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

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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.

State of the EU Textile and Apparel Industry (Updated April 2018)

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EU region as a whole remains a leading producer of both textile and apparel. The value of EU’s T&A production totaled EUR141.2bn in 2016 (Statistical Classification of Economic Activities or NACE, sectors C13, and C14), which was divided almost equally between textile manufacturing (EUR75.8bn) and apparel manufacturing (EUR65.4bn).

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Regarding textile production, Southern and Western EU where most developed EU members are located such as Germany, France, and Italy, accounted for nearly 80% of EU’s textile manufacturing in 2016. 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 18% in 2008 to 21% in 2015, which reflects the structural change of the sector.

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Apparel manufacturing in 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.

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It is also interesting to note that in Western EU countries, labor only accounted for 22.8% of the total apparel production cost in 2016, 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 because of increased investment in automation technology.

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Because of their relatively high GDP per capita and size of the population, UK, Germany, France, Italy, and Spain altogether account for around 60% of total apparel retail sales in EU.

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Intra-region trade is an important feature of EU’s textile and apparel industry. Despite the increasing pressure from cost-competitive Asian suppliers, statistics from the World Trade Organization (WTO) show that of EU region’s total US$89bn textile imports in 2016, as much as 64.1% (or US$57bn) were in the category of intra-region trade. Similarly, of EU countries’ total US$198bn apparel imports in 2016, as much as 55.6% (or US$110bn) also came from other EU members. In comparison, close to 97% of apparel consumed in the United States are imported in 2016, of which more than 75% come from Asia.

Data source: Eurostat (2018); WTO (2018)

by Sheng Lu

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

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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.

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“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

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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.

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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

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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

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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.

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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

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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.

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

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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)