critical role as a textile supplier for many apparel-exporting countries in Asia.

On the other hand, even though apparel exports from Vietnam (up 7.7%) and Bangladesh (up 2.1%) enjoyed fast growth in absolute terms in 2019, their gains in market shares were quite limited (i.e., no change for Vietnam and marginally up 0.3 percentage point from 6.8% to 6.5% for Bangladesh). This result indicates that due to capacity limits, no single country has yet emerged to become the “Next China.” Instead, China’s lost market shares in apparel exports were fulfilled by a group of Asian countries altogether.

Fourth, associated with the shifting pattern of world apparel production, the world textile import is increasingly driven by apparel-exporting countries in the developing world. Notably, 2019 marks the first time that Vietnam emerged to become one of the world’s top three largest importers of textiles, primarily due to its expanded apparel production and heavy dependence on imported textile raw materials. In comparison, although the US and the EU remain the world’s top two largest textile importers, their total market shares had declined from nearly 40% in 2010 to only 31.2% in 2019, the lowest in the past ten years. Furthermore, both the US and the EU have been importing more finished textile products (such as home furnishings and carpets) as well as highly specialized technical textiles, rather than conventional yarns and fabrics for apparel production purposes. The weakening import demand for intermediary textile raw materials also suggests that reshoring (i.e., making apparel locally rather than sourcing from overseas) has NOT become a mainstream industry practice in the developed economies like the US and the EU.

Fifth, the world apparel import market is becoming ever more diversified as import demand is increasingly coming from emerging economies with a booming middle class. Affected by consumers’ purchasing power (often measured by GDP per capita) and size of the population, the European Union (EU28), US, and Japan remained the world’s top three importers of apparel in 2019. This pattern has lasted for decades. Altogether, these top three absorbed 58.1% of world apparel in 2019, which, however, was a new historic low (was 84% back in 2005). Behind the numbers, it is not the case that consumers in the EU, US, and Japan are necessarily purchasing less clothing. Instead, several emerging economies are becoming fast-growing apparel consumption markets and starting to import more. For example, China’s apparel imports totaled $8.9bn in 2019, up 8.1% from a year earlier. From 2010 to 2019, China’s apparel imports enjoyed a nearly 15% annual growth, compared with only 1.9% of the traditional top three.

by Sheng Lu

Additional reading: Lu, S. (2020). Five ways world textile and apparel trade is changing. Just-Style.

Appendix:

COVID-19 and U.S. Apparel Imports (Updated: April 2020)

11.2

The spread of the coronavirus (COVID-19) has already resulted in a plummet of U.S. apparel imports that we have never seen in history. According to latest statistics from the Office of Textiles and Apparel (OTEXA) under the U.S. Department of Commerce, as of February 2020:

  • The value of U.S. apparel imports sharply decreased by 11.2% in February 2020 from a year earlier. Between January and February 2020, the amount of U.S. apparel imports decreased by 10.9% year over year, which is nearly the same loss as in the 2008-2009 global financial crisis.

5

  • As the first country took a hit by COVID-19, China’s apparel exports to the United States nearly collapsed in February 2020–down as much as 46.1% compared with a year ago (and -40.6% drop YTD). This result is also worse than the official Chinese statistics, which reported an overall 20% drop in China’s apparel exports in the first two months of 2020).

2

  • China’s market shares in the U.S. apparel import market dropped to 21.3% in February 2020, a new record low in history (was 30% in 2019 and 23.9% in January 2020). However, it is important to note that such a downward trend started in October 2019, as U.S. fashion brands and retailers were eager to reduce their exposure to sourcing from China.
  • China’s lost market shares have been picked up mostly by other Asian suppliers, particularly Vietnam (18.8% YTD in 2020 vs. 16.2% in 2019) and Bangladesh (9.1% YTD in 2020 vs.7.1% in 2019). However, there is no clear evidence suggesting that U.S. fashion brands and retailers are giving more apparel sourcing orders to suppliers from the Western Hemisphere. In the first two months of 2020, only 9.5% of U.S. apparel imports came from CAFTA-DR members (down from 10.3% in 2019) and 4.2% from NAFTA members (down from 4.5% in 2019).

WTO Reports World Textile and Apparel Trade in 2018

Updated data in 2019 is now available: WTO Reports World Textiles and Apparel Trade in 2019
1

2.jpg

According to the World Trade Statistical Review 2019 newly released by the World Trade Organization (WTO), the current dollar value of world textiles (SITC 65) and apparel (SITC 84) exports totaled $315 billion and $505 billion in 2018 respectively, increased by 6.4% and 11.1% from a year earlier. This has been the fastest growth of world textile and apparel trade since 2012. Specifically: 

I. Textile export

China, European Union (EU28), and India remained the world’s top three exporters of textiles in 2018. Altogether, these top three accounted for 66.9% of world textile exports in 2018, a new record high since 2011. Notably, China and EU (28) also enjoyed a faster-than-world-average export growth in 2018, up 7.9% and 6.9% respectively. The United States remained the world’s fourth top textile exporter in 2018, accounting for 4.4% of the shares, down slightly from 4.6% in 2017.

II. Apparel export

China, the European Union (EU28), Bangladesh, and Vietnam unshakably remained the world’s top four largest exporters in 2018. Altogether, these top four accounted for as much as 72.3% of world market shares in 2018, which, however, was lower than 75.8% in 2017 and 74.3% in 2016—primarily due to China’s declining market shares. Notably, even though apparel exports from Vietnam (up 13.4%) and Bangladesh (up 11.1%) enjoyed a fast growth in absolute terms in 2018, their gains in market shares were quite limited (up 0.3 percentage point from 5.9% to 6.2% for Vietnam and up 0.1 percentage point from 6.4% to 6.5% for Bangladesh). This result once again suggests that due to capacity limits, no single country has emerged to become the “Next China.” Instead, China’s lost market shares in apparel exports were fulfilled by a group of countries, a phenomenon which can be linked with fashion brands and retailers’ sourcing diversification strategy.

III. Textile import

The European Union (EU28), the United States, and China were the top three largest importers of textiles in 2018, accounting for 37.5% of the world’s total textile imports that year. Although the market shares of the top three in 2018 were close to 37.7% a year earlier, it nevertheless was much lower than over 50% back in the 2000s. The increasing diversification of textile import market is associated with the shifting pattern of world apparel manufacturing and export closely.

IV. Apparel import

Affected by consumers’ purchasing power (often measured by GDP per capita) and size of the population, the European Union, the United States, and Japan remained the world’s top three importers of apparel in 2018. Altogether, these top three absorbed 61.5% of world apparel in 2018, which, however, was lower than 62.3% in 2017 and a significant drop from 84% back in 2005. Behind the result, it is not the case that consumers in the EU, U.S., and Japan are importing less clothing. Instead, several emerging economies (such as China) are becoming fast-growing apparel consumption markets and starting to import more. As consumers’ purchasing power in these emerging economies continues to improve, we could expect a more diversified world apparel import market in the years ahead.

textile

clothing.jpg

Additional reading: Latest trends in world textile and apparel trade

Global Value Chain for Apparel Sold at Target

target cover

description

step 1

step 2

step 3

step 4

021313_moongate_assoc_global_value_chain_report1

A global view in mind means more career opportunities: except material production and cut and sew, other well-paid jobs in the apparel value chain stay in the United States.

Source: Moongate Association (2017). Analyzing the Value Chain for Apparel Designed in the United States and Manufactured Overseas

Are Textile and Apparel “Made in China” Losing Competitiveness in the U.S. Market?

The updated version is available HERE

The following analysis is from the latest Just-Style Op-ed Is China Losing Its Edge as a US Apparel Supplier.

A fact-checking review of trade statistics in 2016 of a total 167 categories of T&A products categorized by the Office of Textiles and Apparel (OTEXA) suggests that textile and apparel (T&A) “Made in China” have no near competitors in the U.S. import market. Specifically, in 2016:

2

  • Of the total 11 categories of yarn, China was the top supplier for 2 categories (or 18%);
  • Of the total 34 categories of fabric, China was the top supplier for 25 categories (or 74%);
  • Of the total 106 categories of apparel, China was the top supplier for 88 categories (or 83%);
  • Of the total 16 categories of made-up textiles, China was the top supplier for 12 categories (or 68%);

In comparison, for those Asian T&A suppliers regarded as China’s top competitors:

  • Vietnam was the top supplier for only 5 categories of apparel (less than 5% of the total);
  • Bangladesh was the top supplier for only 2 categories of apparel (less than 2% of the total)
  • India was the top supplier for 2 categories of fabric (9% of the total), one category of apparel (1% of the total) and 5 categories of made-up textiles (41.7% of the total)

part II

Notably, China not only was the top supplier for many T&A products but also held a lion’s market shares. For example, in 2016:

  • For the 34 categories of fabric that China was the top supplier, China’s average market shares reached 41%, 23 percentage points higher than the 2nd top suppliers for these categories
  • For the 88 categories of apparel that China was the top supplier, China’s average market shares reached 53%, 38 percentage points higher than the 2nd top suppliers for these categories.
  • For the 16 categories of made-up textiles that China was the top supplier, China’s average market shares reached 57%, 40 percentage points higher than the 2nd top suppliers for these categories.

It is also interesting to see that despite the reported rising labor cost, T&A “Made in China” are NOT becoming more expensive. On the contrary, the unit price of U.S. T&A imports from China in 2016 was 6.8% lower than a year earlier, whereas over the same period the unit price for U.S. T&A imports from rest of the world only declined by 2.9%.

3

Furthermore, T&A “Made in China” are demonstrating even bigger price competitiveness compared with other suppliers to the U.S. market. For example, in 2016, the unit price of “Made China” was only 78% of the price of “Made in Vietnam” (in 2012 was 89%), 88% of “Made in Bangladesh” (in 2012 was 100%), 86% of “Made in Mexico” (in 2012 was 103%) and 72% of “Made in India” (in 2012 was 81%).

Are the results surprising? How to explain China’s demonstrated price competitiveness despite its reported rising labor cost? What’s your outlook for the future of China as a sourcing destination for U.S. fashion brands and retailers? Please feel free to share your views.

Pattern of U.S. Textile and Apparel Imports (Updated: September 2016)

textile and apparel imports 2015

U.S. textile and apparel imports enjoy steady growth from 2000 to 2015. Specifically, the value of U.S. textile imports reached $26,763 million in 2015, up 4.2 percent from 2014 and 85.1 percent from 2000. The value of U.S. apparel imports reached $85,165 million in 2015, up 4.1 percent from 2014 and 48.8 percent from 2000.  It is forecasted that the value of U.S. textile and apparel imports could reach $27,355 million (up 2.2 percent) and $85,719 million (up 0.7 percent) respectively in 2016.

product structure

Because the United States is no longer a major apparel manufacturer but one of the largest apparel consumption markets in the world, apparel products accounted for 76.1 percent of total U.S. textile and apparel imports in 2015, followed by made-up textiles (16.9 percent), fabrics (5.8 percent) and yarns (1.3 percent).

top supplier

In terms of source of products, U.S. imported apparel from as many as 150 countries in 2015. However, Herfindahl index reached 0.15 for knitted apparel (HS chapter 61) and 0.18 for woven apparel (HS chapter 62) in 2015, suggesting this is a market with a high concentration of supplying countries. Specifically, all top apparel suppliers to the United States in 2015 (by value) are developing countries and most of them are located in Asia, including China (35.9 percent), Vietnam (12.4 percent), Bangladesh (6.3 percent), Indonesia (5.8 percent), India (4.3 percent) and Mexico (4.2 percent).

price

U.S. textile and apparel imports are also becoming even cheaper. For example, U.S. apparel imports in 2015 on average was only 85.7 percent of the price in 1990 and the price of imported fabrics cut almost by half over the same period.

fast growing categories

From 2013 to 2015, the fastest growing textile and apparel import categories unusually include several fabric products, such as blue denim (OTEXA code 225, up 74.8%), Cheesecloths (OTEXA code 226, up 74.3%) and woven fabrics (OTEXA code 611, up 49.3%).  It is likely that the growing business of apparel “Made in USA” has led to an increased demand for imported fabrics.  

growth rate

Additionally, U.S. apparel imports overall mirror the pattern of apparel retail sales in the U.S. market. This reflects the fact that the performance of the U.S. economy is the leading factor shaping the size of demand for imported apparel. It is also interesting to note that the value of U.S. apparel imports grew at a faster rate than the value of U.S. apparel retail sales in 2015 (4.1 percent v.s. 1.7 percent), suggesting import penetration ratio (i.e. the percentage of apparel consumed in the United States that is supplied by imports) continues to rise.

Data source: Office of Textiles and Apparel (OTEXA), U.S. Department of Commerce

by Sheng Lu

Vietnam’s Apparel Exports Slow in First Half of 2016

Growth rate of Vietnam

According to Thanh Nien News, Vietnam’s textile and apparel (T&A) exports only increased 5.1 percent to $10.7 billion in the first half of 2016. This was the lowest growth rate since 2010. Data from the General Statistics Office of Vietnam shows that Vietnam’s T&A exports totaled $22.63 million in 2015, up 8.2 percent from a year earlier.

In the U.S. market, apparel imports from Vietnam also see a much slower growth in the first five months of 2016: 4.1% by value (compared with 13.1% on average between 2010 and 2015) and 5.0% by quantity (compared with 11.8% on average between 2010 and 2015).

Vietnam

The new trade data echos the findings in the latest 2016 US Fashion Industry Benchmarking Study. Although Vietnam remains one of the top sourcing destinations, respondents seem to be more conservative about Vietnam’s growth potential in the next two years. Only 4 percent of respondents expect a strong increase of sourcing value or volume from the country, which is a substantial drop from 21.4 percent in the 2015 study.

Mexican New Import Rules on Textiles and Apparel Raise Concerns

mexicanclothes

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

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

Other proposed measures intend to strengthen custom enforcement, including:

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

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

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

Industry Background

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

1

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

3

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

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

4

 [Comment for the post is closed]