Tag: Textile industry

Employment in the US Textile and Apparel Industry (Update: August 2014)

[Please read the updated version: U.S. Continues to Lose Apparel Manufacturing Jobs in 2016]

Employment in the textile sector has remained stable since 2011. From the end of 2013 to July 2014, employment in textile mills (NAICS 313) even slightly increased 0.1 percent, mostly contributed by fiber & yarn mills (NAICS 3131) and fabric mills (NAICS 3132). The data supports the argument that textile manufacturing is gradually returning back to the United States.

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Employment in the apparel manufacturing sector (NAICS 315) continued to shrink. By July 2014, total employment in apparel manufacturing had declined by 15.6 percent since 2010 and went down 7.3 percent just from the end of 2013 to July 2014. Still it is getting harder and harder for US consumers to find “made in USA” apparel in the retail stores.

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Retailers remains the leading job providers in the U.S. textile and apparel industry. By July 2014, within the total 1.76 million employment in the US textile and apparel industry (NAICS 313, 314, 315 and 448), almost 80 percent came from the retail sector (NAICS 448).

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From 2010 to July 2014, employment in the US manufacturing sector as a whole enjoyed a 5.5 percent growth, much higher than the case in the textile and apparel sectors. This trend reminds us that the principal of “comparative advantage” is still working in the 21st century.

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Last but not least, geographically, manufacturing jobs in the US textile and apparel industry were gradually moving from the North to the South from 2007 to 2011.

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by Sheng Lu

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

Why does the US Textile Industry Want Yarn-forward Rule of Origin (RoO) in TPP?

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My personal understanding: the US textile industry insists yarn-forward RoO in TPP is not because they expect a substantial increase of textile exports to Vietnam as the case of NAFTA and CAFTA which help capture the export markets in Mexico and Central America. But rather it is because:

1) Without yarn-forward, situation will get even worse. Particularly, a less restrictive RoO will make Vietnam’s apparel exports which contain textiles made in China, Taiwan or South Korea qualified for duty free access to the US market. Definitely this will be a more imminent and bigger threat to the US textile industry than simply facing competition from Vietnam’s apparel which contains Japanese made textiles. And still many US textile companies don’t treat the Japanese textile industry very seriously, although I think they should. Remember, Japan currently is the fourth largest textile supplier to Vietnam and the NO.1 textile supplier to China.

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2) With yarn-forward RoO in place, at least US textile companies can invest in Vietnam (remember, globalization is about movement of capital as well. Many apparel companies in Mexico and Central America actually are invested by US companies). Without yarn-forward RoO however, Vietnam can simply rely on imported textiles as the case mentioned in (1) and there will be no incentive for US textile companies to move factories to Vietnam (meaning, capital holders will lose).  

So overall yarn-forward RoO may win a few more years for the US textile industry. But in the long run, it is my view that the US textile production and its exports to the Western Hemisphere countries may still inevitably decline (especially those output to be used for apparel assembly purposes) after the implementation of TPP. In the 21st century, the nature of competition is supply chain v.s. supply chain. 

The future of the US textile industry is those high-end markets, particularly technical & industrial textiles.  

Sheng Lu 

Additional Reading: The potential impact of TPP on the US textile industry

Textile and Apparel Sector in the TPP Negotiation: An Update

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USTR objectives
Officially, USTR has announced the following objectives in the TPP for textile and apparel:

  • Elimination of tariffs on textile and apparel exports to TPP countries;
  • A “yarn forward” rule of origin, which requires that textile and apparel products be made using U.S. or other TPP country yarns and fabrics to qualify for the benefits of the agreement, so as to ensure that non-qualifying textiles and apparel from non-TPP countries do not enjoy the benefits reserved for TPP countries;
  • A carefully crafted “short supply” list, which would allow fabrics, yarns, and fibers that are not commercially available in the United States or other TPP countries to be sourced from non-TPP countries and used in the production of apparel in the TPP region without losing duty preference;
  • Strict enforcement provisions and customs cooperation commitments that will provide for verification of claims of origin or preferential treatment, and denial of preferential treatment or entry for suspect goods if claims cannot be verified; and
  • A textile specific safeguard mechanism that will allow the United States and other TPP countries to re-impose tariffs on certain goods if a surge in imports causes or threatens to cause serious damage to domestic producers.

X-basket
According to the National Council of Textile Organizations, with regard to the market access offer to Vietnam, textile and apparel products are categories into different groups based on their “sensitivity” to the domestic industry producing the like products. Among the three major categories, the so called “X-basket” will include textile and apparel items that are deemed most sensitive to the United States. Specific items to be included in the X-basket however are unclear and details of the phrase-out formula are still under discussion. It is said that items in the “X-basket” may be subject to an initial tariff cut ranging from 35 to 50 percent.

Vietnam’s top apparel exports to the United States are basic apparel items like shirts, sweaters and pants.  Many of them are the same types of items that were subject to the U.S. safeguard measures against China back in 2005. The U.S. textile industry hopes that the longer phrase-out period for items in the “X-basket” would provide needed time for the industry to adjust. However, for the Vietnam side, if duties on most of its apparel exports to the United States stay in place after the implementation of the TPP, the value of participating in the agreement would substantially be compromised.

Short-supply list
The short-supply list is a roster of fabrics and other textile inputs that are determined to not be readily available in the TPP region in commercial quantities on a timely basis and can therefore be imported from third countries. Items on the short-supply list would be exempt from the general “yarn-forward” rule of origin that the U.S. has proposed in the textiles and apparel talks. USTR is pushing for a short-supply list that would have permanent items as well as temporary items that will be removed after three years. Previous U.S. free trade agreements, including CAFTA, have included a short supply process to add additional products to the list once the agreement enters into force. But the U.S. has rejected the notion that the short-supply list could be modified after the TPP enters into force.

Mexico has consistently sought to limit the scope of the short-supply list, arguing that it actually makes some of the products that the U.S. had originally proposed for inclusion in the short-supply list. Mexico was also pushing for roughly 70 items proposed for the short supply to be included only on a temporary basis, rather than a permanent one.

Other TPP members’ positions
According to the Inside US Trade, Malaysia’s textile and apparel industry is supporting U.S. calls for a “yarn-forward” rule of origin in TPP, but is also pushing for a range of exceptions such as cut-and-sew allowances and a short supply list that would be periodically reviewed. Among the items the Malaysian industry would like to see on the short supply list are shirting fabrics such as woven cotton fabric that weighs not more than 250 grams because this type of fabric is said not made in the U.S. nor Malaysia.

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) 

 

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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Vietnam Announces Ambitious Plan to Develop its Textile Industry

Reported by the Sourcing Journal, Vietnam’s Ministry of Industry and Trade recently approved its textile and garment sector development plan up to year 2030. Under the new plan, Vietnam sets an ambitious goal to achieve a 55% local content ratio for exported apparel by 2015 and will further increase the ratio to around 70% by 2030. As estimated, the plan will bring about an annual textile production growth rate of 12 to 13 percent between 2013 and 2030 in Vietnam.

Numerous studies have suggested that Vietnam could substantially expand its apparel exports to the world after the implementation of the Trans-Pacific Partnership (TPP), a free trade agreement under negotiation by twelve countries in the Asia-Pacific region, including the United States and Vietnam. However, restrained by its stage of development, about 70—80% of Vietnam’s demand for textile inputs currently is imported (Lopez-Acevedo & Robertson, 2012). Based on 23 interviews, Goto (2007) further finds that apparel suppliers in Vietnam on average produced 67% CMT and 33% FOB based on value and 95% CMT and 5% FOB based on quantity.

But with the help of foreign investment from South Korea, Taiwan and Japan, Vietnam is quickly building up its textile manufacturing capacity (note: this is very different from the case in Mexico). According to the General Statistics Office of Vietnam, the number of textile firms in Vietnam had quickly increased from 408 in 2000 to 1,577 in 2008. Lopez-Acevdeo & Robertson (2012) further suggest that Vietnam’s annual production of cotton fiber has reached 10,000 tons; 50,000 tons of man-made fiber; 260,000 tons of short-staple fiber and yarn; 15,000 tons of knitted fabric; and 680 million meters of woven fabric. Around 38% of Vietnam’s textile output came from foreign invested companies in 2009.

Vietnam’s ambition to expand its domestic textile manufacturing capacity will have huge implications for the US-based textile industry. Although Vietnam seldom uses US-made textile inputs, Vietnam’s apparel exports to the United States directly compete with those exported from Mexico and countries in the Caribbean Basin regions which is the largest export market for U.S. made textiles (Lu & Dickerson, 2012).  An expanded local textile manufacturing capacity will not only reduce Vietnam’s demand for imported textile inputs, but also will help improve the price competitiveness of Vietnam’s apparel exports in the global marketplace. If China increasingly moves its textile factories to Vietnam (unless the conflict between Vietnam and China over the South China Sea complicates the situation), Vietnam may further becomes a net textile exporter in the long run.

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Is Wal-Mart’s $250 billion “Made in the USA” Program Another “Crafted with Pride Campaign”? (I)

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Earlier this year, Wal-Mart Store Inc. announced its commitment to buy $250 billion “Made in the USA” products (including textiles and apparel) over the next 10 years ($50 billion annually) with the hope to “help spark a revitalization of U.S.-based manufacturing” and “create jobs in America”. According to the Hoover’s, Wal-Mart’s cost of goods (i.e. sourcing cost for merchandise sold) totaled $358 billion in fiscal year 2013, suggesting $50 billion will account for around 10-14% of its total sourcing portfolio.               

Wal-Mart’s campaign has received positive feedback from the US textile and apparel industry. As reported by the WWD, the U.S. textile industry sees Wal-Mart’s movement an encouraging and “sincere commitment”. Bill Jasper, the outgoing chairman of the National Council of Textile Organizations (NCTO) and CEO of Unifi Inc believed that “manufacturing in general across the United States is in a more favorable position than we’ve seen for some time” and “this is an environment for growth in U.S. textile manufacturing”. As an example, Unifi Inc has spent millions of dollars upgrading its equipment and expanding the company’s US-based cloth mill. However, Bill also realizes the market risks involved in the investment decision, which may not happen without Wal-Mart’s “assurance” through the $250 billion program.

However, to fully take advantage of Wal-Mart’s program is not without obstacle. On top of them, Walmart requires qualified apparel for the program has to be “100 percent made in the United States”. However, the reality is there is more apparel being made in the Western Hemisphere by countries such as Mexico and those in the Caribbean Basin Regions than there is in the United States. As put by Bill, “We’re seeing more of a resurgence of ‘made in the region’ as opposed to Made in USA…If you at look the growth we see in apparel, much of that is in Central America and to a lesser extent Mexico. It does drive growth in yarn and fabrics here in the U.S., which are feed for those garments.”

It is also interesting to compare Wal-Mart’s $250 billion “Made in USA” program with its role in the “Crafted with Pride Campaign” launched in the 1980s (our case study 3). During that campaign, Wal-Mart initially pledged that “our entire management and merchandising staff is committed to Buy American program” and it did cut imports by 20% and purchased $197.3 million of merchandise from domestic suppliers in 1985 (Minchin, 2012). However, for the commercial reasons,  later on Wal-Mart more and more relied on imports to support its global expansion and “everyday low price” business model. The “betrayal” of Wal-Mart largely contributed to the eventual failure of the campaign.

What will be the destiny of the 21st century version of the “Crafted with Pride Campaign”? Is Wal-Mart really committed to “Made in USA” or rather the more price competitive “Made in USA” today attracts the attention of Wal-Mart? If implementation of new free trade agreements such as TPP and TTIP switches the cost balance of domestic sourcing versus global sourcing again, will War-Mart repeat its record in history? Maybe only time will tell…

Sheng Lu

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

The Ways and Means Hearing Shows Divided Views on US Trade Policy for Textiles and Apparel

ways&means

US Trade Representative Michael Froman testified on Obama’s 2014 trade policy agenda before the House Ways and Means Committee on April 3. Issues concerning the textile, apparel and the footwear industry were raised three times during the 3-hour hearing. However, it seems the Congress is much divided on how to deal with the T&A sector deemed as “sensitive” in the FTA talks.

(1h:42’)Mike Thompson (D-CA) asked Froman to reevaluate the value of including the “yarn-forward” rules of origin (RoO) in the TPP. Thompson suggested that this rule only affects a small proportion of the US apparel imports nowadays (Note: according to Froman, it was $13 billion annually or 17% of the total US apparel imports) and no longer meets the needs of the US outdoor apparel industry which demands more flexible RoO in supporting of their business model. In response, Forman said that “the USTR’s approach to T&A is always being to ensure to strike a balance that helps the domestic producers continue to produce while allowing importers to import products that serve customers…”

(2h:06’) Earl Blumenauer (D-OR) asked Froman to reduce the trade barriers (tariff and NTB) on footwear imports, arguing that less than 1% of the footwear consumed in the US nowadays is domestically produced. He said that the high tariff rates both retard the ability of the US footwear industry to concentrate on those parts of the value chain that it enjoys competitive advantages and hurt the interests of the US consumers. In response, Forman said that footwear has been a sensitive and key issue to the US and among other TPP members. According to Forman, USTR has been working both with the domestic producers and the importers to develop an approach hoping to achieve the right balance that the domestic producers can continue to compete and also the importers can bring in high quality products (from overseas) for the US consumers. Additionally, Forman referred to the footwear industry an “outstanding area” in the TPP negotiation and said that discussion among all partners will continue.

Last but not least, (2h:30’) Bill Pascrell(D-NJ), also the chair of the house textile caucus, reiterated the importance of the yarn-forward RoO to the US textile industry and asked Froman to ensure that the USTR will “seek the longest possible duty phrase out for the most sensitive textile items” in the TPP negotiation. In his reply to Pascrell, Forman said that his team will work with all stakeholders of the US T&A industry to fully understand what these “sensitive textile items” are and will use tools like the “phrase out period” and “short supply list” to strike a right balance. Pascrell also expressed the concerns of the US textile industry about Vietnam’s wanting of immediate access to the US apparel market after the implementation of the TPP. However, Forman declined to give any concrete promise, just saying the USTR commits to create the “maximum number of jobs in the US” through the trade talks[Note: textile industry jobs? Apparel retail jobs?].

In addition to the T&A, other issues mentioned in the hearing include TPA, GSP, TAA, IPR, SPS & TBT, TTIP, SOE, TiSA, ITA and WTO.

Full hearing can be viewed here

Sheng Lu

CAFTA-DR Fixes

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In 2011, the US Trade Representative Office announced a number of changes to the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR), or called “CAFTA-DR fixes”. The changes intend to expand export opportunities for the U.S. textile industry under the CAFTA-DR and encourage a vibrant textile and apparel supply chain in the Western Hemisphere. Among the changes of particular significance is the change clarifying that certain monofilament sewing thread is now required to originate or be produced in the United States or the CAFTA-DR region in order for goods to qualify for preferential tariff treatment.  [You may think about within the territory of the CAFTA, which country actually has the capacity of making “thread”?] Before the fixes, some CAFTA-DR countries used cheaper threads from Asia which raised grave concerns by the textile manufacturers.

More technical details about the CAFTA-DR fixes can be found here.

PS–The Difference between Yarn and Thread:

yarn and thread

  • A thread is a type of yarn
  • A thread is used for sewing while a yarn can be used for many purposes such as knitting, weaving, embroidering, and crocheting, and so on
  • A thread is lighter in weight than a yarn in general
  • While a thread is used to sew pieces of fabrics together, yarn is used to weave an altogether new fabric

Outlook for the US Textile Industry in 2014

In its latest industry analysis report, the Textile World (TW) presents a fairly optimistic outlook for the US textile industry in year 2014. According to the report:

  • Output of the US textile mills may increase 2 percent for basic products like fibers, yarns and fabrics; more highly fabricated items like industrial textiles could achieve an even higher growth rate.
  • US Imports of textiles may continue the pattern of flatness (i.e. limited growth) over the next 12 months whereas exports of US-made textiles will remain modest growth. As results, the US textile industry may see some fractional decline in trade deficit in the year ahead.
  • US textile mills may avoid meaningful upward fiber cost pressure, which includes cotton, rayon staple, acrylic staple, textured nylon and polyester.  High cotton stock level worldwide and the weak demand for natural gas and petroleum are cited as the two major reasons for the minimum price change.   
  • As another encouraging sign, the operating rate (production as a percentage of capacity) in the US textile industry has rebounded to above 70% which is accompanied with a robust growth of capital investment. As quoted in the report “US textile mills spent more than $1 billion each year to replace obsolete facilities and to take advantage of new, state of the art technology aimed at turning out new products and increasing overall efficiency”.
  • In terms of the job market, the picture seems to be mixed. Productivity growth as results of capitalization both reduces the real production cost as well as the overall demand for labor. According to the report, labor had only accounted for 19% of textile mills revenue dollars in 2013, implying the highly capital-intensive nature of the industry.
  • Additionally, the rising demand for product innovation and improvement create brightening growth opportunities for the US textile industry. According to the TW report, US consumers seem willing to pay a premium for “pluses functions” of the fabrics. Some 50 percent said they’d pay extra for wrinkle resistance, 51 percent for stain protection, 50 percent for easy care, 46 percent for fade resistance, and 45 percent for stretch. A number of US firms are further weaving sophisticated electronic extras into the fabric of garment sensors that can monitor a variety of personal vital signs.

Other highlighted issues to watch in 2014 include: made-in-USA factor, improved supply chain management, energy cost advantage and government policy support.

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Global Textile and Apparel Trade Patterns (2002 vs 2012)

Based on our lectures, can you explain the pattern of global textile and trade as shown below? Please feel free to respond to any questions and share with your thoughts.

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Exclusive Interview with Kim Glas, Deputy Assistant Secretary for Textiles and Apparel, US Department of Commerce

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(source of photo: WWD)

Kim  Glas is the Deputy Assistant Secretary for Textiles, Consumer Goods, and  Materials at the U.S. Department of Commerce. She oversees programs and strategies to improve the domestic and  international competitiveness of the broad product range of U.S. textiles,  apparel, consumer goods, metals and mining forest products, and chemicals and  plastics manufacturing sectors and industries.   Ms. Glas also serves as Chairman of the Committee for the Implementation  of Textile Agreements (CITA), which supervises the negotiation and  implementation of textile and apparel agreements.

Prior  to joining the Department of Commerce, Kim Glas served more than 10 years as a  professional staff member in the U.S. House of Representatives.  As Deputy Chief of Staff and Legislative  Director for Representative Michael Michaud of Maine for over seven years, Ms.  Glas managed the Congressman’s legislative agenda and was the key advisor on  international trade and labor issues.  In  addition, Ms. Glas worked for Representative John LaFalce of New York during  her tenure on Capitol Hill, advising on trade and labor issues.

Interview Part

Sheng Lu: Because almost all clothing consumed in the United States nowadays is imported, some people wonder if there is still a textile and apparel industry in this country.  What is the reality? What does the general public should know about the US textile and apparel industry today?

Kim Glas: While imports still dominate U.S. consumption of textiles and apparel, we can expect to see a new trend going forward.  Currently, the textiles and apparel industry in the country is experiencing a different manufacturing paradigm than 10 years ago.  In 2012, textiles and apparel exports were $22.7 billion, up 37% from just 3 years earlier. This is indicative of a reassessment by American companies about manufacturing in the United States. Cost, time benefits, and international economic challenges have closed the international manufacturing gap making it more attractive to source at home. More and more U.S. companies are considering and many have moved production or part of their production back to the U.S.  This return of manufacturing to the U.S. is expected to continue into the future. This means consumers can expect to find more quality and more affordable Made in USA textiles and apparel in the market in the years to come.

The United States has a strong and diverse textile industry, manufacturing a range of high quality products including fibers, yarn, fabric, and apparel.  It is the fourth largest single country exporter of yarns and fabrics, with $13.6 billion in exports in 2012.  The United States is also home to one of the largest providers of spun yarn in the world, Parkdale, Inc., with 29 manufacturing plants in the United States, Central America, Mexico, and South America.

Sheng Lu: From your view, what role does the OTEXA play in enhancing the competitiveness of the US textile and apparel industry in the 21st century global competition?

Kim Glas: OTEXA administers and enforces agreements and preference programs concerning the textile, apparel, footwear and travel goods industries and works to ensure fair trade and a level playing field for these industries to enhance their competitiveness in international markets.  The office has an active Export Promotion Program that assists small- and medium-sized U.S. textile and apparel firms to develop and expand their export markets helping job retention and creation in this and related sectors.

Sheng Lu: There have been many discussions recently about manufacturing coming back to the United States given the rising labor cost in China. Yet, statistics from the US Bureau of Labor statistics show a continuous decline of employment in the manufacturing aspect of the US textile and apparel sector (i.e. NAICS 313, NAICS 314 and NAICS 315). What is your view on the future of textile and apparel “made in USA” as well as related job opportunities?

Kim Glas: The U.S. textiles and apparel industry employs over 380,000 people nationwide.  Declining employment in this sector has been an ongoing trend for the past four decades, a development related mainly to productivity improvements and international competition.  The adoption of new technologies has boosted productivity in this sector.

Advances in technology and manufacturing capabilities by capital-intensive U.S. textile and apparel firms have contributed towards competitiveness and productivity, increasing output and lowering labor costs.

The apparel industry has retained more skilled and higher-paying jobs in such areas as computer-aided design and manufacturing, marketing, and product development.  Lower-skilled apparel production jobs have moved offshore, in support of our production-sharing operations in Mexico, Central America, and the Caribbean Basin, as well as to other countries with lower labor costs.

The continued upswing of re-shoring sentiments and companies moving textiles and apparel production back to the U.S., combined with increasing consumer demands for Made in USA products will help foster more U.S. production hence increasing high-skilled job opportunities in these sectors for the foreseeable future.

Sheng Lu: This year marks the 20th anniversary of the North American Free Trade Agreement (NAFTA), which has been both lauded and attacked in the United States. In your view, does the US textile and apparel industry a beneficiary of the agreement? What critical changes has the NAFTA brought to the US textile and apparel industry over the past 20 years, if any?

Kim Glas:The United States exported a total of $22.7 billion in textiles and apparel in 2012, including $5.3 billion to Mexico and $5.2 billion to Canada.  Together, our NAFTA partners account for 46% of total U.S. exports of textiles and apparel.

The United States imported more than $113 billion in textile and apparel products in 2012, including $2.2 billion from Canada and $5.7 billion from Mexico.  U.S. imports from our NAFTA partners have a high U.S. content and therefore help to preserve U.S. jobs and increase sales opportunities for U.S. producers.

U.S. textile and apparel firms have benefited from NAFTA provisions including the “yarn forward” rule of origin and Mexican production-sharing arrangements.  This has allowed them to optimize production and manufacturing.  U.S. investment in Canada and Mexico has increased by 57% since NAFTA was implemented, reaching $592 million in 2012. The United States remains the largest single-country supplier of textiles and apparel to Mexico.

Sheng Lu: Both the ongoing Trans-Pacific Partnership (TPP) and the Trans-Atlantic Partnership (TTIP) negotiations include a chapter specifically dealing with textile and apparel. What makes textile and apparel always a unique and sensitive sector in the free trade agreement negotiation? And what does the US textile and apparel industry can expect from the TPP and TTIP?

Kim Glas: The U.S. approach to free trade agreements (FTAs) has been to provide for specific rules that apply only to the textile and apparel sectors in several areas, including rules of origin and related matters, safeguards and anti-circumvention Customs cooperation commitments.  Treating textiles and apparel in a separate chapter of an FTA provides more clarity and transparency, and therefore makes it easier for industries and traders in our FTA partner countries to make maximum use of the opportunities of the agreement while improving compliance.

As the largest market for imported textiles and apparel, and as one of the world’s largest markets for imported textiles and apparel, trade negotiations for this sector require experts with specialized knowledge.  Textile issues have been addressed in a textile negotiating group in all of our major FTAs, past and pending, with full coordination with other relevant negotiating groups.

Sheng Lu: looking ahead in 2014, what are the key industry development trends and trade policy issues we shall watch?

Kim Glas: The turnaround in U.S. manufacturing of textiles and apparel is expected to continue to reshape the manufacturing landscape of this industry with improved industry strategies and planning.   U.S. companies will be increasingly active in their efforts to innovate and improve to keep and stay viable in today’s highly competitive global market place.  In addition to keeping up with innovations, we can expect to see improvements in companies’ sourcing, supply chain management, and development of niche product and improved quality. Moving forward, we can expect to see U.S. companies to be to be more lean, efficient and flexible with consumer and market demands.

Global Textile and Apparel Market Overview

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Data source: TechnoPak (2013)

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

TTIP

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

Despite growth of production, no sign of jobs recovery in the US textile and apparel manufacturing sector

According to the latest World Manufacturing Production Quarterly Report released by the United Nations Industrial Development Organization (UNIDO), for the first time over the past few years, production of wearing apparel enjoyed a positive growth of 3.9% in the third quarter of 2013 compared to the same period of 2012 in the United States. This statistics seem to support the argument that “made in USA” is making a coming back when “made in Asia” is losing cost advantages. A Just-style report quotes that “A growing number of US apparel manufacturers, government officials and industry leaders have been working on initiatives to increase domestic production. As an example, Wal-Mart has recently made a commitment to buy an additional $50 billion in U.S.-made products over the next ten years.”

However, statistics from the US Bureau of Labor Statistics show that the employment level in the US textile and apparel manufacturing sector continues declining in 2013 despite the positive growth of industry output. Specifically, total employment in the US textile mills (NAICS 313), US textile product mills (NAICS 314) and US apparel manufacturing (NAICS 315) sectors were 2.7%, 3.1% and 5.4% less in November 2013 respectively compared to the average level in 2012 after seasonal adjustment.

The mixed pattern imply the changing nature of textile and apparel manufacturing in the United States. Particularly, it is important to realize that the industry is NOT going back to the old days, but rather the resurgence of “made in USA” may be the result of a new round of capitalization in the industry, which is manifested by a growing number of modern-looking plants with “floors empty of people”.   

by Sheng Lu

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U.S. Textile Plants Return, With Floors Largely Empty of People

This is a strongly recommended New York Times article which focuses on the current status of the U.S. textile industry.The article reflects many things we’ve discussed in the class.

First, we still live in a world of “specialization”, in which each country produces something but not everything based on their respective comparative advantage. It is important to realize that the reason why textile manufacturing is coming back to the United States is because the manufacturing process has become more “capital and technology intensive” in nature.  Therefore, it makes senses for the United States as a capital and technology abundant country to focus on producing “capital and technology” intensive products. At the same time, with the fast rising labor cost in recent years, some developing countries are gradually losing “comparative advantage” in making labor intensive apparel products. This factor further affects T&A companies’ decision making on where to produce.

Second, textile and apparel industry is NOT disappearing in the U.S., but it evolves constantly in response to globalization and technology advancement.  “Made in America” is starting to mean something again, but not the same as what it used to mean. As the business function of the textile and apparel industry in the US becomes more capital, knowledge and technology intensive, it provides even more promising career options and opportunities for our TMD/TM graduates than in the past.  That’s also why in the classroom, we emphasize creativity, critical thinking, analysis skills, playing with technology, leadership skills and having a big landscape of the industry in mind.

Third, as we discussed in the class, the “made in ___” label can no longer reflect the whole supply chain of finished textile/apparel products in the 21st century.   Instead, we live in a “made in the world” era in which different countries share responsibilities in T&A product development, manufacturing and distribution. Neither is it the case that the U.S. textile and apparel industry is all about “manufacturing” today. Those non-manufacturing functions such as retailing, merchandising, branding and marketing actually contribute much higher added values and result in a U-shape global apparel value chain called “smiling curve”.

3D Printing as a Game Changer for the Global Textile and Apparel Industry

 

3D printing is an emerging and transformative technology that adopts a fundamentally new approach of “additive manufacturing” to make things. Textile and apparel (T&A) is one major area in which the 3D printing technology is believed can have a wide application.  Companies such as N12 and a few designer-researchers have started the pioneering work of using printer to directly print wearable apparel for consumers.

 

TPP updates: Hong Kong and South Korean textile firms increase FDI in Vietnam

The American Chamber of Commerce in Vietnam recently updates the textile & apparel sectoral negotiation under the TPP. At this point, different stake holders in the negotiation still hold divided views on a number of key issues, such as the rules of origin and short supply list. It is not a country line, but a line between different business types. What is also interesting to watch is that textile firms from Hong Kong and South Korea have taken actions to seize the “strategic opportunity” of investing in Vietnam. In the long run, it is not positive news for the U.S. textile mills to see Vietnam become more self-dependent on textile supply. However, few people believe TPP would conclude by the end of this year…

Full text of the article:

In Vietnam in preparation for the Trans-Pacific Partnership duty-free exports of apparel from Vietnam to the USA in accordance with the Textiles and Apparel Chapter rules of origin.

Senator Richard Burr (R-NC) asked USTR Michael Froman at the Jun 6, 2013 Senate Finance Committee hearing on the nomination, ” … a poorly negotiated TPP agreement could result in the loss of hundreds of thousands of U.S. jobs in the textile sector … If confirmed as the U.S. Trade Representative, will you support the yarn-forward rule of origin?”

Ambassador Froman replied, “The short answer is yes. We have made clear that we need clear rules of origin with yarn-forward at the center, we need rules against trans-shipments … the yarn-forward fule is a central part of our approach to textiles.” Click this link to see a C-SPAN video of the Senate Finance Committee hearing (0:27:41).

The “yarn forward” rule of origin means that all products in a garment from the yarn stage forward must be made in one of the countries that is party to the TPP agreement. In simple terms, the “yarn forward” rule means that the benefits of the agreement accrue to producers in TPP member countries rather than producers in non-TPP countries.

Perhaps in response, Mr. Nguyen Vu Tung, Deputy Chief of Mission at Vietnam’s Embassy to the USA in Washington, said at a conference on Jun 19, 2013, that the latest U.S. offer “is really, really difficult for us to accept.” Unless the two sides can reach a breakthrough, “I’m really concerned about the prospect of Vietnam to conclude the successful negotiation of TPP,” he said. According to the report, ”U.S. textile producers sell billions of dollars of yarn and fabric each year to U.S. free trade partners in Latin America, where it is turned into clothing and sent back to the United States. They fear without the yarn forward rule, Vietnam will be able to shut down that trade by importing yarn and fabric from China to make clothing to ship duty-free to the United States.”

Deputy Chief of Mission Nguyen Vu Tung made the comment at a conference organized by the Woodrow Wilson Center in Washington on The Trans-Pacific Partnership: New Rules for a New Era, Jun 19, 2013 (3 hours), with opening remarks by Robert Zoellick, former U.S. Trade Representative, former U.S. Deputy Secretary of State, and former World Bank President. Click the link to see a video of the webinar.

While political leaders and diplomats discuss the Trans-Pacific Partnership rules of origin, Hong Kong, South Korean, and Australian firms are developing and planning major textiles FDI in Vietnam to produce yarn and fabric, the supporting textiles industry for apparel production.

Korea’s Kyungbang inaugurates new $40 million yarn facility in Binh Duong; plan to develop the largest yarn-spinning in Asia. When the plant is extended in its second and third phase (with registered investment of $160 million), it will be the largest mill in Asia.

Hong Kong’s Texhong to invest $300 million, Pacific Textiles $180 million in new textile facilities in Vietnam, in preparation for TPP

Texhong has has already invested $200 million in a plant in Dong Nai Province, and committed in Jul 2012 $300 million to a factory in Quang Ninh, which should be operational in the 2nd half of 2013.

Last year [2012] Texhong said it would invest $300 million to build a new yarn factory in Quang Ninh.. When the second-phase investment is completed next year [2014] its annual capacity will more than double to 110,000 tonnes of yarn.

Australia’s Woolmark® helps develop yarn-forward wool products in Vietnam. Today there are close to 50 companies in Vietnam using Australian wool. “When we started the project, none of the manufacturing partners knew anything about wool, and some of them had never even felt it,” said AWI project manager Jimmy Jackson. Initially we ran training courses to explain wool’s properties, benefits and features for manufacturing and producing garments. The next step was to introduce the manufacturers to suppliers of Australian wool yarns. We also had to explain the Woolmark standards and requirement in terms of both wear and laundering performance. Now that the Vietnamese manufacturers are confident in producing quality wool garments, AWI will introduce them to global retail and brand buyers.

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

Outlook of the U.S. Textile Industry in 2013

The latest industry outlook proposed by the Textile World argues that in 2013 the U.S. textile industry will improve industry strategy and planning in the following areas:

  • increased management emphasis in such areas as sourcing, inventory control
  • use of more flexible and efficient machinery and equipment
  • new and upgraded consumer products,
  • more ecologically friendly offerings
  • more Made-in-USA labels

 Don’t misunderstand/misinterpret these terms. The proposed strategies actually tell us:

1. the U.S. textile industry will become even more capitalized in production (as the result of “using more flexible and efficient machinery and equipment”).

2. the success of the U.S. textile industry relies on import (that’s why “management of sourcing” is suggested to be emphasized), despite the intension to promote “made in USA” label which has more to do with the current “rules of origin” defining the nationality of the products.

3. the softgoods industry (textile, apparel and related retailing) is a highly buyer-driven industry. Even textile mills have realized the importance of understanding and directly reaching the consumers.

4. sustainability is a major factor driving technical reform and upgrading in the textile industry. Other than the environmental concerns, there is another strategy behind the efforts: when the U.S. textile industry is fully ready to “be able to produce in a sustainable way”, it will ask for legislation support to require “everybody”(including imported products) to meet the same environmental standards(professionally, we call it “technical barriers of trade”). Developing countries can compete on price, but definitely cannot compete on technology and capital which are the basis of achieving “sustainability”.  Bu then, you will see sustainability becomes a real game changer.     

 Another relevant forecast made by the article “But holding these costs down through efficiency gains can also have a negative impact —namely, a smaller industry workforce. In the textile sector, for instance, squeezed by productivity gains, overall employment should drop from 232,000 in 2012 to near 209,000 by 2015.” As we menioned in the class, technology kills jobs too, although new types of jobs will be created at the same time–but with totally different skill requirements.

Patterns of World Textile Trade:2000-2010

The following findings are from:

Lu, S. (2013). Impacts of quota elimination on world textile trade: A reality check from 2000 to 2010, Journal of the Textile Institut, 104(3), 239–250.

         “Findings of this study challenge the practices of previous studies that evaluated the impacts of quota elimination mostly by focusing on the performances of developing countries in the U.S. and EU markets (Nordas, 2004; Curran, 2008). Although such strategy may work for clothing trade, its appropriateness for scrutinizing world textile trade is evidenced to be questionable. Particularly, to manufacture textiles, it places higher requirements on a country’s technology advancement level and capital abundance than clothing production which is more labor intensive in nature and with lower business entry threshold (Dickerson, 1999). Therefore, as shown in the study, it was the developed countries rather than the developing countries that remain dominant and competitive textile exporters in the world today (WTO, 2011).  On the other hand, the developed countries are no longer leading textile importers either because of their dramatic shrinkage of domestic clothing manufacturing capacity (Dicken, 2003). To certain extent, missing such distinct patterns of textile trade may be one reason why findings of many previous studies turned out to be inconsistent with the reality (Ahmad & Diaz, 2008).

       Second, findings of this study call for attention to the new round of structural change of world textile trade that may have unfolded since the outbreak of the world financial crisis in 2008. This is particularly the case for the high-income countries which suddenly saw sharper decline of their textile export from 2008 through 2010 compared with earlier years in the post-quota era. It is unclear whether such phenomenon is a temporary market fluctuation in nature or reflects a more permanent adjustment of economic structure that is undergoing in the developed countries. Whether and how the financial crisis has structurally affected the world textile trade can be further explored in future studies.

       Third, findings of this study reflect the difficulty of achieving upgrading of the textile and clothing sector in the less-developed countries.  Although the development theory proposed by Toyne (1984) and Dickerson (1999) optimistically predicted the gradual evolution of a country’s textile and clothing sector over time, results of this study indicated that this upgrading process turned out to be very slow in progress for the developing world. Particularly, in today’s globalized economy, the division of labor between the developed countries and the less-developed ones is largely value-chain based and different from the case of inter-industry division of labor when the development theory was introduced (Toyne, 1984; Gereffi, 1999).  It seems there lacks a clear mechanism for the less-developed countries to gradually move up their position in the clothing value chain and have the chance to build on capacity of manufacturing and exporting textiles.  However, chances may occur if the high-income countries proactively “give up” textile manufacturing and instead prioritize the development of other emerging sectors regarded as more strategically important in the post-crisis recovery. “

 

Is Textile and Apparel Manufacturing Coming back to the U.S.?

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output growth rate

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employment growth rate

Preliminary Findings:

1. As suggested by numerous studies, the U.S. manufacturing sector as a whole demonstrated a robust V-shaped recovery from the 2008 financial crisis in terms of industry output.   Growth rate of the industry output from 2010-2011 was also among the highest in the past 10 years.

2. There is no sign yet that textile and apparel (T&A) manufacturing is coming back to the U.S, despite suggested popularity of “insourcing” as result of rising labor cost in China. However, the decline rate of apparel manufacturing in the U.S. seemed to be slowing down.

3. Jobless recovery happened both in the U.S. manufacturing sector as a whole and in the T&A manufacturing sectors. Particularly, the U.S. T&A industry respectively lost 21.0% and 25.6% of its manufacturing jobs from 2008-2012 compared with only 10.8% decline of employment in the manufacturing sector over the same period.  Based on the current data, it can be concluded that a sizable return of manufacturing jobs in the U.S. T&A industry would hardly occur at least in the near future.

Sheng Lu

TPP and the U.S. Textile Manufacturing Industry

The Congressional Research Service just released its most recent study on the U.S. textile manufacturing industry and the Trans-Pacific Partnership (TPP) Negotiation. This is also one of the limited reference available so far that specifically addresses the sectoral impacts of TPP.

Overall, this report did a good job of compiling latest statistics showing the operation of the regional trade & production network between the United States and those developing countries in central and south America. It also discusses why the U.S. textile industry appears to be very nervous about Vietnam.

However, the study wasn’t able to quantify the impact of TPP, which leaves potential for future studies. On the other hand, although debates over TPP centers upon the rules of origin, we shall not forget about foreign investment–especially when geographically Vietnam is very close to China, Japan and South Korea. Even yarn-forward is adopted, why cannot Chinese factories move their factories to Vietnam? It shall be noted that China’s economy is undergoing structural change and it’s the time for some Chinese factories to “go offshore”. 

Full text of the report can be found here.

 

OTEXA identifies top export markets for U.S. textile and apparel

The Office of Textiles and Apparel (OTEXA) recently released its 2012 Going Global Report, which identifies 15 top export markets for U.S. made textiles and apparel. The report also includes statistical profile of these 15 countries, including their GDP per capita, GDP growth and bilateral trade with the United States in recent years.

It is interesting to note that the top export markets for textile and for apparel are very different. Wonder why? Please think about the “stages of development theory” we discussed in class.

HS code refers to the “Harmonized tariff schedule” (HS), a classification system for commodities. Textile and apparel are covered by HS code chapter 50-63. Detailed list can be found at http://www.usitc.gov/tata/hts/bychapter/index.htm

The report can be downloaded from here

US: Yarn-forward rule row flares up again

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A row has flared up again over the yarn-forward rule of origin in US free trade agreements after The Hosiery Association (THA) called for a knit-to-shape, assembly-only exception for socks and hosiery in the Trans-Pacific Partnership (TPP).

Three textile trade associations have now written to US Trade Representative Ron Kirk expressing their “strong opposition” to the proposal.

The American Manufacturing Trade Action Coalition (AMTAC), National Council of Textile (NCTO) Organizations, and American Fiber Manufacturers Association (AFMA) say any such move “conflicts with the US textile industry’s longstanding support” of a yarn-forward rule of origin for textiles and apparel.

The yarn-forward rule requires all stages of production – from yarn spinning to fabric formation and final garment assembly – to be done either in the United States or in an FTA partner country to qualify for duty-free treatment.

US textile groups say the rule is “long-established” and “logical” because the value of a finished item comes from its components, rather than from its final assembly.

But American retailers, apparel brands, manufacturers and importers argue it is too restrictive, hinders new trade and investment in the sector, and renders most existing trade ineligible for preferential tariff treatment.

The Hosiery Association wants the TPP pact – currently being negotiated by the US, Vietnam, Brunei, Chile, New Zealand, Singapore, Australia, Malaysia and Peru – to allow hosiery producers to source yarns for man-made fibre socks and hosiery outside the TPP region in all instances except in the case of 100% cotton and polyester products.

But “this proposal would be a massive blow to US and other TPP producers who manufacture acrylic, nylon and various other types of man-made fibre yarns,” the textile groups say.

“In short, the THA proposal allows yarns currently made in large quantities in the United States to be sourced from third parties, notably China,” the letter says.

Megatrend in the US textile and apparel sector

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The Importance of CAFTA-DR and NAFTA to the U.S. Textile Industry

A recent study of the United States International Trade Commission reaffirms the special roles played by free trade agreements in supporting the regional trade-production network (RTN) for textile and apparel products in America and promoting the export of U.S.-made textile to developing countries in the region in particular. However, also as mentioned in the report, the influence of such RTN has sustantially declined since the full elimination of quota system in 2005. The implementation of the new FTAs established between US and countries in Asia-Pacific pose new uncertanties to the RTN in America, given the trade diversion effect commonly seen in FTAs.

Outlook for the US Textile Inudstry in 2012

An annual report prepared by the Textile World on the outlook of the U.S. textile industry in the year ahead. The report covers topics ranging from the industry output, market evaluation, price, international trade, job market and policy enviorment.

As noted by the report “Despite declines in employment, job prospects for skilled workers, engineers and merchandisers should be tolerably good as the industry evolves into one that primarily requires people with good communication skills, creativity, and who are skilled enough to operate today’s high-technology, computer-operated machines.”

To read the fulltext of the report, click here

The Sixth Anniversary of Post-quota Era

The Sixth Anniversary of Post-quota Era:

New Patterns of World Textile and Clothing Trade and Critical Trade Policy Issues

By Sheng Lu

Keywords: Post-quota era, world textile and clothing trade, trade policy

       Impact of the elimination of the 40-year textile and clothing (T&C) quota system on January 1, 2005 has always been a research interest to scholars in the field. Shifting from a highly-distorted trading environment to a much more market-based competition, reshuffle of the world T&C trade in the post-quota era is widely believed to be unavoidable and will have ripple effects on the future landscape of the global T&C industry (Dickerson, 1999; Nordas, 2004).

After six years of transition, medium and long-term effects of quota elimination have begun to display, attributed to adjustment of business practices of T&A firms in response to the new “rules of the game” (UNIDO, 2009). By taking advantage of such great timing, this study scrutinizes patterns of world T&C trade that have been newly emerged so far in the post-quota era.  Capturing these new trends of development at the macro-industry level can both deepen understanding about the 40-year quota system itself and raise awareness of emerging research agendas for world T&C trade.

Three specific post-quota patterns of world T&C trade are discussed in the study:

First, non-dominant position of China in world T&C export. At first glance, China increased its market share in world T&C export by roughly 10 percentage points from 2005 to 2008, suggesting China was one of the biggest winners of quota elimination (WTO, 2010). However, a closer look will find: (1) China gained its market share at a decelerating rate over that period, implying China’s export surge at the very beginning of quota elimination was mainly due to the temporary transition effect; (2) At the disaggregated 6-digit HS code level, China’s export performance varied greatly from product to product, implying other exporters was still able to compete with China in the post-quota era by focusing on certain T&C product categories; (3) A number of Asian and European countries other than China also enjoyed robust growth in T&C export since 2005, suggesting China was one of the beneficiaries  rather than the only winner of the post-quota era. Last but not least, the emergence of the “China+1” sourcing strategy indicated that T&C importers already started selecting other possible substitution sourcing destination as China’s back-up. In particular, importers were cautions about China’s rising manufacturing cost and the business risks associated with placing “too many eggs in one basket”.

Second, geographic concentration of T&C trade and increasing dependence on textile manufacturing capacity for clothing export. This new pattern is closely associated with changes of buyers’ sourcing practices. Specifically: (1) Market concentration rate (Herfindahl index) in major T&C importing countries, such as the United States, Europe and Japan, quickly went up since 2005 because of buyers’ consolidation of their sourcing channels. Traditional trade patterns such as “triangle manufacturing” and “outward processing trade” which were artificially created by the quota system can no longer justify their rationality of existence when quota restriction were removed. (2) The traditional “Cut, Make and Trim” (CMT) sourcing practice was gradually replaced by full-package sourcing. This shift was largely caused by the upgrading of global T&C value chain, including the transition of branded manufacturers into marketers and retailers’ more active involvement in direct sourcing; (3) Compared to CMT, qualified destination for full package sourcing needs to have the capacity of locally manufacturing textiles. This requirement poses big challenges to many developing countries which haven’t established a sound textile industry yet due to their overall lagged behind economic development.  Impacts of full package sourcing on many aspects of the global T&C industry can be further studied.

Third, widening gap of intra-region trade patterns between America and Europe. As one format of vertical division of labor formed by countries in the same region but at different development stages, intra-region trade was a special feature of the world T&C trade, especially in America and Europe (Dickerson, 1999). However, statistics showed that intra-region trade in America quickly dropped from 69% to 55.7% for textiles and 48.5% to 26.9% for clothing from 2004 to 2008 (WTO, 2010). The decline occurred despite the new passage of several free-trade agreements which deliberately include clauses encouraging the using of U.S.-made textile products by neighboring developing countries. Accompanied with lowering share of intra-region T&C trade, imports from Asia keep constant rising in America over the same period. In contrast, share of intra-region trade in Europe remained stable, stood at around 75% for textiles and 82% for clothing. More studies can be done to explore the causes of such widening gap between America and Europe in terms of intra-region trade patterns.

This study also calls for awareness of “unexpected” negative effects of some trade policies on developing countries’ T&C export in the post-quota era. These trade policies include although not limited to: (1) WTO Doha Development Agenda (DDA). The DDA negotiation set the goal to cut import tariff for T&C product worldwide. However, reduced tariff rate will also wear down the real benefits of preferential duty-free treatment enjoyed by some least developed countries when competing with T&C export giants such as China and India; (2) Rule of origin (ROO) provisions in free-trade agreements. ROO originally was developed to ensure preferential treatments be enjoyed only by eligible FTA members. However, as ROO is specific to each FTA, the complexity and inconsistency made many preferential treatments seldom be taken advantage of. ROO further reduces the incentives for developing countries to develop their own textile industry. This put developing countries at a special disadvantage position when buyers are shifting to full package sourcing as discussed above. (3) Generalized System of Preferences (GSP). Aimed at promoting economic growth in the developing world, developed countries allow preferential duty-free entry of imports from eligible developing countries through the GSP program. Ironically, although T&C account for 50%-90% of total exports for many developing countries (WTO, 2010), most T&C importers including the United States and the European Union still reject including T&C in their GSP programs due to opposition from political forceful domestic industries with concerns about import competition. It is a challenge for policy makers in the post-quota era to design a set of fair and rational trading rules under which developing countries can enjoy the benefits of quota elimination and have more opportunities participating in world T&C trade. Academia has its key role to play in this endeavor.

 References

Dickerson, K. G. (1999). Textiles and apparel in the global economy. N.J.: Merrill

Nordas, H. K. (2004). The global textile and clothing industry post the agreement on textiles and clothing. WTO discussion papers, 5. Geneva: WTO Publications

United Nations Industrial Development Organization, UNIDO (2009). The Impact of Institutions on Structural Change in Manufacturing: the Case of International Trade Regime in Textiles and Clothing. Vienna: Austria

World Trade Organization, WTO. (2010). World Trade Statistics, Geneva: Switzerland