EU Textile and Apparel Industry and Trade Patterns (Updated April 2021)

1

The EU region as a whole remains one of the world’s leading producers of textile and apparel (T&A). The value of EU’s T&A production totaled EUR137.3 bn in 2019, down around 2% from a year ago (Note: Statistical Classification of Economic Activities or NACE, sectors C13, and C14). The value of EU’s T&A output was divided almost equally between textile manufacturing (EUR68.7bn) and apparel manufacturing (EUR68.6bn).

Regarding textile production, Southern and Western EU, where most developed EU members are located such as Germany, France, and Italy, accounted for nearly 75% of EU’s textile manufacturing in 2019. Further, of EU countries’ total textile output, the share of non-woven and other technical textile products (NACE sectors C1395 and C1396) has increased from 19.2% in 2011 to 23.0% in 2017, which reflects the on-going structural change of the sector.

Apparel manufacturing in the EU includes two primary categories: one is the medium-priced products for consumption in the mass market, which are produced primarily by developing countries in Eastern and Southern Europe, such as Poland, Hungary, and Romania, where cheap labor is relatively abundant. The other category is the high-end luxury apparel produced by developed Western EU countries, such as Italy, UK, France, and Germany.

9

It is also interesting to note that in Western EU countries, labor only accounted for 21.7% of the total apparel production cost in 2017, which was substantially lower than 30.1% back in 2006. This change suggests that apparel manufacturing is becoming capital and technology-intensive in some developed Western EU countries—as companies are actively adopting automation technology in garment production.

Because of their relatively high GDP per capita and size of the population, Germany, Italy, UK, France, and Spain accounted for nearly 60% of total apparel retail sales in the EU in 2020. Such a market structure has stayed stable over the past decade.

Data source: UNcomtrade (2021)

Intra-region trade is an important feature of the EU’s textile and apparel industry. Despite the increasing pressure from cost-competitive Asian suppliers, statistics from UNComtrade show that of the EU region’s total US$73.8bn textile imports in 2019, as much as 54.6% were in the category of intra-region trade. Similarly, of EU countries’ total US$204.0bn apparel imports in 2019, as much as 37.4% also came from other EU members. In comparison, close to 98% of apparel consumed in the United States are imported in 2019, of which more than 75% came from Asia (Eurostat, 2021; UNComtrade, 2021).

Regarding EU countries’ textile and apparel trade with non-EU members (i.e., extra-region trade), the United States remained one of the EU’s top export markets and a vital textile supplier (mainly for technical and industrial textiles). Meanwhile, Asian countries served as the dominant apparel sourcing base outside the EU region for EU fashion brands and retailers.  

The EU textile and apparel industry is not immune to COVID-19. According to the European Apparel and Textile Federation (Euratex), the EU textile and apparel production feel 9.3% and 17.7% respectively in 2020 from a year ago.

2021 hopefully will be a year of recovery and growth for the EU textile and apparel industry. According to Euratex, the EU Business Confidence indicator of March 2021 gained momentum, with a confirmed upward trend in the textile industry (+3.8 points), and a modest recovery in the clothing industry (+1.6 points). However, Euratex also noted that EU textile and apparel companies still face daunting challenges and uncertainties in 2021, ranging from the rising raw material price, increasing transportation cost, to political instability in some key sourcing destinations (such as China and Myanmar).

by Sheng Lu

State of U.S. Textile and Apparel Manufacturing: Output, Employment, and Trade (Updated March 2021)

Textile and apparel manufacturing in the U.S. has significantly shrunk in size over the past decades due to multiple factors ranging from automation, import competition to the shifting U.S. comparative advantages for related products. However, U.S. textile manufacturing is gradually coming back. The output of U.S. textile manufacturing (measured by value added) totaled $18.79 billion in 2019, up 23.8% from 2009. In comparison, U.S. apparel manufacturing dropped to $9.5 billion in 2019, 4.4% lower than ten years ago (Bureau of Economic Analysis, 2021).

Meanwhile, like many other sectors, U.S. textile and apparel production was hit hard by COVID-19 in the first half of 2020 but started to recover since the 3rd quarter. Notably, as of September 2020, U.S. textile production had resumed about 90% of its production capacity at the pre-COVID level. The value of U.S. apparel production in 2020Q3 was even 2.2% higher than in 2019Q3.

On the other hand, as the U.S. economy is turning more mature and sophisticated, the share of U.S. textile and apparel manufacturing in the U.S. Gross Domestic Product (GDP) dropped to only 0.12% in 2020 (Q1-Q3) from 0.57% in 1998 (Bureau of Economic Analysis, 2021).

The U.S. textile and apparel manufacturing is changing in nature. For example, textile products had accounted for over 66% of the total output of the U.S. textile and apparel industry as of 2019, up from only 58% in 1998 (Bureau of Economic Analysis, 2020). Textiles and apparel “Made in the USA” are growing particularly fast in some product categories that are high-tech driven, such as medical textiles, protective clothing, specialty and industrial fabrics, and non-woven. These products are also becoming the new growth engine of U.S. textile exports. Notably, “special fabrics and yarns” had accounted for more than 34% of U.S. textile exports in 2019, up from only 20% in 2010 (Data source: UNComtrade, 2021).

Compatible with the production patterns, employment in the U.S. textile industry (NAICS 313 and 314) and apparel industry (NAICS 315) fell to the bottom in April-May 2020 due to COVID-19 but started to recover steadily since June 2020. From January 2020 to January 2021, the total employment in the two sectors decreased by 8.6% and 13.2%, respectively. However, to be noted, as production turns more automated and thanks to improved productivity (i.e., the value of output per worker), U.S. textile and apparel factories have been hiring fewer workers even before the pandemic. The downward trend in employment is not changing for the U.S. textile and apparel manufacturing sector.  Related, how to attract the new generation of workforce to the factory floor remains a crucial challenge facing the future of textile and apparel “Made in the USA.”

International trade supports textiles and apparel “Made in the USA.” Notably, nearly 40% of textiles “Made in the USA” (NAICS 313 and 314) were sold overseas in 2019, up from only 15% in 2000. A recent study further shows that product category and the size of the firm were both statistically significant factors that affected the U.S. textile and apparel manufacturer’s likelihood of engaged in exports.

from Nordstrom Rack

It is not rare to find clothing labeled “made in the USA with imported fabric” or “made in the USA with imported material” in the stores. Statistical analysis shows a strong correlation between the value of U.S. apparel output and U.S. yarn and fabric imports from 1998 to 2019.

Like many other developed economies whose textile and apparel industries had reached the stage of post-maturity, the United States today is a net textile exporter and net apparel importer. COVID-19 has affected U.S. textile and apparel trade in several important ways:

  • Trade volume cut: Both affected by the shrinkage of import demand and supply chain disruptions, the value of U.S. textile and apparel imports dropped by as much as 19.3% in 2020 from a year ago, particularly apparel items (down 23.5%). Likewise, the value of U.S. textile and apparel exports in 2020 decreased by 15.6%, including an unprecedented 26% decrease in yarn exports.
  • Trade balance shifted: Before the pandemic, U.S. was a net exporter of fabrics. However, as the import demand for non-woven fabrics (for making PPE purposes) surged during the pandemic, U.S. ran a trade deficit of $502 million for fabrics in 2020. Meanwhile, as retail sales slowed and imports dropped during the pandemic, the U.S. trade deficit in apparel shrank by 19% in 2020 compared with 2019.However, the shrinkage of the trade deficit did not boost clothing “Made in the USA” in 2020, reminding us that the trade balance often is not an adequate indicator to measure the economic impact of trade.
  • No change in export market: Close to 70% of U.S. textile and apparel export went to the Western Hemisphere in 2020, a pattern that has stayed stable over the past decades (OTEXA, 2021). More can be done to strengthen the Western Hemisphere supply chain and textile and apparel production in the region by leveraging regional trade agreements like CAFTA-DR and USMCA.

By Sheng Lu

Regional Supply Chain Remains a Key Feature of World Textile and Apparel Trade

While textile and apparel is well-known as a global sector, the latest statistics show that world textile and apparel trade patterns remain largely regional-based. Three particular regional textile and apparel trade flows are critical to watch:

First, Asian countries are increasingly sourcing textile raw material from within the region. As much as 85% of Asian countries’ textile imports came from other Asian countries in 2019, a substantial increase from only 70% in the 2000s. This result reflects the formation of an ever more integrated regional textile and apparel supply chain in Asia. However, as Asian countries become more economically integrated, textile and apparel producers in other parts of the world could find it more challenging to get involved in the region. With the recent reaching of several mega free trade agreements among countries in the Asia-Pacific region, such as the Regional Comprehensive Economic Partnership (RCEP), the pattern of “Made in Asia for Asia” is likely to strengthen further.

Second, the EU intra-region trade pattern for textile and apparel stays relatively strong and stable. Intra-region trade refers to trade flows between EU members. Statistics show that 54.6% of EU(27) members’ textile imports and 37.4% of their apparel imports came from within the EU(27) region in 2019. This pattern only slightly changed over the past decade. In other words, despite the reported increasing competition from Asian suppliers, many of which even enjoy duty-free market access to the EU market (such as through the EU Everything But Arms program), a substantial share of apparel sold in the EU markets are still locally made.

EU consumers’ preferences for “slow fashion” (i.e., purchasing less but for more durable products with higher quality) may contribute to the stable EU intra-region trade pattern. Many EU consumers also see textile and apparel as cultural products and do NOT shop simply for the price. This explains why Western EU countries such as Italy, Germany, and France rank the top apparel producers and exporters in the EU region despite their high wage and production costs.

Third, the Western Hemisphere (WH) supply chain faces significant challenges despite the seemingly growing popularity of “near-sourcing.” On the one hand, textile and apparel exporters in the Western-Hemisphere still rely heavily on the regional market. In 2019, respectively, as much as 79% of textiles and 86% of apparel exports from countries in the Western Hemisphere went to the same region. 

However, on the other hand, the Western-Hemisphere supply chain is facing increasing competition from Asian suppliers. For example, in 2019, only 22% of North, South, and Central American countries’ textile imports and 15% of their apparel imports came from within the Western Hemisphere, a new record low in ten years. Similarly, in the first eleven months of 2020, only 15.7% of US apparel imports came from the Western Hemisphere, down from 17.1% in 2019 before the pandemic. The limited local textile production capacity and the high production cost are the two notable factors that discourage US fashion brands and retailers from committing to more “near-sourcing” from the Western Hemisphere.

In comparison, Asian countries supplied a new record high of 62.2% of textiles and 75% apparel to countries in the Western Hemisphere in 2019, up from 49.1% and 71.1% ten years ago. This trend suggests that as the competitiveness of “Factory Asia” continues to improve, even regional trade agreements (such as USMCA and CAFTA-DR) and their restrictive “yarn-forward” rules of origin have limits to protect the Western Hemisphere supply chain.

In comparison, Asian countries supplied a new record high of 62.2% of textiles and 75% apparel to countries in the Western Hemisphere in 2019, up from 49.1% and 71.1% ten years ago. This trend suggests that as the competitiveness of “Factory Asia” continues to improve, even regional trade agreements (such as USMCA and CAFTA-DR) and their restrictive “yarn-forward” rules of origin have limits to protect the Western Hemisphere supply chain.

Additionally, many say that the reaching of RCEP creates new pressure for the new Biden administration to consider joining the CPTPP and strengthening economic ties with countries in the Asia-Pacific region. Notably, several USMCA and CAFTA-DR members, such as Mexico, also have RCEP or CPTPP membership. Apparel producers in these Western Hemisphere countries may find it more rewarding to access the cheaper textile raw material from Asia through CPTPP or RCEP rather than claiming the duty-saving benefits for finished garments under USMCA or CAFTA-DR. Like it or not, the Biden administration’s inaction will also have consequences. 

by Sheng Lu

Further reading: Lu, Sheng. (2021). Regional supply chains still shape textile and apparel trade. Just-Style

USITC Economic Assessment Report on USMCA—Textile and Apparel Sector Summary

On April 19, 2019, the U.S. International Trade Commission (USITC) released its independent assessment report on the likely economic impact of the U.S.-Mexico-Canada Free Trade Agreement (USMCA or NAFTA2.0). Below are the key findings of the report:

Impact of USMCA on the U.S. economy

USITC found that because of the size of the U.S. economy relative to the size of the Mexican and Canadian economies and the reduction in tariff and nontariff barriers that has already taken place among the three countries under the North American Free Trade Agreement (NAFTA), the overall impact of USMCA on the U.S. economy is likely to be moderate. For example, USITC’s computable general equilibrium (CGE) model suggests that compared to the base year level in 2017, USMCA could increase the U.S. GDP by 0.35% (or $68.2 billion) and create 0.17 million new jobs when other factors held constant.

Impact of USMCA on the textile and apparel sector

First, USITC found that the USMCA overall is a balanced deal for the textile and apparel sector, particularly regarding the rules of origin (RoO) debate. As USITC noted, USMCA eases the requirements for duty-free treatment for certain textile and apparel products, but tighten the requirements for other products. For example, USMCA eliminates the NAFTA requirements that visible linings must be sourced from members of the agreement; however, USMCA adds more restrictive new requirements for narrow elastic fabrics, sewing thread, and pocket bag fabric.

Second, USITC found that the USMCA changes to the Tariff Preference Level (TPLs) would not have much effect on related trade flows. As USITC noted in its report, where USMCA would cut the TPL level on particular U.S. imports from Canada or Mexico, the quantitative limit for these product categories was not fully utilized in the past.  Meanwhile, the TPL level for product categories typically fully used would remain unchanged under USMCA. The only trade flow that might enjoy a notable increase is the U.S. cotton and man-made fiber (MMF) apparel exports to Canada—the TPL is increased to 20million SME annually under USMCA from 9 million under NAFTA.

Third, USITC suggested that in aggregate, the changes under USMCA for the textile and apparel sector will more or less balance each other out and USMCA would NOT affect the overall utilization of USMCA’s duty-free provisions significantly. Notably, the under-utilization of free trade agreements (FTAs) by U.S. companies in apparel sourcing has been a long-time issue. Data from the Office of Textiles and Apparel (OTEXA) shows that of the total $4,292.8 million U.S. apparel imports from the NAFTA region in 2018, only $3,756.1 million (or 87.5%) claimed the preferential duty benefits under the agreement. As noted in the U.S. Fashion Industry Benchmarking Study, some U.S. fashion companies do not claim the duty savings largely because of the restrictive RoO and the onerous documentation requirements.

However, interesting enough, the USITC report says little about the potential impact of USMCA on U.S. textile and apparel manufacturing.

Timeline

On 30 September 2018, the United States reached USMCA with Canada and Mexico. On 30 November 2018, USMCA was officially signed by Presidents of the three countries. According to the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (the picture above), after the release of the USITC economic assessment report on USMCA, the Trump Administration will need to work with U.S. Congress to develop legislation to approve and implement the agreement. However, there remains huge uncertainties over USMCA’s prospect.

Related reading:

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

bis

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

Below are the key findings of the study:

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

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

Competition landscape and factors

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

Trade and U.S. textile and apparel manufacturing

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

Berry Amendment and U.S. textile and apparel manufacturing

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

CRS Releases Report on NAFTA Renegotiation and US Textile Manufacturing

23120124_10155817882672812_4644791366056415981_oKey findings:

U.S. textile and apparel trade with NAFTA members

  • The United States maintains a bilateral trade surplus in yarns and fabrics ($4.1 billion in 2016) as well as made-up textiles ($720 million in 2016) with NAFTA members.
  • Regarding apparel, the United States had a trade surplus with Canada of $1.4 billion and a trade deficit with Mexico of $2.7 billion in 2016.

Impact of NAFTA on employment and production in the U.S. textile and apparel industry

  • The effects of NAFTA are NOT straightforward, and the drop in U.S. domestic textile and apparel production and jobs cannot be blamed solely on NAFTA.
  • The U.S. International Trade Commission (USITC) concluded that imports of textiles had a tiny effect on U.S. textile industry employment (a 0.4% decline) from 1998 to 2014, which covers most of the period since NAFTA’s enactment. However, the collapse of the U.S. domestic apparel industry and changing clothing tastes may have had a more significant impact on domestic textile production.
  • There is little evidence that NAFTA was the decisive factor for the loss of jobs in the U.S. apparel manufacturing sector, given that the major growth in apparel manufacturing for the U.S. market has occurred in Asian countries that receive no preferences under NAFTA.

Impact of the Tariff Preference Level (TPL) in NAFTA

  • In nearly every year since 2010, Mexico has come close to exporting the maximum allowable amount of cotton and man-made fiber apparel with duty-free foreign content. Canada’s TPL fill rates are typically highest for cotton and man-made fiber fabric and made-up products but are not usually fully filled.
  • It is not clear that eliminating the TPL program would result in a substantial return of textile production or jobs to the United States; if it were to raise the cost of Mexican apparel production, it could instead result in imports from other countries displacing imports from Mexico.
  • Other than U.S. fashion brands and retailers, Mexico and Canada reportedly oppose the elimination of the NAFTA TPL program too.

 Possible Effects of Potential NAFTA Modification

  • Mexico’s focus on basic apparel items suggests that S. importers could quickly source from elsewhere if duty savings under NAFTA are eliminated. However, even now, some U.S. fashion companies say the duty savings are not worth the time and resources required to comply with the NAFTA rules of origin and documentation requirements. In 2016, roughly 16% of qualifying textile and apparel imports from NAFTA failed to take advantage of the duty-free benefits and instead paid applicable tariffs.
  • Whatever the outcome of the NAFTA renegotiation, in the medium and long run, the profitability of the North American textile and apparel industry will likely depend less on NAFTA preferences such as yarn forward and more on the capacity of producers in the region to innovate to remain globally competitive.
  • One change in NAFTA proposed by the United States would require motor vehicles to have 85% North American content and 50% U.S. content to qualify for tariff-free treatment. If auto manufacturers were to import more passenger cars from outside the NAFTA region and pay the 2.5% U.S. import duty rather than complying with stricter domestic content requirements, automotive demand for U.S.-made technical textiles could be adversely affected.
  • If the TPP-11 countries strike a trade deal, one possible effect is that Canada and Mexico may import more textile and apparel products from other TPP countries, including Vietnam. This could ultimately be a disadvantage for U.S.-based producers. How the inclusion of Canada and Mexico in a fresh TPP-11 arrangement would affect their participation in NAFTA is unknown.

The full report can be downloaded from HERE

WTO Reports World Textile and Apparel Trade in 2016

[The 2017 statistics are available, see WTO Reports World Textile and Apparel Trade in 2017

textile

clothing.jpg

According to the newly released World Trade Statistical Review 2017 by the World Trade Organization (WTO), the current dollar value of world textiles (SITC 65) and apparel (SITC 84) exports totaled $284 billion and $443 billion respectively in 2016, marginally decreased by 2.3 percent and 0.4 percent respectively from a year earlier. This is the second year in a roll since 2015 that the value of world textiles and apparel exports grew negatively.

However, textiles and apparel are not alone. The current dollar value of world merchandise exports also declined by 3 percent in 2015, to $11.2 trillion, mostly caused by the strong decline in exports of fuels and mining products (-14 percent). On the other hand, as noted by the WTO, the steep drop in commodity prices recorded in 2015 mostly halted in 2016, except energy prices.

Textile and apparel exports

Measured in value, China, European Union, and India remained the top three exporters of textiles in 2016. Altogether, these top three accounted for 65.9 percent of world exports in 2016, slightly down from 66.5 percent in 2015, which is mostly due to India’s shrinking market shares.

The United States remained the fourth top textile exporter in 2016, accounting for 4.6 percent of the shares (down from 4.8 percent in 2015). Over half of the top ten exporters experienced a decline in the value of their exports in 2016, with the highest declines seen in Hong Kong (-13 percent), Taiwan (-8 percent), South Korea (-6 percent) and the United States (-6 percent). Notably, Vietnam entered the world’s top ten textile exporters for the first time (2 percent market shares, 9 percent growth rate from 2015).

Top three exporters of apparel include China, the European Union, and Bangladesh. Altogether, they accounted for 69.1 percent of world exports, close to 70.3 percent in 2015. Among the top ten exporters of apparel, increases in export values were recorded by Cambodia (+6 percent), Bangladesh (+6 percent), Vietnam (+5 percent), and European Union (+4 percent). Other leading exporters saw stagnation in their export values (such as Turkey) or recorded a decline (such as China, India, and Indonesia).

Could be negatively affected by the rising labor and production cost, China’s shares in the world textile exports dropped from 37.4 percent in 2015 to 37.2 percent in 2016, and the shares in the world apparel exports fell from 39.2 percent in 2015 to 36.4 percent in 2016—a record low since 2010.

Textile and apparel imports

Measured in value, the European Union, the United States, and China were the top three importers of textiles in 2016. These top three altogether accounted for 38 percent of world textile imports, slightly up from 37 percent in 2015, but remains much lower than over 53 percent back in 2000. Notably, over the past decade, apparel manufacturing continues to shift from developed to developing countries and many developing countries heavily rely on imported textile inputs due to the lack of local manufacturing capacity. This explains why more textile exports now go to the developing nations.

On the other hand, 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 top three importers of apparel in 2016. Altogether, these top three accounted for 62.9 percent of world apparel imports in 2016, up from 59 percent in 2015. Notably, China is quickly becoming one of the world’s top apparel importers. From 2010 to 2016, China’s apparel imports enjoyed an annual 17 percent growth, much higher than most other countries.

WTO_Chapter_09_tables_e_Page_1

WTO_Chapter_09_tables_e_Page_2.jpg

 

“Made in America”: A New Reality?

Panelists

  • Pete Bauman, Senior VP, Burlington Worldwide / ITG
  • Joann Kim, Director, Johnny’s Fashion Studio
  • Tricia Carey, Business Development Manager, Lenzing USA
  • Michael Penner, CEO, Peds Legwear
  • Moderator: Arthur Friedman, Senior Editor, Textiles and Trade, WWD 

Video Discussion Questions 

  • How does “Made in the USA” fit into US textile and apparel companies’ overall business strategy today?
  • What measures have been taken by US textile and apparel companies to bring more production back to the US? Can any measures be linked to the restructuring strategies we discussed in the class?
  • What are the significant obstacles to bringing textile and apparel manufacturing back to the US?
  • Any other exciting points/buzzwords did you learn from the panel discussion?

US Tables Proposal Aimed at Limiting the Yarn-Forward Exceptions in NAFTA Renegotiation

NAFTA-Article-201708251513

According to Inside US Trade, in the third round the NAFTA renegotiation (September 23-27, 2017), the United States has put forward several possible changes to the existing rules related to textile and apparel in the agreement:

  1. USTR proposes to eliminate the tariff preference level (TPL) in NAFTA. The goal of eliminating TPL is to limit the exceptions to the yarn-forward rules of origin and “incentivize” more production in the NAFTA region as advocated by the U.S. textile industry.
  2. As a potential replacement for TPL, USTR also proses to add a short supply list mechanism to NAFTA, but details remain unclear (e.g., whether the list will be temporary or permanent; the application process).
  3. USTR further proposes a new chapter devoted to textile and apparel in NAFTA in line with more recent agreements negotiated by the U.S.. The current NAFTA does not include a textile chapter.

USTR’s proposal to remove TPL in NAFTA has met strong opposition from the U.S. apparel industry, fashion retailers, and brands as well as their partners in Mexico and Canada. According to these industry groups:

  • Eliminating TPLs would disrupt supply chains that have been in place for more than two decades.
  • Eliminating TPLs would not move production back to the U.S. but would instead further incentivize sourcing from outside the NAFTA region and put textile and apparel factories in the region out of business. For example, some apparel factories remain production in the NAFTA region largely because TPL allows them to use third-party textile inputs and the finished goods can still be treated as NAFTA originating.
  • Without the TPL, companies would opt to produce textile and apparel products in the least expensive way possible, likely outside the NAFTA region, and ship items into North America despite being hit with most-favored-nation (MFN) tariffs.
  • A short supply list would not ease the supply chain disruptions that would result from the removal of the TPLs because there is no guarantee products formerly subject to the TPL would make it onto a new NAFTA short supply list.

A potential compromise could involve a reduction in Canadian and Mexican TPLs to the U.S. and an increase in the U.S. TPLs to Mexico and Canada, which could boost the U.S. trade surplus in textiles and apparel with its NAFTA partners and throw a bone to the U.S. textile industry by ostensibly incentivizing domestic production.

Untitled

Fact-check about TPL

TPL was included in NAFTA as a compromise for adopting the yarn-forward rules of origin in the agreement. Before NAFTA, the US-Canada trade agreement adopted the less restrictive fabric-forward rules of origin.

The TPL mechanism has played a critical role in facilitating the textile and apparel (T&A) trade and production collaboration between the United States and Canada, in particular, the export of Canada’s wool suits to the United States and the U.S. cotton or man-made fiber apparel to Canada. Statistics from the Office of Textiles and Apparel (OTEXA) show that in 2016 more than 70% of the value of Canada’s apparel exports to the United States under NAFTA utilized the TPL provision, including almost all wool apparel products. Over the same period, the TPL fulfillment rate for U.S. cotton or man-made fiber apparel exports to Canada reached 100%, suggesting a high utilization of the TPL mechanism by U.S. apparel firms too (Global Affairs Canada, 2017). Several studies argue that without the TPL mechanism, the U.S.-Canada bilateral T&A trade volume could be in much smaller scale (USITC, 2016). Notably, garments assembled in the United States and Canada often contained non-NAFTA originating textile inputs, which failed them to meet the “yarn-forward” rules of origin typically required for the preferential duty treatment under NAFTA.

Related articles:

 

Outlook of Sourcing from Vietnam (Updated: August 2017)

State of Vietnam’s Textile and Clothing Industry

v1

Vietnam has a substantial textile and clothing industry comprising around 4,000 enterprises, of which the majority were located in the country’s two principal population centers—Ho Chi Minh City and Hanoi. Around 70% of these enterprises were involved in the manufacture of clothing. A further 17% were involved in the fabric sector, 6% in the yarn sector, 4% in the dyeing sector and 3% in the accessories sector.

It is estimated that around 70% of Vietnam’s textile and clothing production is dependent on the cut and trims operations, using imported textiles and other inputs predominantly from China. This problem is not limited to a single category as the country needs to import man-made fibers, yarns, fabrics, and accessories as well as raw cotton.

The dyeing and finishing segments of the supply chain remain fairly underdeveloped. In the past, the Vietnamese government has issued tightly controlled permits for these operations. Also, there has been a deficiency of investment in these segments because of unclear regulations, and this has resulted in a bottleneck in the supply chain.

Similarly, high added-value design and “downstream” activities rely on the input of foreign companies are also underdeveloped. Consequently, in carrying out these activities, the industry relies heavily on the help or participation of foreign companies.

State of Vietnam’s Textile and Apparel Export

v2

Vietnamese textile and clothing exports began to gain momentum in 2001 when trading relationships were established with Western countries (e.g., the US-Vietnam Textile Agreement). The industry’s exports received a further boost after Vietnam joined the World Trade Organization (WTO) at the start of 2007, and the quotas which had been restricting imports of Vietnamese goods in the US market were eliminated.

In 2016, Vietnam’s textile and clothing exports totaled $28 billion (84% were clothing), which represented 16.0% of Vietnam’s total merchandise exports. Globally, Vietnam was the world’s third largest apparel exporter in 2015, after China and Bangladesh (WTO, 2016).

The Vietnam Textile & Apparel Association (VITAS) expects Vietnam’s textile and clothing exports to enjoy an average 15% annual growth in the next four years and exceed $50 billion USD by 2020.

v3

Vietnam’s textile and clothing exports went to around 180 countries. The United States is Vietnam’s top export market (around 40%), followed by the EU (around 12.5%), Japan (10.3%) and South Korea (8.1%).

Outlook of Sourcing from Vietnam by US Fashion Companies

v4

According to the 2017 US Fashion Industry Benchmarking Study, Vietnam is the 2nd most used sourcing destination by respondents. Particularly, the most commonly adopted sourcing model is shifting from “China Plus Many” to “China Plus Vietnam Plus Many”:

  • China typically accounts for 30-50 percent of respondents’ total sourcing value or volume. 
  • Vietnam typically accounts for 11-30 percent of companies’ total sourcing value or volume. 
  • For the “many” part, each additional country (such as US, NAFTA members and CAFTA members, EU countries and members of AGOA) typically accounts for less than 10 percent of respondents’ total sourcing value or volume.

v5

Respondents also see Vietnam overall a balanced sourcing destination, regarding “speed to market”, “sourcing cost” and “compliance risk”.

v6

Additionally, U.S. fashion companies intend to source more from Vietnam through 2019, but imports may grow at a relatively slow pace, possibly due to the United States’ withdrawal from the Trans-Pacific Partnership (TPP) and the increasing labor costs in the country.

References:Textile Outlook International (2017); WTO (2017); UN Comtrade (2017)

2017 U.S. Fashion Industry Benchmarking Study Released

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

The report can be downloaded from HERE

Key findings of the study:

While the majority of respondents remain confident about the five-year outlook for the U.S. fashion industry, the percentage of those who are “optimistic” or “somewhat optimistic” dropped to a record low since we began conducting this study in 2014. This change could be due to concerns about the “protectionist trade policy agenda in the United States” and “market competition in the United States from e-commerce,” the top two concerns this year.

  • The percentage of those who are “optimistic” or “somewhat optimistic” fell from 92.3 percent in 2016 to 71.0 percent in 2017, a record low since we began conducting this study in 2014. As many as 12.9 percent of respondents are “somewhat pessimistic” about the next five years, mostly large-scale retailers with more than 3,000 employees.
  • Despite the challenges, demand for human talent in the industry overall remains robust. This year, around 80 percent of respondents plan to hire more employees in the next five years, especially supply chain specialists, data scientists, sourcing specialists, and marketing analysts.
  • Cost is no longer one of the top concerns; respondents are less stressed about “increasing production or sourcing cost,” which slipped from #2 challenge in 2016 to #7 challenge in 2017. Only 34 percent rate the issue among their top five challenges this year, significantly lower than 50 percent in 2016 and 76 percent in 2015. Labor cost remains the top factor driving up sourcing cost in 2017.

Although U.S. fashion companies continue to seek alternatives to “Made in China,” China’s position as the top sourcing destination remains unshakable. Meanwhile, sourcing from Vietnam and Bangladesh may continue to grow over the next two years, but at a relatively slow pace.

  • 91 percent of respondents source from China; while 100 percent sourced from China in our past three studies, China is still the top-ranked sourcing destination this year, and the percentage of those expecting to decrease sourcing from the country fell from 60 percent in 2016 to 46 percent this year—and many more expect to maintain their current sourcing value or volume from the country in the next two years.
  • Likely reflecting the United States’ withdrawal from the Trans-Pacific Partnership (TPP) and the expectation of increasing labor costs, only 36 percent of respondents expect to increase sourcing from Vietnam in the next two years, much lower than 53 percent who said the same in 2016.
  • Respondents are cautious about expanding sourcing from Bangladesh in the next two years, with only 32 percent expecting to somewhat increase sourcing While “Made in Bangladesh” enjoys a prominent price advantage over many other Asian suppliers, respondents view Bangladesh as the having the highest risk for compliance.

U.S. fashion companies continue to maintain truly global supply chains.

  • Respondents source from 51 countries or regions in 2017, close to the 56 in last year’s study.
  • 57.6 percent source from 10+ different countries or regions in 2017, up from 51.8 percent in last year’s survey. In general, larger companies have a more diversified sourcing base than smaller companies. Additionally, retailers maintain a more diversified sourcing base than brands, importers/wholesalers, and manufacturers.
  • Around 54 percent expect their sourcing base will become more diversified in the next two years, up from 44 percent in 2016; among these respondents, over 60 percent currently source from more than 10 different countries or regions.
  • The most common sourcing model is shifting from “China Plus Many” to “China Plus Vietnam Plus Many.” The typical sourcing portfolio today is 30-50 percent from China, 11-30 percent from Vietnam, and the rest from other countries.
  • While Asia as a whole remains the dominant sourcing region for U.S. fashion companies, the Western Hemisphere is growing in popularity. This year, we see a noticeable increase in sourcing from the United States (70 percent, up from 52 percent in 2016) and countries in North, South, and Central Americas, which offer a shorter lead time and relatively lower risk of compliance.

Today, ethical sourcing and sustainability are given more weight in U.S. fashion companies’ sourcing decisions. Respondents also see unmet compliance (factory, social and/or environmental) standards as the top supply chain risk.

  • 5 percent of respondents say ethical sourcing and sustainability have become more important in their company’s sourcing decisions in 2017 compared to five years ago.
  • 100 percent of respondents currently audit their suppliers, including how suppliers treat their workers, suppliers’ fire safety, and suppliers’ building safety. The majority (93 percent) use third-party certification programs to audit, with a mix of announced and unannounced audits.
  • As many as 90 percent of respondents map their supply chains, i.e., keep records of name, location, and function of suppliers. More than half track not only Tier 1 suppliers, suppliers they contract with directly, but also Tier 2 suppliers, i.e. supplier’s suppliers. It is less common for U.S. fashion companies to map Tier 3 and Tier 4 suppliers though, which could be because of the difficulty of getting access to related information with such a globalized and highly fragmented supply chain.

Free trade agreements (FTAs) and trade preference programs remain underutilized, and several FTAs, including CAFTA-DR, are utilized even less this year than in previous years.

  •  Of the 19 FTAs/preference programs we examined this year, only NAFTA is used by more than 50 percent of respondents for import purposes.
  • Even more concerning, some U.S. fashion companies source from countries/regions with FTAs/preference programs but, for whatever reason, do not claim the benefits. For example, as many as 38 percent and 6 percent of respondents, respectively, do not use CAFTA-DR and NAFTA when they source from these two regions.

Respondents unanimously oppose the U.S. border adjustment tax (BAT) proposal and call for the further removal of trade barriers, including restrictive rules of origin and high tariffs.

  • 100 percent of respondents oppose a border adjustment tax; 84 percent “strongly oppose” it.
  • Respondents support initiatives to eliminate trade barriers of all kinds, from high tariffs to overcomplicated documentation requirements, to the restrictive yarn-forward rules of origin in NAFTA and future free trade agreements.
  • Respondents say the “complex standards on labeling and testing”, “complex rules for the valuation of goods at customs” and “administrative and bureaucratic delays at the border” are the top non-tariff barriers they face when sourcing today.

The benchmarking studies from 2014 to 2016 can be downloaded from https://www.usfashionindustry.com/resources/industry-benchmarking-study 

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

Panel:

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