Tag: trade policy

Textile and Apparel–Key Trade Terms (updated October 2015)

FTAThe following important trade terms for textile and apparel are supplementary to what we’ve learnt in class:

Cumulation – Yarns and/or fabrics from one FTA partner country to be used in another FTA partner country and qualify for duty-free benefits (In NAFTA and the future TPP agreement, cumulation is among FTA partners only) . Example: in CAFTA certain woven fabrics from Mexico (NAFTA) can be used for the manufacture of apparel in the CAFTA region and qualify for CAFTA benefits, i.e. duty-free access to the U.S. market.

Tariff Preference Level (TPL) – An exception to the rule of origin in FTAs that allows for a certain quantity of textile and apparel goods (usually yarns, fabrics and cut pieces) from a third-country (a country who is not a party to the agreement) to qualify for the FTA benefits. Example: Under the U.S.-Bahrain FTA, Bahrain can use up to 65 million sme of yarns and fabric from any other country and the products made from those yarns and fabrics (up to the 65 million limit) still qualify for duty-free access to the U.S. market.

807: a commonly used term (formerly utilized by US Customs) to describe a category of apparel which has been assembled in an overseas country from fabric pieces cut in the USA from fabric formed in any country. The duty levied on apparel imported under 807 is based only on the value added to the goods overseas rather than the whole customs value of the goods. This provision is now specified under code 9802.00.8065 of the USA’s Harmonized Tariff Schedule (HTS). This outward processing arrangement benefits mainly countries which are close to the USA—particularly those in the Caribbean Basin

807A: a commonly used term (formerly utilized by US Customs) to describe a category of apparel which has been assembled in an overseas country from fabric pieces cut and formed in the USA. The duty levied on apparel imported under 807A, a modification of 807, is based only on the value added to the goods overseas rather than the whole customs value of the goods. Also, goods imported under 807A are provided with almost unlimited access to the US market. This provision is specified under code 9802.00.8015 of the USA’s Harmonized Tariff Schedule (HTS).

Short Supply/Commercial Availability — Fibers, yarns, and fabrics determined not to be available in commercial quantities in a timely manner from within the FTA partner countries may be sourced from outside the countries for use in qualifying textile and apparel products. For example, a fabric that is determined not to be commercially available under the U.S.-Australia FTA may come from a third-party, i.e. China, be cut-and-assembled into a garment in Australia, and imported to the U.S. duty-free.

Square Meter Equivalents (SME) – A notional, common unit of quantity, constant across apparel categories. Conversion factors are used to convert units of quantity into SME. Common measurement used to determine specific quantities of yarns, fabric, and apparel allowed under exceptions to the rule of origin, i.e. TPLs, cumulation.

Third Country – A country outside of the FTA or preferential trade arrangement, but is not a party to the agreement and is not required to adhere to the rules of origin under the agreement but may supply inputs to the FTA countries.

Earned Import Allowance Program (EIAP)– Certain amount of apparel assembled in a FTA partner using U.S. yarn and fabric will allow certain amount of apparel assembled in that country using third party yarn and fabric also to enter the U.S. duty free. For example, under CAFTA-DR, every two square meter equivalent (SME) of apparel assembled in Dominican Republic using U.S. yarn and fabric allows one SME of apparel assembled in Dominican Republic using third party yarn and fabric to enter the U.S. duty free.

Wholly-Assembled – A good is wholly assembled if all of its components, of which there must be at least two, pre-existed in essentially the same condition as found in the finished good and were combined to form the finished good. For example, the sewing together of the sleeves and the body of a shirt would be considered to be wholly assembled.

Knit-to-Shape — A good is considered “knit-to-shape” if 50 percent or more of the exterior surface area of the good is formed by major parts that have been knitted or crocheted directly to the shape used in the good, with no consideration being given to patch pockets, appliqués, or the like. Minor cutting, trimming, or sewing of those major parts shall not affect the determination of whether a good is “knit-to-shape.”

Source: US Trade Representative Office; Office of Textile and Apparel, US Department of Commerce

Berry Amendment may Extend to Athletic Shoes, Benefiting New Balance and Other US-based Shoemakers

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According to the Wall Street Journal (WSJ), under the pressure from the domestic shoe industry and lawmakers, the US Department of Defense (DOD) is evaluating the possibility of procuring athletic (running) shoes 100% made in the USA. Under a provision of 1941 legislation known as the “Berry Amendment” , DOD must buy clothing, fabrics, fibers, yarns, other made-up textiles, boots and certain other items that are 100% US-made. The exception can be made, however, if US manufacturers do not have the capacity to meet the procurement needs. This exception has been applied to athletic shoes for boot camp.  

US-based shoemakers are excited about this opportunity and trying to convince DOD that they have enough capacity to make shoes in the USA. Shoemakers say the initiative will add jobs both at their plants and at suppliers.

Statistics from the American Apparel and Footwear Association (AAFA) show that in 2012 98.6% of shoes consumed in the US were imported. The WSJ report cited the Boston-based New Balance Athletic Shoe Inc as the only US maker of athletic shoes with large-scale production in the US, although New Balance also imported 75% of its branded shoes from overseas.

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2On the other hand, the Berry Amendment itself is not without controversy and future challenges. Cited in a recent CRS report, some policymakers believe that the Berry Amendment contradicts free trade policies and produces negative effects such as reducing the business incentive to modernize, causing inefficiency due to a lack of competition and causing higher costs to DOD.  Negotiations of new trade agreements also create uncertainties for the future of the Berry Amendment. For example, under the Trans-Atlantic Trade and Investment Partnership (TTIP) negation, the European Union is seeking removal of “buy America” requirements such as the Berry Amendment to get more access to the US government procurement market.

Updates:

The DOD announced on April 25, 2014 that it will require new recruits to use their footwear allowance to purchase athletic footwear that is compliant with the Berry Amendment, which requires the use of domestically sourced apparel and textile products.

Wolverine, which for the past several years has urged the Pentagon to procure athletic footwear manufactured in the US rather than purchasing foreign-made products, believes the move will significantly help support the country’s supply chain for US-made shoes.

The policy change comes after campaigns last year to require the Department of Defense (DOD) to treat athletic footwear like every other uniform item, including boots, and ensure that such items are bought from American manufacturers.

Estimates suggest the DOD has spent around $180m to date on the athletic footwear cash allowance programme. Until now it has issued cash allowances to new recruits for training shoes which are not required to be Berry-compliant.

Additional reading: Berry Amendment and the U.S. Textile Industry

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

NateHerman (Photo: Courtesy of the AAFA)

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

Interview Part

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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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.

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

Exclusive Interview with Julia K. Hughes, President of the United States Fashion Industry Association

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(Photo above: Julia Hughes presented at the 25th Annual Textile and Apparel Importer Conference. Courtesy of the United States Fashion Industry Association)

Julia K. Hughes is the President of the United States Fashion Industry Association (USFIA). USFIA represents all segments of the fashion industry, from apparel brands to retailers to service companies.  Ms. Hughes represents the interests of textile and apparel importers on trade policy issues to government officials, both in the United States and overseas. She has testified before Congress and the Executive Branch on textile trade issues. Ms. Hughes is also recognized as an expert in textile and apparel issues and is a frequent speaker at international conferences including the Apparel Sourcing Show, MAGIC, Foreign Service Institute, National Association of Manufacturers, Cotton Sourcing Summit, USIA’s Worldnet, the International Textiles and Clothing Bureau, Young Presidents’ Organization, World Trade Organization Beijing International Forum and others.

Julia Hughes is also well known to students enrolled in TMD433. She is featured in the book Travels of a T-shirt in the Global Economy, which highlights the global nature of the textile and apparel industry in the 21st century and those complicated economic, social and political factors associated with this important sector.

Interview Part

Sheng Lu: Would you please briefly introduce the current status of the U.S. fashion industry which your organization represents? For example, how large is the industry, how important is it to the US and the global economy, and what types of companies are involved as well as their business functions?

Julia Hughes: The phrase “the fashion industry” may call to mind images of Fashion Week and photo shoots. In this era of global trade, however, the high-fashion runways are just one part of the broader textile and apparel industry that ranges from high-end luxury brands to fast-fashion retailers—and the thousands of companies in between that produce and sell clothing, shoes, and other textile products.

United States Fashion Industry Association members and affiliates include companies across the value chain, which support our mission to remove barriers to textile and apparel trade. These companies include:

  • Brands, retailers, importers, and wholesalers of textiles and apparel.
  • Service providers, including consultants, customs brokers, freight forwarders, law firms, logistics providers, steamship lines, and testing and certification companies that help those brands, retailers, importers, and wholesalers.
  • Manufacturers and suppliers of finished products and inputs for finished products, as well as supplier associations, business councils, and promotional groups.
  • Agencies that promote the industry from a specific region, country, city, or other geographic entity.
  • Academic institutions.

This industry includes companies and professionals across the value chain, working in roles ranging from design and development, to sourcing and logistics, to trade policy and compliance, to retail and marketing. USFIA members include all of these types of companies and individuals…

Sheng Lu: The United States Association of Importers of Textiles & Apparel (USA-ITA) has been a big name in the industry for 25 years. What leads your organization to change the name and rebrand yourself? Particularly, how will the USFIA distinguish itself with the American Apparel and Footwear Association (AAFA), whose members also include many US-based apparel companies and retailers?

Julia Hughes: The United States Association of Importers of Textiles & Apparel (USA-ITA), founded in January 1989 by nine U.S. importers, was instrumental in eliminating the global apparel quota system. At that time, it seemed like an almost insurmountable task to change the political dynamic enough so that the special protection for textiles and apparel would finally end.

On January 1, 2005, the quotas were officially eliminated, and since then, the industry has increasingly globalized. As a result, new challenges arise every day for apparel brands, retailers, and importers, ranging from challenges with compliance at the factories to challenges with transportation at the ports of entry. Over the years, the association has evolved with our members to address these new challenges—but our brand, including our name, logo, and official mission statement, had not changed in over two decades.

Accordingly, our major project in 2013 was rebranding the association to more clearly communicate our purpose and our direction for the future. It’s important to note that this project was not about changing our purpose or direction, but about ensuring that our brand accurately reflects the reality of the industry and the work we had already been doing for our members. The new brand—the United States Fashion Industry Association—was developed over 10 months with input from members and our trusted network across the value chain who participated in comprehensive overviews.

Why did we choose this name? First, our members are no longer just “importers.” While importing will be a critical aspect of our members’ sourcing plans for the foreseeable future, many of our members are truly global brands—for instance, designing product in the United States, producing that product in Asia, and then selling that product in Europe or Australia. Additionally, many of our members are also making product in the United States from U.S. and/or imported inputs. As we told WWD, “We are very supportive of Made in USA, and we sponsored some of the very first programs about Made in USA at MAGIC. It is a very important element, but it is one part of sourcing decision making.” Considering these realities, the phrase “Importers of Textiles and Apparel” no longer accurately described the industry or our members, so we needed to update it. (It was also a mouthful!) We settled on this exact name because “the fashion industry” is the phrase that companies, government, and the media uses most commonly to describe the wide variety of companies and professionals across the value chain—it best describes our association in 2013 and moving forward.

We spoke to our members and some trusted partners in our network about who we are and what sets us apart. From those conversations, we developed five values that we keep in mind with every decision we make. They are:

1.      Integrity: Our members tell us that we listen to them, support them, and defend them—while our government partners tell us that we work with them to find creative solutions.

2.      Substance: We maintain and articulate a deep understanding of the industry and challenges most important to our members—the sourcing and compliance executives who make tough decisions every day on how to address these challenges.

3.      Focus: We keep a laser focus on our mission, which allows us to be agile and quickly seize upon opportunities to move the needle.

4.      Collaboration: Our members collaborate to share best practices and amplify the industry’s voice on the critical issues, putting aside marketplace competition to work together toward common goals.

5.      Foresight: We keep our members informed not only about the regulatory challenges today, but also the regulatory challenges of tomorrow—and as our industry globalizes, we likewise expand our reach.

Sheng Lu: As mentioned in your mission statement, the USFIA is dedicated to the removal of barriers that impede the free movement of textile and apparel products to the United States and international markets. What are the top trade policy and market access concerns for the USFIA right now?

Julia Hughes: For 25 years, the United States Fashion Industry Association (USFIA)–formerly the United States Association of Importers of Textiles & Apparel (USA-ITA)–worked to eliminate barriers that impede the free movement of textile and apparel products to the United States and international markets. We participate in advocacy activities on a number of issues related to our mission in order to eliminate the tariff and non-tariff barriers that impede the industry’s ability to trade freely and create economic opportunities in the United States and abroad. Our top issues include:

Sheng Lu: You are featured in the well-known book Travels of T-shirt in the Global Economy. Interestingly enough, your counterpart in the book—Mr. Auggie Tantillo, now taps to lead the National Council of Textile Organizations (NCTO) which represents the US textile industry.  In the T-shirt book, you two held very different views on whether the U.S. should restrict apparel imports from China. Now almost 8 years later, do you (and the USFIA) still debate often with Auggie (and the NCTO) on textile and apparel trade policy issues? If so, what are you mainly debating about?

Julia Hughes: Today, Auggie and I still disagree on some of the basic trade policy issues–especially the negotiations for new free trade agreements. NCTO is trying to hold onto the same textile rules of origin that were negotiated in the 1990s, the yarn-forward rule of origin. USFIA and our members continue to encourage the U.S. textile industry to take a fresh look at the global industry.  But, so far, we remain far apart.

Nonetheless, we also have some areas where we can work together. Both our organizations support efforts to promote Made in the USA activities, as well as manufacturing in the Western Hemisphere. And, just this week I asked Auggie to help us with information about U.S.-based fabric mills. We also have collaborated on some proposals with Customs and Border Protection that build on the “trusted trader” concept and would focus enforcement measures on the companies who are not already proven to be compliant. And if I had to make a prediction, I would predict that in the next few years, we will find other areas where we can worth together productively.

Sheng Lu: Most of our students in the Textiles, Fashion Merchandising and Design (TMD) department will become professionals working for the US fashion industry after graduation. Does the USFIA have any resources available to our college students or have any future plans to expand the collaboration with the textile and apparel educational programs/academic institutions?

Julia Hughes: Yes! We welcome participation from universities, educators, and students in the fashion industry.

First, our website is a wonderful resource for information about the industry and our key issues. In addition to our issue pages, you’ll also find resources including recaps of past seminars, recordings of past webinars, our member publications, and more. (Some of this information is locked to USFIA members, but in the spirit of helping to grow our industry and future members, we’re always happy to help you access specific information you need! Just ask us!) We continue to build on the website, and in 2014, we will be launching a Value Chain Directory, which will provide comprehensive information on service providers and sourcing opportunities around the world.

Additionally, we host a number of events throughout the year, including our annual conference. We’re happy to work with educators and students to make attendance affordable, and we even have opportunities for universities to exhibit and students to volunteer.

We also encourage current and former students to visit our Career Center, which contains job opportunities at USFIA member companies. Even if you’re not looking for a job at the moment, it may be helpful to see what types of candidates these companies are seeking.

We’re always happy to work with universities, educators, and students to ensure that we educate the next generation of fashion industry leaders and professionals—future USFIA members!

USAITA to USFIA

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

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

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

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

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

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

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

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

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

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

by Sheng Lu

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International Trade Administration Reorganized

ita

From Just Style:

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

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

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

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

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

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

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

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

tpp

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

From thanhniennews

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

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

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

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

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

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

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

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

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

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

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

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

Local producers depend largely on fabric imported from China.

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

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

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

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

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.

Can the U.S. Negotiate a High-standard TPP

From 30′–38′ was the remark made by Steve Lamar, Executive Vice President of the American Apparel and Footwear Association (AAFA). From the view of the U.S. apparel industry, TPP will help diversify the import sources, promote export (note: AAFA members “produce everywhere and sell everywhere in the world”) and facilitate regulatory coherence of trade regulations. Steve hoped that the TPP outcome will be: 1) useable and relevant to the business community, not only for today, but also for the next 20 years; 2) can provide flexibility for AAFA members in implementing their supply chain strategy in today’s global economy.  Steve also believes that complication is the largest obstacle for the TPP negotiation, given the increasing number of countries getting involved and so many agendas included.

Other distinguished speaker in the event include Barbara Weisel, Assistant U.S. Trade Representative for Southeast Asia and the Pacific. Barbara summarized the TPP history, the perspectives from the USTR and latest negotiation updates, very informative.

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

TPP on T&A trade in the pacific rim

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

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

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

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

From Financial Times April 2, 2013

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

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

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

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

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

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

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

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

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

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

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

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

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

Beijing has strong views about what is really going on.

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

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

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

 

2013 U.S. Trade Policy Agenda Hearing

This year’s USTR trade agenda hearing at the senate finance committee is quite interesting. Ron Kirk just stepped down and Demetrios took the testimony as the acting USTR. Demetrios looks both young and smart. I am not sure whether he is among the top candidates to be considered for the USTR position but his congressional working experiences and legal background make him at least a qualified candidate in my view. Nevertheless, USTR usually is a political appointee. More interesting to watch is Sherrod Brown and Rob Portman now serve in the same committee. Sherrod obviously holds a very suspicious view about trade liberalization. As I remember he was the only senator who raised question focusing on import restrictions. Demetrios looked like a student before Rob Portman understandably.  Attending such a hearing should make Portman feel quite special too. “Unfortunately”, now he has to speak more for Ohio than for globalization.  TPA (Trade Promotion Act) turned out to be the No.1 hot topic in today’s hearing.  Japan & TPP raised grave concerns as well. I am not sure whether it is the best timing to accept Japan into the TPP. This unavoidably will make the agriculture & auto related negotiations much more challenging than otherwise.    Something a little surprising to me is China was not targeted very often today.

By Sheng Lu

China’s textile and clothing firms expand in Africa

Faced by rising labor cost, China has started thinking about “going globle” for its T&A sector: not product, but capital.

From Just -Style:

“According to William Gumede, a senior research fellow at the University of Witwatersrand’s school of public and development management in South Africa, Chinese domination of Africa’s textile markets and its industry has promoted significant job losses.

“For instance in South Africa, employment in the textile industry dropped from 300,000 workers in 1996 to 120,000 in 2010,” says Gumede when reached for comment by just-style.

And the situation is worse in Nigeria where the country has seen its once burgeoning US$1.3bn spinning industry in disarray, with Chinese cheap fabrics being highlighted as the culprit.

“Since 1995, over 175 textile manufacturing factories have shut down, leaving more than 250,000 workers jobless,” says Jaiyeola Olanrewaju, the director-general of the Nigerian Textiles Manufacturers Association.

And there is concern that some Chinese producers are not playing fair – being accused of mimicking African textile trade marks and unique designs.

“In order to compete favourably, African governments must stop [the] influx of counterfeit and smuggled textiles,” says Dr Walid Jibrin, the chairman of the Northern States Chapter of the Nigerian Textiles Manufacturers Association.

He identifies African prints, shirts, fine wax print textiles, unique Guinea brocades and lace embroideries as examples of African designs and textile trade marks being copied on cheap Asian fabrics and dumped in West Africa.

“The counterfeits have destroyed the handmade traditional textile industry in Nigeria, Ghana, Ivory Coast and Guinea,” says Dele Hunsu, the president of the National Union of Textile Garment and Tailoring Workers of Nigeria.

AGOA’s preferential access
But probably the most devastating effect of the Chinese textile industry on sub-Saharan Africa’s economic growth is its ability to piggy-back on the US’s year 2000 African Growth and Opportunity Act (AGOA).

Chinese firms have benefited from the region’s preferential access to the US by establishing Chinese-owned subsidiaries in the region. AGOA of course creates a trading advantage for sub-Saharan Africa’s textile industries to access the United States market.

According to Ms Ciliaka Millicent Gitau, a lecturer at the University of Nairobi’s School of Economics, its success was rapid but short-lived. By 2005, many Chinese companies had established subsidiaries in countries including Ghana, Kenya, Lesotho, Madagascar, Malawi, Mauritius, Namibia, Nigeria, Tanzania and South Africa.

“The issue is that AGOA did not have rules of origin that would have curbed transhipment of the Chinese textile commodities,” said Gitau who is an expert on the emerging Sino-Africa geo-politics and trade relations.

The result has been local African clothing and textile companies closing, unable to compete with Chinese firms’ aggressive export-oriented tradition, low production costs and technological superiority.

And while AGOA has been extended to 2015, Chinese clothing makers in sub-Saharan Africa will continue exporting more textiles to the US at the expense of African companies.

“In essence, in the last two decades, China has placed itself in a strategic position to reap benefits from sub-Saharan Africa, not only in the textile industry but in other sectors as well,” says Gitau.

New sales opportunities
And Chinese manufacturers are in no mood to pull back. With weakening demand in Europe and the US since the financial crisis, plus continuing disputes at the World Trade Organization (WTO) with key mature market trading partners, China’s clothing and textile industry wants to diversify its sales.

From January to August 2012, China Customs figures show textile and apparel exports to the European Union (EU) dropped 14.4% year-on-year to US$32.02bn, while they rose 12.2% to US$9.82bn to Africa.

“We have got lots of inquiries from clients in Africa recently. They are less demanding, and some of them are happy to accept our private brands,” says a director at a Shanghai clothing manufacturer who so far has been supplying the EU, US and Japanese markets.

“There are many economic communities in Africa, which allows us to enter other African countries easily once we are in one of the community countries. We would like to look into the African market,” she adds.

Other Chinese manufacturers are using Africa as a hassle-free, alternative way to access the US and EU markets.

“In Ethiopia, we rent a plant and hire local workers make clothing for clients in the US and EU,” says a business manager at a Shandong province-based textile firm, who stresses that the African Growth and Opportunity Act offers companies such as his legal opportunities to access the US market.

And Chinese companies continue to see Africa not only as a huge market for export, but also a possible place for massive investment.

For example, in August, China Garments, a Beijing-based former state-run manufacturer, announced it will invest about US$29.7m in Zimbabwe to form a joint venture with the Cotton Company of Zimbabwe. The JV is expected to be a major cotton supplier of China Garments.”

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.

 

WTO Public Forum 2012: “Is Multilateralism in crisis?”

For your reference. Many issues are relevant to textile and apparel sectors (for example: global value chain, trade and job, trade facilitation, competition policy, intelletrual property right protection, green economy, pluralism/regionalism as well as trade and development).  

This year’s WTO Public Forum will debate:

  • formulating new approaches to multilateral trade opening in areas such as trade facilitation;
  • addressing 21st-century issues and identifying areas in need of new regulations;
  • looking at the role of non-state actors in strengthening the multilateral trading system

The session will cover the following sessions

  • Global value chain: implications for trade policy
  • Trade and job
  • The multilateral trading system in the 21st century: interaction between trade and competition policy
  • Plurilaterals and Bilaterals: Guardians or Gravediggers of the WTO?

This year’s Ideas Workshops will cover:

  • How to ensure green economy policies are implemented in a co-ordinated manner rather than at cross-purposes?
  • The future of the WTO dispute settlement system.
  • Rethinking trade-related aspects of intellectual property in today’s global economy.

WTO’s first ever Youth Ambassadors, selected by separate video and essay contests, will discuss the topic “How can trade promote development?”

US: Yarn-forward rule row flares up again

polyester-yarn-import-175429_189210

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.

Campain 2012: International Trade

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.

The Great Recession and Trade Protectionism: What Went Right?

A great commentary article on a recent study on trade protectionist measures by Chad Bown, a former professor from Brandeis university and a guru on trade remedy measures. It is interesting to note that the using of trade protectionist measures is much less frequent today than in the past. I agree with the reasons proposed by the article, such as the establishment of the WTO as a monitoring body, global production and emerging markets instead of developed countries becoming leading importers. On the other hand, trade protectionist measures are taking more diversified forms today and the scope has gone far beyond the traditional AD, CVD and safeguard measures. In particuar, measures that intend to promote export potentially could raise new trade disputes among leading exporters.

The full report can be downloaded from 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

Textile Makers Fight to Be Heard on South Korea Trade Pact

Read the full article from the New York Times:

My comment:

It is important to realize that the U.S. textile industry and the U.S. apparel industry today are no longer close parnters. Why? Because they choose different restructuring strategies in response to globalization and rising imports.