Tag: international trade

Pattern of U.S. Textile and Apparel Imports (Updated: February 2015)

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Total U.S. textile and apparel imports enjoy steady growth from 2000 to 2014. From 2013 to 2014, value of apparel imports increased 2.5 percent and imports of fabric increased 5.4 percent. However, value of fiber imports declined 1.9 percent over the same period. Almost all fastest growing import categories from 2004 to 2014 are basic apparel.

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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 2014. Fabrics and yarns accounted for 5.8 percent and 1.3 percent respectively.

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While developing countries dominated apparel supply to the United States in 2014, developed countries remain important suppliers of textiles. For certain industrial textile products such as non-woven textiles, nearly 50 percent of imports still came from European Union (28), Canada and Japan. This pattern reflects different product nature of apparel (labor intensive) and textiles (capital intensive) as well as the respective comparative advantage of developing and developed economies.

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Overall, pattern of apparel imports is in parallel with apparel retail sales in the U.S. market. This reflects the fact that demand for imports is largely shaped by macro-economic conditions. It should also be noted that despite the heated discussion on “reshoring” apparel manufacturing in the U.S., apparel imports is NOT declining.

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By value, China accounted for 38.9 percent of total U.S. textile and apparel imports in 2014, which was slightly lower than the level of 39.8 percent in 2013. It should be noted that China’s market shares significantly varies by category. Within the total 167 number of textile and apparel product categories complied by the Office of Textiles and Apparel (OTEXA), China enjoyed market share increase for 119 categories and suffered market share losses for 49 categories from 2004 to 2014 (many are sewing thread products).

Exclusive Interview with Erin Ennis, Vice President, US-China Business Council

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Erin Ennis has been Vice President of the US-China Business Council (USCBC) since May 2005. In that position, she directs the Council’s government affairs and advocacy work for member companies and oversees the Council’s Business Advisory Services. She also leads a coalition of other trade associations on issues of interest to companies doing business with China. Founded in 1973, the US-China Business Council provides extensive China-focused information, advisory, and advocacy services, along with comprehensive events, to nearly 250 US corporations operating within the United States and throughout Asia.

Prior to joining the Council, Ms. Ennis worked at Kissinger McLarty Associates, the international consulting firm headed by former Secretary of State Henry Kissinger and former White House Chief of Staff Thomas “Mack” McLarty. At Kissinger McLarty, Ms. Ennis was responsible for implementing strategies for international business clients on proprietary trade matters, primarily in Vietnam and Japan.

Before entering the private sector, Ms. Ennis held several positions in the US Government. From 1992 to 1996, Ms. Ennis was a legislative aide to former U.S. Senator John Breaux, working on international trade and commerce. She also worked on health care issues during the Senate’s consideration of President Bill Clinton’s health care reform, an issue on which Senator Breaux actively worked to broker a compromise.

At the Office of the US Trade Representative from 1996 to 2000, Ms. Ennis first worked in Congressional Affairs on Asia issues, including annual approvals of China’s most favored nation status and the ill-fated 1997 push to renew presidential “fast track” negotiating authority. Beginning in 1998, she was assistant to Deputy US Trade Representative Richard Fisher, who led US trade negotiations and enforcement with Asia, the Americas, and on intellectual property rights.

Interview Part

Sheng Lu: Our students wonder whether increased trade with China is good or bad for the U.S. economy. Many of them consider the U.S. trade deficit with China to be a serious problem and they are worried about the loss of U.S. jobs to China. What’s your view and insights?

Erin Ennis: We should be realistic about what trade balance data shows and what it doesn’t. There is almost no correlation between a high US trade deficit and a strong US economy. In fact, we tend to have the lowest trade deficits when our economy is doing the worst – take a look at the data from the recent global recession between 2009 and 2010 for example versus what the trade deficit looked like in the 1990s when our economy was booming. We also don’t save much of our earnings, which also factors into the data.

Focusing on a single country as the source of our concerns leads to an inaccurate view that what other countries do has more of an effect on our economy than our own domestic policies. We should indeed be concerned about job creation in the US, but to do that, we should be implementing policies that ensure that we have as competitive an economy as possible. That will require a combination of education, energy, tax and other domestic policies. It also requires our economy to be as open as possible and pursuing market openings globally so that US goods and services have opportunities for sales overseas.

Sheng Lu: The USCBC 2014 China Business Environment Survey describes China as “an extremely difficult business environment along with a vital, growing market for foreign businesses”. We all know that China is an emerging market, but what are the top challenges faced by U.S. companies doing business in China?

Erin Ennis: Our survey goes into detail about the various challenges that companies experience in China. Competition with Chinese companies was the top issue in 2014, an issue that was not only cited independently, but also factors into several other issues that were cited such as foreign investment restrictions, uneven enforcement of laws, licensing disparities, and discrimination in the market. IPR enforcement is also a top concern for companies. Beyond those, there are also issues that both Chinese and foreign companies are grappling with in the market: a very tight labor market and significant increases in the cost of doing business.

Sheng Lu: Related to the previous question, two numbers in the USCBC survey seem to be very interesting: Although 90 percent of respondents consider rising costs in China a concern, only 14 percent of respondents say they actually reduced or stopped planned investment in China in the past year. How to explain this phenomenon?

Erin Ennis: The simple answer is that companies don’t make decisions on where to do business solely on cost. Most companies report that they are doing business in China to access Chinese customers. While costs may have increased, their opportunities for increased sales have increased too. China’s market grew at about 7% in 2014 – still a rapid rate of growth, even though it is slower than in previous years. Companies are likely to stay in the market, even as costs increase, to continue to access those opportunities.

Sheng Lu: While it is under heated discussion whether China should join the Trans-Pacific Partnership (TPP) or not, USCBC suggests that a successful conclusion of the Bilateral Investment Treaty (BIT) negotiations should be the top priority in the US-China economic relationship. What is BIT and why does it matter for U.S. companies?

Erin Ennis: The short answer is that a BIT matters because it will require China to provide the same treatment to foreign companies that it provides to domestic ones and it will require China to open many sectors of its economy to foreign investment that remain closed. More detailed explanations of what the BIT is and why it matters can be found on USCBC’s website here: https://www.uschina.org/advocacy/bilateral-investment-treaty.

Sheng Lu: December 2015 will mark the 15th anniversary of China’s accession to the World Trade Organization (WTO). In your view, what are the most important changes in US-China economic relations since China joins the WTO?

Erin Ennis: China’s WTO access required it to open significant parts of its economy to foreign companies. In general China has done a good job of implementing those commitments. As a consequence, China has grown to be the United States’ third largest trading partners after Canada and Mexico, with whom we have a free trade agreement. More needs to be done, however, to open China’s market. The US-China BIT negotiations will be a useful tool in achieving that goal.

Sheng Lu: China’s recent sweeping anti-graft campaign has attracted the world attention. How does the US business community look at this campaign? Will this campaign have any long-term impact on China’s business environment?

Erin Ennis: In general, the anticorruption campaign is viewed very positively by foreign companies because it is an additional way to ensure that all companies are treated equally in China – bribes and other illegal activities should never be tolerated. To date, the only impact that foreign companies have reported is that it takes longer to get some projects or licenses approved because Chinese officials are being overly cautious in ensuring that there is no appearance of impropriety. Those kinds of delays are ones that companies are willing to deal with.

Sheng Lu: Our students wonder if China presents as a career opportunity for them as well. What’s your observation and do you have any suggestions for our students interested in working/interning in China?

Erin Ennis: If you are serious about working in China, then learning Chinese should be at the top of your to do list – but the same could be said about going to work in any foreign country: learn their language. Beyond that, go to China and experience it. There are plenty of ways to do both of those, but language and on the ground experience will establish your credibility as someone who is serious about the specific opportunities in China, rather than someone who just wants a chance to live in a different country. Final suggestions: read as much as you can and question what you read. China is not a monolith and, as anywhere, there are always multiple sides to every story – that’s especially true in business and politics. Having an informed view of those dynamics will serve you well.

–The End–

U.S. Textile and Apparel Exports in 2013 (Updated in November 2014)

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U.S. textile and apparel (T&A) exports increased by $543 million (3 percent) to $19.8 billion in 2013. However, because import increased by $3.2 billion (3 percent) to $97.5 billion, U.S. trade deficit in T&A increased rose to $97.5 billion in 2013. Imports supplied about 98 percent of U.S. consumer demand for T&A in 2013.

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Textiles account for 83 percent of all U.S. T&A exports in 2013. Exports of these textiles products (particularly fabrics and yarns) are used primarily as intermediate inputs for finished products manufactured abroad, which are then imported back into the United States (USITC, 2014). In terms of value, specialty & industrial fabrics, spun yarns & thread, felts & other non-woven textiles and other made-up textile articles altogether account for nearly half of U.S. T&A exports in 2013. Statistics further show that U.S. apparel exports also grow fast in recent years. However, it shall be noted that a good proportion of them might be used clothing.

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Mexico and Canada remain the top two largest export markets for U.S. T&A in 2013. 66 percent of U.S. T&A exports in 2013 went to the Western Hemisphere (i.e. North America, Central America, South America, and the Caribbean countries). However, this share has declined from 77.6 percent in 2000. Other leading export markets for U.S. T&A include Honduras, China and Japan.

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Reference:

USITC (2014). Shifts in U.S. Merchandise Trade. http://www.usitc.gov/press_room/news_release/2014/er1112ll232.htm 

OTEXA (2014). U.S. Imports and Exports of Textiles and Apparel. http://otexa.trade.gov/msrpoint.htm

Think Big about International Trade

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I hope you all enjoy the guest lecture given by Ambassador Friedrich Löhr on his global travel stories as a career diplomat over the past 37 years. Actually, topic of our class is closely connected with “international relations”. As observed by Michael Forman, US Trade Representative, “trade is what most of international relations are about and trade policy is national security policy”; “leaders have come to see the economic clout that trade produces as more than merely a purse for military prowess; they now understand prosperity to be a principal means by which countries measure and exercise power”.

Several readings/case studies/discussions in our class have touched the strategic aspects of international trade in the 21st century. For example, I hope at this point you not only understand the technical aspects of the Trans-Pacific Partnership (TPP) such as “yarn-forward” and “short supply list”, but also can see TPP as a strategic movement for the US to become more deeply embedded in the Asia-Pacific region. Similarly, the Trans-Atlantic Trade and Investment Partnership (T-TIP) is a free trade agreement, but a successful conclusion of T-TIP will also send “an unmistakable signal to the world about the strength of the US-EU bond—a timely reminder as the crisis in Ukraine has triggered deep unease across the continent.”

The strategic aspects of international trade can also be understood from the development perspective. There is a direct correlation between integration into the multilateral trading system and economic growth and between growth and poverty reduction. What then UN Secretary Kofi Annan said remains very true “The main losers in today’s very unequal world are not those who are too much exposed to globalization. They are those who have been left out”. No example can be more convincing than the case of textile and apparel (T&A) to illustrate this point. In many low-income countries in the world, T&A accounts for two-thirds of local employment and over 60 percentage of total merchandise exports. This is why trade preference programs such as AGOA, GSP and HOPE play a critical roles in providing greater market access opportunities to those most vulnerable countries.

To understand the strategic aspects of trade, you may further recall our case study 2 and the discussions on the necessity of maintaining a sound operation of the GATT system in the setting of 1970s. Without a rule-based multilateral trading system, international trade simply couldn’t happen. Yet the current multilateral trading system established shortly after World War II needs an update to better reflect the changing nature of world economy and format of trade. This is why so much attention has been given to mega-trade agreements such as TPP and TTIP. These free trade agreements will have a huge impact shaping the future rules of the game, no matter in terms of adding new agendas such as state-owned enterprises, digital trade and facilitating supply chain, or more effectively establishing a level playing field for issues such as environmental and labor standards.

So think strategically about international trade and think big about the impact of our T&A industry in the 21st century global economy.

Japan’s Textile Exports to Vietnam Keep Growing Fast

According to a recent report released by the Textile Outlook International, Japan’s textile and apparel (T&A) exports increased by 9.6% to a five-year high in 2013 (¥763,307 million or $8,571 million USD), added by a sharp depreciation in the value of the yen (Note: Yen or “¥” is Japan’s currency) against US dollar. Specifically, Japan’s textile exports increased by 9.8%, from ¥729,761 million in 2012 to ¥801,450 million in 2013. Japan’s apparel exports rose by 3.7%, from ¥33,546 million in 2012 to ¥34,792 million in 2013. Textiles account for a lion’s share of Japan’s total T&A exports– 95.8% in 2013 and 95.6% in 2012 in terms of value.

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Statistics also show that Vietnam not only is Japan’s second largest T&A export market, but also is one of the fastest growing export markets for Japan. In 2013, 9.1% of Japan’s T&A exports went to Vietnam (mostly were textiles), increased from 8.5% in 2012. In terms of absolute value, Japans’ T&A exports to Vietnam has also kept growing fast in recent years: 17.1% increase in 2013, 9.7% in 2012 and 27.3% in 2011, much higher than the growth rate of Japan’s overall T&A exports over the same period. Additionally, about 26% of Japan’s textile exports to Vietnam in 2013 were man-made fiber fabrics (SITC 653), followed by special yarns and fabrics (SITC 657) which accounted for 21% in terms of value. This product structure well matches with Japan’s overall textile exports to the world.

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On the other hand, Japans’ T&A exports to the US also grew by 8.1% in 2013, following a 3.2% rise in 2012. Fastest growing category of Japan’s T&A exports to the US in 2013 include blue denim fabric, non-textured filament yarn, wool knitted shirts and blouses and miscellaneous manufactured products made from man-made fibers.

However, the solid performance of Japan’s T&A exports in 2013 “failed to reinvigorate domestic production”. According to the report, Japan’s total T&A exports declined by 2.0% from 2012 to 2013, following a 2.3% fall a year earlier. However, production of miscellaneous textile products in Japan went up 0.6% in 2013.

Questions for discussion:

  • Will Japan further strengthen its ties with Vietnam in T&A production and trade because of TPP?
  • Should the US textile industry care about Japan in the TPP?

Welcome for any comments and suggestions.

Related reading
Lu, S. (2014). Does Japan’s accession to the Trans-Pacific Partnership an opportunity or a threat to the U.S. textile industry: A quantitative analysis. Journal of the Textile Institute. (ahead of print version) 

US Fashion and Apparel Industry Releases Position Paper on the Transatlantic Trade and Investment Partnership (T-TIP)

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The American Apparel and Footwear Association (AAFA) and the US Fashion Industry Association (USFIA) , the two leading industry organizations representing the US fashion and apparel industry, jointly released a position paper this week on the Transatlantic Trade and Investment Partnership (T-TIP), which is currently under negotiation between the United States and the European Union.

The position paper spells out a few priorities deemed by the US fashion apparel industry for the T-TIP:

  • Full, immediate and reciprocal elimination of tariffs, meaning import duties on all apparel products shall be eliminated on day one without phrase-out periods.
  • Flexible rules of origin, meaning restrictive rules of origin such as “yarn-forward” which requires companies to use textile inputs from certain regions so as to enjoy the duty free market access shall be abandoned and replaced by simpler and more flexible ones.
  • Regulatory coherence, such as harmonization on labeling regulations, harmonization of product safety and test method regulations, and establishing of a harmonized list of prohibited substances.
  • Emphasis on facilitative customs provisions, meaning improving predictability, simplicity and uniformity in border procedures.  

The European Branded Clothing Alliance is also a party of the joint statement; however, the European Textile and Apparel Confederation (Euratex) is not involved.

On the other hand, in May 2014, the National Council of Textile Organizations (NCTO), which represents the interests of the US textile industry, announced its priorities for the T-TIP negation, including:

  • Adopt the “yarn-forward” rules of origin in T-TIP
  • Set phrase-out periods for sensitive textile and apparel products
  • Protect the Berry Amendment (which requires all US military uniforms have to be 100% made in USA)

Why People Think Differently about International Trade?

This week we looked at a critical activity closely associated with the textile and apparel industry in the 21st century: International Trade.  Among the fundamental questions we examined, whether trade is beneficial or not is a one that all of us care much about but also has raised many debates. 

Just this week, the Pew Research Center released its latest survey findings about the public opinion on growing trade and business ties between countries and views about the impact of trade on jobs, wages and prices. The results show that not only Americans, but also people in other countries, including those developing ones, are divided about international trade. Anyhow, the highest level of public skepticism about trade and foreign investment is found in the United States.  

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Job and wage are among the top concerns about trade among the general public. In Italy, nearly 59 percent survey respondents believed that trade destroy jobs and 52 percent believed trade lower wages. These two figures are 50 and 45 among US respondents.

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After our discussion on various trade theories, which school of thought do you agree more: mercantilism or comparative advantage theory? Are these theories proposed hundreds years ago still working today? Do you think deepened globalization will reduce the gap or even widen the gap of people’s divided view on international trade? How do you think international trade affects your daily life and your future career opportunities? Last but not least, is trade beneficial for the US textile and apparel industry in the 21st century? Please feel free to share your views!

World Textile and Apparel Trade (Update: August 2014)

The following analysis is conducted based on the statistics released by the World Trade Organization on August 5, 2014.

1. Asia continues to dominate the world textile and apparel exports from 2012 to 2013.

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2. Despite concerns about its rising labor cost, China continues to gain more market shares in world textile and apparel exports from 2012 to 2013.

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3. World market for textiles remains relatively stable from 2000 to 2013; world market for apparel is gradually shifting and diversifying. Although Europe and North America still account for lion’s shares in world apparel imports (due to their higher GDP per capita), Asia is the fast growing market.

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4. Intra-region trade remains a distinct pattern in world T&A trade, particularly in Asia, Europe and America. However, the pattern has become substantially weakened in Europe and America from 2000 to 2013, which could be the results of increasing number of FTAs in these regions.

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5. US textile and apparel exports increased 3.3% and 4.4% respectively from 2012 to 2013. North America remains the single largest T&A export market for the United States.

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by Sheng Lu

Recent Scholarly Books about the Global Textile and Apparel Industry (Update: Aug 2014)

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2014 USFIA Benchmarking Study Released

UntitledKey Findings

  • China will remain the dominant supplier, though Vietnam and Asia as a whole are seen as having more growth potential.
  • Companies aren’t leaving Bangladesh, and are committed to compliance.
  • Companies continue to look for opportunities closer to home, including the United States, as they diversify their sourcing.
  • Companies are diversifying their sourcing and expect to continue to do so. However, current FTAs and preference programs remain under-utilized or don’t represent a major component of respondents’ sourcing.
  • Respondents welcome the passage or renewal of all future trade agreements that intend to remove trade barriers and facilitate international trade in the industry.

About the Benchmarking Study
The 2014 USFIA benchmarking study is conducted based on a survey of 29 executives at 29 leading U.S. fashion companies from March to April 2014. The study incorporates a balanced mix of respondents representing various business types in the U.S. fashion industry, including retailers, importers, wholesalers, and manufacturers. The survey asked respondents about the business outlook, sourcing practices, utilization of Free Trade Agreements and preference programs, and views on trade policy.

The full study can be downloaded from HERE.

Euratex Releases Key Indicators of the EU Textile and Apparel Industry in 2013

In its annual release, the European Apparel and Textile Federation (Euratex) provides a skeletal statistical profile of the EU textile and apparel (T&A) in 2013. Most statistics cited in the report comes from the Eurostat.

Production
In 2013, T&A production in EU overall remains stable. Output of Man-made fiber (MMF) enjoyed a 6.8 percent growth from a year earlier, although production of textile (yarns, fabrics and made-ups) and apparel respectively declined 0.1 percent and 4.2 percent.  Accumulatively, from 2010 to 2013, production of MMF, textile and apparel in EU has down 15.2 percent, 8.1 percent and 13.3 percent respectively.

Employment
Employment in the EU T&A industry continues to move downward in size, shrinking from 1.73 million in 2012 to 1.64 million in 2013. The most significant drop happened in the apparel subsector, which suffered a 4 percent job loss from 2012 to 2013. The number of employment in the textile and MMF subsectors goes down 3.7 percent and 1 percent respectively.

Consumption
Affected by the slow economic recovery in the region, EU consumers seem still hesitant in expending more money on T&A products in 2013. Value of T&A consumption in EU (28) stood at €483.9 billion in 2013, only a slight increase of 0.2 percent from 2012.

Trade
The two-way EU T&A trade enjoyed a modest growth from 2012 to 2013. Particularly, despite reported decline in production, value of EU apparel exports in 2013 increased 4 percent, reflecting the growing demand for “made in EU” apparel products in other parts of the world. In terms of import, consistent with the pattern of consumption, EU apparel imports slightly increased 1.7 percent from 2012 to 2013. It should be noted that China is gradually losing market share in the EU apparel import market. From 2012 to 2013, value of China’s apparel exports to the EU declined 4 percent, compared with 10 percent growth of Bangladesh.

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EU Commission Releases Negotiating Positions for Textile and Apparel in T-TIP

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The EU Commission released its negotiating positions for the textile and apparel sector in the Trans-Atlantic Trade and Investment Partnership (T-TIP) on May 14, 2014.  The position paper outlines a few areas that the EU Commission says it would include in the T-TIP negotiation with the United States:

  • Labeling requirements for textile & apparel and footwear products
  • convergence and/or harmonization of approaches to guarantee product safety and consumer protection
  • standards approximation

Earlier this year, USTR also released its negotiating objectives for the T-TIP. Specifically for the textile and apparel sector, USTR will “seek to obtain fully reciprocal access to the EU market for U.S. textile and apparel products, supported by effective and efficient customs cooperation and other rules to facilitate U.S.-EU trade in textiles and apparel.” USTR holds the positive view that “eliminating the remaining duties on our exports will create new opportunities for integration into European supply chains and to sell high-quality “made-in-USA” garments to European consumers.  Enhanced U.S.-EU customs cooperation will also help ensure that non-qualifying textiles and apparel from third countries are not being imported into the United States under T-TIP.

However, T-TIP negotiation somehow is under the shadow of the Trans-Pacific Partnership (TPP), another free trade agreement currently under negotiation among the United States and other eleven countries in the Asia Pacific region. As reported by the Inside US Trade, the National Council of Textile Organizations (NCTO) holds the view that TTP and T-TIP negotiation should be dealt with “sequentially”. NCTO would like to avoid a situation where the US makes a concession on textiles and apparel to the EU in T-TIP that goes beyond the US offer to Vietnam in TPP, causing Vietnam to demand the same concession in the TPP talks.

One of the most difficult issues on textiles and apparel in T-TIP will be the rule of origin, given that the U.S. and EU have taken vastly different approaches on this issue in their existing preferential trade agreements. The EU rule of origin for apparel essentially consists of two different rules — one that applies generally and one that can be used as an exception. Under the general rule, an apparel item qualifies as originating if it has undergone at least two “substantial processes” in the EU. In general, weaving the yarn into fabric and finishing the fabric are considered substantial operations. Under this scheme, EU manufacturers can use non-originating yarn to make qualifying apparel as long as that yarn is woven into fabric in the EU and also finished there. As a result, this part of the EU rule is sometimes referred to in the United States as the equivalent of a “fabric-forward” rule, since it usually requires all components of the item, starting with the fabric, to be made in the region.

The second part of the EU rule — which functions as an exception — essentially applies a more liberal rule for certain apparel and textile items. These items can qualify for tariff benefits even if only the printing or other downstream operations occur in the EU. Specifically, under this exception, a textile or apparel item that is made from non-originating fabric but for which the printing occurs in the EU can qualify for tariff benefits if the non-originating part of the item is no more than 47.5 percent of the value of the final product. EU manufacturers of printed bed sheets often take advantage of this printing exception (Inside US Trade).

Latest data from OTEXA shows that in 2013, U.S. textile and apparel imports from EU(28) totaled $4 billion, among which 52% were apparel products and 48% were textiles. Top product categories of U.S. textile and apparel imports from EU include non-woven fabrics, men&boys’ suits, dresses, floor coverings, other man-made fiber apparel, special purpose fabrics and women & girls’ coats. In comparison, U.S. textile and apparel exports to EU(28) reached $2.5 billion in 2013, among which only 29% were apparel products and 71% were textiles. Top product categories of U.S. textile and apparel exports to EU include specialty & industrial fabrics, felts & other non-woven fabrics, filament yarns, other made-up textile articles, waste & tow staples, women & girls slacks, shorts and pants as well as spun yarns & thread.

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Why Textile and Apparel Majors Need to Know about Trade Policy

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This past week, our class moved to the topic of trade policy, which as usual turned out to be one of the most challenging and “least exciting” chapters for our students. A common question in students’ mind is (and probably for some professors in the textile and apparel field as well): as a fashion major, why do I need to care about trade policy?

The answer is straightforward: textile market is shaped by rules—trade policy. Trade policy affects the availability of T&A products in the market in terms of quantity, price and speed. Trade policy also affects T&A companies’ access to the market, both domestic and foreign. Simply look at the clothing and shoes we wear daily: if they are imported, very likely the price we pay includes 10-30% additional tax (tariff). Even the clothing is “made in USA”, we should realize that the survival of US domestic apparel manufacturing could be the result of protection by the exact same trade policy which makes imported competing products 10—30% more expensive than otherwise in the US market.

Yet, trade policy does not happen naturally. Trade policies are deliberately made by policymakers and strongly influenced by industry players. Two things I hope our students can realize: first, the T&A industry cannot afford ignoring trade policy. Think about this case: if the US yarn manufacturers did not actively advocate “yarn-forward” rules of origin to be adopted in NAFTA and CAFTA, what will happen to their fate right now? Vice versa, how will the commercial interests of apparel retailers/importers be affected if they stop voicing themselves and simply leave the trade protectionism forces to influence trade policymakers? As the saying goes: if you are not at the table, you are on the menu. To certain extent, there is no good or bad trade policy, but winners and losers.

Second, understanding trade policy making is about understanding the real world. Trade policymaking is a painful balancing process like trying to “breathe and suck at the same time”.Not only different interests groups may have conflicting views on a specific trade policy, but also different policymakers may have their respective philosophies and priorities. As we mentioned in the class, agencies in the executive branch such as the US Trade Representative Office and the Commerce Department put national interests and international obligations of the United States at its heart whereas the Congress often times gives preferences to regional, sectoral and party interests.  A full understanding of T&A trade policy thus requires familiarity with what’s going on in this unique industry sector, knowledge about its key players as well as having a big picture vision in mind. For example, without recognizing the value of becoming a WTO member for China, it will be difficult to appreciate why it was willing to allow US to restrict its apparel exports from 2003 to 2008 on a discriminatory basis (T-shirt book, part III).

Our FASH students shall be encouraged to jump out of the narrowly-defined fashion world, because no industry operates as an island. Instead, the T&A industry is part of the world economy and shaped by the “rest” of the world economy.

 Sheng Lu

Digital Economy and the Fashion Industry: A Macroview

Part I

Part II

Part III

Exclusive Interview with Nate Herman, Vice President of the American Apparel and Footwear Association

NateHerman (Photo: Courtesy of the AAFA)

Nate Herman is the Vice President of the American Apparel and Footwear Association (AAFA). Mr. Herman manages AAFA’s regulatory and legislative affairs activities, advocating on behalf of, and providing information to, the industry on international trade and corporate social responsibility issues. Mr. Herman also handles product safety, customs, transportation and other technical (slip resistance, safety toe, etc.) issues as well as labeling matters for AAFA’s footwear members as co-leader of AAFA’s Footwear Team.  In addition, Mr. Herman develops all apparel and footwear industry data and statistics as AAFA’s resident economist.  Prior to joining AAFA, Mr. Herman worked for six years at the U.S. Department of Commerce’s International Trade Administration (ITA) assisting U.S. firms in entering the global market. Mr. Herman spent the last two years as the Department’s industry analyst for the footwear and travel goods industries.

Interview Part

Sheng Lu: First of all, would you please make a brief introduction of AAFA to our students, including your history, your current members, your key missions and main functions?

Nate Herman: Representing more than 1,000 world famous name brands, the American Apparel & Footwear Association (AAFA) is the trusted public policy and political voice of the apparel and footwear industry, its management and shareholders, its four million U.S. workers, and its contribution of $350 billion in annual U.S. retail sales.  AAFA was formed in 2001 following a merger of the American Apparel Manufacturers Association and Footwear Industries of America.

AAFA stands at the forefront as a leader of positive change for the apparel and footwear industry.  With integrity and purpose, AAFA delivers a unified voice on key legislative and regulatory issues.  AAFA enables a collaborative forum to promote best practices and innovation.  AAFA’s comprehensive work ensures the continued success and growth of the apparel and footwear industry, its suppliers, and its customers.

We achieve these goals through aggressive advocacy on Capitol Hill and before the Administration on the issues most important to the U.S. apparel and footwear industry. AAFA also hosts more than 50 conferences, seminars, workshops, and webinars both in the United States and around the world to ensure the industry is able to comply with growing state, federal, and international regulations.

Sheng Lu: AAFA recently released a video clip “What do we wear”, which is very encouraging and eye-opening to our students. What makes AAFA create this video and what specific information you would like to deliver to the audiences?

Nate Herman: A few years ago, we were asked a question during a meeting with a top-ranking senator.  “What is the economic impact of your industry?”  We didn’t have an answer, which didn’t help policy makers see the important jobs within our industry and our significant contribution to the U.S. economy.  That led to the launch of our “We Wear” brand.

You see, when we get dressed each day, we wear more than clothes and shoes.  We wear four million U.S. jobs.  We wear intellectual property.  We wear social responsibility.  Our new video is a visual reminder of our important mission and economic impact.  We use it to educate policy makers, administration officials, the industry, and consumers about our industry and how vital we are to the overall health of the U.S. economy.

Sheng Lu: One phrase often used by AAFA is your member companies “produce globally and sell globally”. How should our students understand the global nature of today’s apparel industry?

Nate Herman: The apparel and footwear industry is on the frontlines of globalization.  In fact, our industry’s supply chain is the most global supply chain in the history of commerce.

Simply put: We are a nation of 330 million importers. In 2012, 97.5 percent of the apparel and 98 percent of the footwear sold in the United States was produced internationally. This model allows families to spend less of their family budgets on clothing and shoes while still getting more bang for their buck.

Sourcing is made possible through strong and positive trade relationships with a variety of countries, including China, Mexico, Vietnam, Indonesia, Bangladesh, Colombia, Honduras, the Dominican Republic, Nicaragua, and more.  Companies even source product from the United States.  Sourcing decisions are often made through serious processes that evaluate a country’s trade programs, environmental record, social responsibility standards, intellectual property protections, material and labor costs, shipping time, and reliability of sourcing partners.

At the same time, don’t ignore the rest of the world.  The United States only represents just five percent of the world’s population.  So when a company sources from China or Vietnam, they are sending products all over the world through a complex supply chain.  One of our goals at AAFA is to help ensure the entire world has access to world famous U.S. name brands.

Sheng Lu: The Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP) are two buzzwords nowadays. From the perspective of AAFA, why should the US apparel industry care about these two agreements? 

Nate Herman: Trade agreements like the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP) offer U.S. name brands direct market access to new sourcing and retail markets.  For example, the United States and the European Union, under TTIP, accounts for more than 40 percent of global clothes and shoes retail sales.

Trade agreements also provide opportunities to harmonize regulations to make it easier to do business in the global market.  For instance, the United States maintains strict product safety standards.  Through trade agreements, we can make regulations consistent to ensure if a shirt is safe in one country it’s safe in another.  This prevents redundant testing costs, which ultimately makes clothes and shoes cheaper for consumers.

Sheng Lu: Last year, several tragedies happened in the Bangladesh garment factories raised the public awareness of the corporate social responsibility issues in the apparel sector. How has the tragedy changed the business practices in the apparel sector from your observation?

Nate Herman: Over the past year, the U.S. apparel and footwear industry has rallied together to address significant social responsibility challenges, including worker safety.  In fact, we’ve never seen the industry come together so fully in a spirit of collaboration.  Safety inspections, training, and fire safety prevention have been or are now part of many companies’ compliance programs.  AAFA supported the creation of the Alliance for Bangladesh Worker Safety, an industry-led effort to prevent future tragedies in Bangladesh.  While all these positive steps encourage us, we know our social responsibility and environmental work will never be finished.  We can always do better.

Sheng Lu:  Look ahead in 2014, what top issues in the apparel industry you would suggest our students to watch?

Nate Herman: 2014 is already shaping up to be a busy year for the U.S. apparel and footwear industry.  One major trend we are watching is the continued growth of e-commerce and Omni-channel retail.  You see, the point of sale is just the starting point of a long – and global – supply chain.  We will see sourcing patterns and business models change as retail shifts away from brick-and-mortar shopping to online e-commerce.  We are now beginning to focus on new ideas like online privacy and data security, terms the industry didn’t have to focus on 10 years ago.

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Global Textile and Apparel Market Overview

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Data source: TechnoPak (2013)

Trade with EU and Japan is good for the US and Trade with China is bad?

Yesterday in class, we’ve discussed how differently people see the impact of international trade. Here is one more example showing the controversy of the topic: according to a survey conducted by PewResearch in late 2010, 58% of sampled Americans said more trade with European nations would be good for the United States, 60% said increased trade with Japan would be good for the U.S. but only 45% favored increased trade with China. However, statistical data shows that US exports to China outpaced nearly all of the top ten export markets (including Japan and EU) from 2003 to 2012(source: USCBC).  

Why would the general public favor a particular trading partner but disfavor another? Should they? By which standard the general public may assume more trade with a particular trading partner would be good or bad for the United States? In your view, is trade beneficial for the US overall? Can we use any trade theories learnt from the class to explain the above phenomenon? Look forward to hearing your thoughts!

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The international aspect of the US economic policy: why and how we are all connected?


From 0:24′: Please enjoy an enlightening and inspiring dialogue with Penny Pritzker, US Secretary of Commerce and Michael Froman, US Trade Representative, on the international aspect of the US economic policy at the 2014 World Economic Forum in Davos.  The dialogue covers many interesting topics closely connected with our class lectures this & next week, for example:

  • Do we need more globalization? What is the impact of globalization on jobs and income inequality?
  • Why export matters to the US economy?
  • What will free trade agreements such as the Trans-Pacific Partnership (TPP) bring to the US?
  • Why foreign investment in the US is good for the US economy and job creation?
  • What is the connection between “global supply chain” and “made in USA”?

The Apparel Industry on Both Sides of the Atlantic Push for Regulatory Coherence in the TTIP negotiation

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The European Apparel and Textile Confederation (EURATEX) and the American Apparel and Footwear Association (AAFA), the two leading trade associations representing the apparel industry in the EU and US respectively, released their joint comment on the Trans-Atlantic Trade and Investment Partnership (TTIP) on December 13, pushing negotiators of the agreement to address the regulatory challenges that affect the apparel business across the Atlantic.  Specifically, the diverse labeling and product safety requirements between EU and US are identified as the two leading regulatory hurdles for the apparel business. Other issues of concern to the EURATEX and AAFA include conflict minerals reporting requirements, customs procedures and chemical management regimes.

TTIP, launched in June 2013, is one of the most important and economically influential free trade agreements currently under negotiation. If implemented, the agreement is expected to create additional $65 billion and $86 billion GDP to the US and the EU respectively.

It is argued that because the implementing tariff rate in the EU and US on average is already quite low, harmonizing regulatory differences rather than eliminating tariffs will be the key to the TTIP negotiation.* However, the very different and rigid legislative procedures in the EU and US may complicate the negotiation on regulatory coherence. Particularly, both the EU and US may want to convince the other side that their current regulations/standards are the better ones. And the political implication will be bad if trade negotiators of either side leave the impression domestically that the TTIP would lower down their current standards for sensitive topics such as “product safety” and “environmental protection” .  

Note*: as one of the few exceptions, the tariff rates for T&A are still relatively high: 6.6% for textiles and 11.5% for apparel in the EU as well as 7.9% for textiles and 11.6% for apparel in the US according to the World Trade Organization.

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by Sheng Lu

International Trade and Global Supply Chain

Questions to think about:

Why supply chain matters in the 21st century global economy?

What benefits a global supply chain can bring to us?

 What unique risks are involved in a global supply chain?

What role the government and policies can play in facilitating the global supply chain?

Are you prepared to embrace the concept of “made in the world”?

China as an Apparel Importer: A Big Picture View

China is well-known as the single largest apparel exporter in the world. However, with the critical changes of the world economy as well as the evolution of the global textile & apparel sector over the past decade, it is the time to seriously study China as a fast-growing apparel import market.

First and foremost, it is a wrong perception that Chinese consumers only consume clothing “made in China”.  On the contrary, as put it by a 2011 ITC consulting report on the Chinese market for Clothing:  “in Zara’s stores in Shanghai, over 90% of stock-keeping units (SKUs) are imported, with Bangladesh, Egypt, Morocco, Portugal, Spain, Turkey, and Viet Nam and being the main import sources. Bangladesh, Cambodia, India and Indonesia are also important procurement target countries. Shoes made in Viet Nam and Spain account for a high proportion in Zara. New H&M stores in Shanghai attracted thousands of consumers when they opened in April 2007 Of H&M’s SKUs, 75% are imported, with Bangladesh, Cambodia, India, Indonesia and Turkey being the main source countries.”

However, like any other countries in the world, the apparel import market in China also has its unique features & patterns. For example, woven men’s wear accounted for almost 1/3 of China’s total apparel imports. Actually, the aggregate import demand for men’s wear was 17%-20% larger than the import demand for women’s wear in China from 2008 to 2012. As another important feature: in 2012, 83% and 13% of China’s apparel imports came from Asia and Europe respectively, leaving only 4% market share for the rest of the world. This pattern implies that China’s apparel import demand could be rather polarized: either extremely price competitive products (even cheaper than “made in China”) or very high-end luxury goods (such as those made in Germany, Italy, UK and France).

Additionally, it should be highly noted that  “China is not a single unified market but a collection of local markets, each with different market demands, consumer behaviors, competition levels, and market access conditions.” (More reading: Understand China’s retail market)  This feature is particularly important for those Western-based apparel retailers interested in entering China’s retail market. In general, Eastern coastline cities are the wealthiest part of China, where a high concentration of apparel stores can be found. Many famous international brands set up mainly in first-tier cities and then establish their presence in affluent second-tier cities. Currently, the tendency is for famous brands to penetrate into more second-tier cities. Among the first-tier cities, Shanghai plays a significant role in setting fashion trends on the mainland. Therefore, many foreign and domestic apparel suppliers choose to first establish a foothold in Shanghai before seeking further expansion.

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EURATEX Raises Concerns about Pakistan’s Membership in the EU GSP+ Program

In a statement released on November 4, 2013, the European Apparel and Textile Confederation (EURATEX) openly expressed their opposition to the proposed “unique delegated act” for the EU Generalized Scheme of Preferences plus (GSP+) program. Specifically, the EURATEX strongly questioned Pakistan’s qualification as a beneficiary of the GSP+ , saying that “Pakistan has a poor record in matters related to Human rights and in particular to the protection of religious minorities, women and children .”

As put by Mr. Alberto Paccanelli, president of the EURATEX: “During the recent GSP revision it was repeatedly stated by the EU Commission that one of the main objectives of the new regime was to ensure that preferences were given to the countries that need them and in the case of GSP+ to countries that are promoting high Human, Social and Environmental standards.”

The GSP system is an EU trade policy tool specifically designed to help developing countries expand exports to the European Union markets. Beneficiaries of the GSP program can enjoy special favorable market access conditions such as tariff reduction and quota elimination.  For example, the EU charges an average 6.2% and 11.2% tariff rate for textile and apparel imports respectively from most sources, but the rates are lowered to 5.0% and 9% respectively for imports from GSP beneficiaries.

As part of the GSP system, the GSP+ program provides additional market access preferences to those economically and socially vulnerable countries under the condition that these countries will “implement core human rights, labor rights and other sustainable development conventions.” For example, textile and apparel imports from beneficiaries of the GSP+ program will be waived for import tariffs in the EU market. This will substantially improve the price competitiveness of products from the GSP+ beneficiary countries when competing with Asian suppliers such as China and India.

Despite the emphasis on Pakistan’s human right practices, the real factor driving EURATEX’s opposition to Pakistan’s membership in the GSP+ program could be market competition.  Pakistan is one of the most competitive textile and apparel exporters among the GSP beneficiaries. Data show that Pakistan’s textile and apparel exports to the EU market enjoyed robust growth over the past decade, causing the EU domestic textile & apparel manufacturers to become nervous about import competition.  The EURATEX, which represents the commercial interests of the EU local textile & apparel industry, has consistently opposed EU’s duty free access to Pakistan’s textile and apparel products.

Moreover, under the EU GSP system, there is a mechanism called “graduation of competitive sector”, under which imports of particular groups of products originating in a given GSP beneficiary country will lose GSP preferences once the average imports of this particular sector exceed 15% of GSP imports of the same products from all GSP beneficiary countries (12.5% for textile and clothing). However, the “graduation of competitive sector” mechanism will not be applied to GSP+ members. This means that if Pakistan becomes a GSP+ member, the EU domestic textile and apparel manufacturers may have to face increasing import competition from Pakistan but can do little about it.  

The most critical yet controversial part of the debate is, to which extent, the GSP system can be built into an effective and balanced development tool. According to a 2012 World Bank study, “the textile and apparel sector is THE most important manufacturing sector of Pakistan, which generated one-fourth of the country’s industrial value-added, recruited more than 40% of industrial labor force, contributed 8% of the country’s overall GDP and accounted for about 60% of Pakistan’s total merchandise exports.”  That being said, allowing Pakistan to export more textiles and apparel to the EU market is one of the very few ways to make the GSP system work and bring actual benefits to the country. Yet, the EU domestic textile and apparel industry can also cite statistics, arguing the necessity of protecting the domestic textile mills and saving the jobs there by resisting as many textile and apparel imports as possible.

On the other hand, the GSP system needs to take into consideration the benefits of all beneficiaries, especially to avoid creating “losers” and “winners” within the group. This is the philosophy behind the introduction of the “graduation of competitive sector” mechanism so that the interests of those “small countries” can be particularly taken care of. For example, when Pakistan is gaining additional market shares in the EU textile and apparel import market because of the GSP+ status, other less competitive developing countries may see decline of their exports. The textile and apparel industry is as important to these “losers” as it is to Pakistan.

Overall, the GSP debate reflects the significance and the complexity of the textile and apparel sector in the 21st century global economy.  Particularly, trade policy will continue playing a key role in improving the situation, yet it calls for courage and wisdom of policymakers.

by Sheng Lu

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Why the General Public Needs to Care About Textiles and Apparel

International Trade Administration Reorganized

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From Just Style:

As part of its first major reorganization in more than 30 years, the US Department of Commerce’s International Trade Administration (ITA) has consolidated its four business divisions into three units.

The new units are Global Markets, Industry and Analysis, and Enforcement and Compliance.

Global Markets combines ITA’s country and regional experts, overseas and domestic field staff, and specific trade promotion programmes.

The Industry and Analysis (I&A) unit brings together ITA’s industry, trade, and economic experts to help US industries develop and execute international trade and investment policies to increase exports.

And the Enforcement and Compliance unit helps enforce US trade laws and ensure compliance with trade agreements.

The Office of Textiles & Apparel (OTEXA), which oversees apparel and textile trade, supervises the implementation of all textile trade agreements, formulates trade policy, performs research and analysis, compiles industry data, and promotes US trade events, is now part of the new Industry & Analysis division. Key staffs at the OTEXA and their responsibilities can be found HERE.

“Just as companies must change and adapt to ensure they provide cost-effective, high-quality products and services that meet the demands of their clients, so too must government agencies adapt to continuously improve their performance and make the best use of scarce public funds,” explained Francisco Sánchez, undersecretary for international trade.”

The TPP would actually benefit whom?: The local Vietnamese companies or rather the global capitals which invest in Vietnam ?

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Outcomes of many studies suggest that Vietnam would become one of the largest beneficiaries of the Trans-Pacific Partnership (TPP) by substantially expanding its apparel exports to the United States. However, the news report below raises another interesting question to consider: who actually would benefit from the TPP: The local Vietnamese companies or rather the global capitals which invest in Vietnam because of the agreement? This question is important because the answer reflects many debates nowadays about the impact of globalization; particularly, the impact is suggested to be unequally felt by different stakeholders.

From thanhniennews

The US-led TPP trade pact that will include Vietnam among its signatories is expected to be wrapped up this year, but Vietnamese firms are unsure if they will benefit.

Many are anxious since foreign investors with deep pockets are planning to set up operations in the country to take advantage of the lowering of import taxes by many large economies that will sign up for the trade deal.

For instance, import tariffs in the US, the biggest customer for Vietnam’s leading export, textiles, will be cut from 17-32 percent now to zero.

Many textile and garment companies in the region have already begun to move to Vietnam.

Texhong Corporation of Hong Kong, which set up a dyeing factory in the southern province of Dong Nai in 2006, recently opened another one in the northern province of Quang Ninh with an investment of US$300 million.

One of Hong Kong’s leading textile companies, TAL Apparel, has plans to set up a second textile-dyeing -apparel factory worth hundreds of millions of dollars. It has eight factories worldwide, including one in Vietnam’s northern province of Thai Binh since 2004.

Unisoll Vina, owned by South Korean Hansoll Textile Ltd, has also got a license to build a $50-million factory to make fur and leather clothing and accessories.

According to the Ho Chi Minh City Association of Garment, Textile, Embroidery and Knitting, Japanese companies Toray International and Mitsui, Austria’s Lenzing, and China’s Sunrise are also exploring investment opportunities in the country.

Vietnamese companies are meanwhile trying to enlarge their limited feedstock production capacity to comply with TPP’s regulations on origins – for instance apparel has to be made using yarn and other materials produced in member countries.

The Vietnam National Textile and Garment Group (Vinatex) has opened three yarn factories this year in Hanoi and the central provinces of Ha Tinh and Thua Thien-Hue with an annual capacity of 1,270 tons.

It started work on 11 others in the first half of the year.

Figures from the Vietnam Textile and Apparel Association (Vitas) showed that 70 percent of more than 3,700 textile factories in the country make apparel; only 6 percent produce yarn and 17 percent make cloth while 4 percent dye.

Local producers depend largely on fabric imported from China.

Insiders said a yarn factory costs tens of millions of dollars, a sum most Vietnamese businesses cannot afford.

Pham Xuan Hong, deputy chairman of Vitas, said unless the government helps by making cheap loans available for yarn projects, the industry would not benefit from the TPP at all.

The government also needs to zone certain areas for dyeing plants since they are shunned everywhere due to pollution concerns, Hong said.

EU Textile and Apparel Industry Sees Positive Impact of the TTIP

The European Apparel and Textile Federation (EURATEX) on September 26, 2013 hosted a luncheon event on the current US-EU negotiation on the Trans-Atlantic Trade and Investment Partnership (TTIP), particularly the impact of the agreement on the EU textile and apparel sector. According to Mr. Alberto Paccanelli, president of the EURATEX, the United States currently is the EU 2nd largest export market for T&A (over $4.5 billion Euros) and the largest when counting textiles alone. Alberto said that the US market is highly price sensitive and this is one of the reasons why tariffs remain an effective barrier to EU exports. For example, the US still charges a tariff rate as high as 28.2% for imported man-made fiber overcoat and 32% tariff rate for man-made fiber T-shirt. Alberto further added that:

“The EU-US negotiations are the key priority for the EU Textile and Clothing Industry. EURATEX has made a rough assessment on the benefits of the Agreement: it is estimated that exports would register possible annual increases between 2.5% and 3.5% on top of the normal growth rate in Exports due to the Agreement. The EU should strive for duty free access from day one without exceptions and in what concerns Non-Tariff Barriers we should aim at harmonization and mutual recognition. It is also critical to improve access to the Public Procurement Markets and ensure a high level of intellectual property right (IPR) protection and enforcement. The TTIP Agreement should improve business conditions for small and medium-sized enterprises (SMEs), simplifying customs procedures and the costs associated. For the EU Textile and Clothing Industry Rules of Origin are also critical and double transformation should be ensured.”

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Expanding Global Trade through Innovation and the Digital Economy

 

This is the introductory video of this year’s World Trade Organization (WTO) Public Forum hosted from Oct 1 to Oct 3. The WTO Public Forum is an annual event that provides a platform for public debate across a wide range of WTO issues and trade topics. The Public Forum is also an opportunity for us in the WTO to listen and exchange views with non-government organizations (NGOs), academia, the private sector, with those of you who are increasingly participating in shaping the world’s economic and political environment. This year’s Public Forum looks at the future of trade in an era of innovation and digitalization.

As put it by Michael Froman, the U.S. Trade Representative :” The global marketplace has experienced a sea change. Combining globalization with new technology and with new business models has dramatically accelerated the pace of change and innovation. The flow of data is as important as the movement of goods. Services are an increasing share of value-added manufacturing. And the market is determining standards at an increasingly rapid pace.”

Travels of a T-shirt with Pietra Rivoli (2013)

Impact of the Trans-Pacific Partnership on Textile and Apparel Trade in the Pacific Rim

TPP on T&A trade in the pacific rim

Citation: Lu, S. (2013). Impact of the Trans-Pacific Partnership on textile and apparel trade in the Pacific Rim. World Trade Organization Focus, 20(5), 67-77.

For questions, please contact the author: shenglu@mail.uri.edu

China’s chair left unoccupied at Obama’s free trade party

Yesterday in class, some of you asked why did the U.S. decide to join the TPP negotiation at the very beginning? The following report from the Financial Times (UK) may provide some insightful views. To put it simply, it is a big game involving national interests. You can also rethink about those points I mentioned in the class regarding the “strategic importance of Asia to the US”.

From Financial Times April 2, 2013

With the rise of China in its sights, the Obama administration has posted marines in Darwin, Australia, and increased the number of warships visiting Subic Bay in the Philippines. The “pivot” to Asia now has a new stopover: Brussels.

After years of discussing the idea, the US and the EU are finally starting to negotiate a free-trade agreement which would form an economic zone covering 40 per cent of the world’s gross domestic product.

At the same time, momentum is building on another important trade initiative, the Trans-Pacific Partnership, which brings together the US with several of the Asia-Pacific region’s most dynamic economies: Singapore, Australia, Vietnam and – since two weeks ago – Japan. It will come as a surprise to anyone who spent a lot of time on the campaign trail last year, but free-trade agreements have emerged as one of the biggest priorities of Barack Obama’s second term as US president.

The striking feature of this burst of free trading is who is absent. The agreements are one of the fresh ways Washington is developing to deal with China, the world’s biggest exporter of manufactured goods. After urging China to behave as “a responsible stakeholder” and after the brief flirtation with a G2 arrangement in Mr Obama’s first year, the latest trade approach might be characterised as ABC – Anyone But China.

Supporters of the US-EU trade pact complain that it is about more than China. They point to the boost to growth that could flow from a deal between two partners which already have a two-way annual trade in goods and services of $1tn.

However, much of the substance of the EU talks and of TPP points to China. The agenda includes state subsidies for business and protecting intellectual property – the sorts of issues that are huge bones of contention with Beijing.

If the US can get enough important countries to sign up, it hopes to establish global trading standards that China would feel obliged to respect.

On Capitol Hill, where free trade is not an easy sell in an era of unemployment of more than 7.5 per cent, the China angle helps to rally support.

“This is very much part of our China strategy,” an aide to a leading Republican senator puts it, talking of the discussions with the EU.

More broadly, the two negotiations reflect a different approach to global governance. Prolonged deadlock over the Doha trade round, with similar stalemates about climate change, small arms and other issues, has led to deep scepticism about the idea of achieving global agreements on important issues.

TPP and the US-EU trade talks represent an alternative strategy, an attempt to forge fresh rules by appealing to smaller groups of like-minded nations, in this case working around China rather than with Beijing. Supporters say this is not an abandonment of global institutions like the World Trade Organisation, but simply a realistic assessment of how to get things done.

The big question, of course, is how China will react. Ever since it joined the WTO more than a decade ago, China has had one foot inside the global trading system and one outside it.

On most of the occasions that China has lost legal challenges at the WTO, it has implemented the rulings and made its trade laws compliant. But Beijing has yet to open up government procurement, an important factor in an economy like China’s. At the same time, allegations of Chinese hacking of trade secrets from other countries are seen by many as an affront to the very idea of free trade.

Beijing has strong views about what is really going on.

“The US is trying to rewrite global trade rules behind our backs,” says a senior Chinese official.

The risk of the US approach is that it could encourage China to turn its back even further on the global trading system, diminishing the incentive to comply rather than intensifying it.

If that were to happen, the US-EU trade talks would not herald a new era of economic integration but rather another nail in the coffin of globalisation.