Potential Impact of TPP on the Textile and Apparel Sector: A Summary of Recent Studies

Screenshot 2015-10-06 08.13.16

(Picture credit: Lu, S. (2015) Does Japan’s accession to the Trans-Pacific Partnership mean an opportunity or a threat to the U.S. textile industry? A quantitative evaluation, Journal of the Textile Institute, 106(5), 536-549.)

With the conclusion of the Trans-Pacific Partnership (TPP) negotiation on Oct 5, 2015, it is time to think about its potential impact. Specifically for the textile and apparel (T&A) industry, the followings studies may offer some hints (to read more, you can click each title):

Trade Statistics

Statistics show the 12 TPP partners altogether imported $65 billion worth of textiles and $154 billion worth of apparel in 2013, which accounted for a world import share of 20 percent and 32 percent, respectively (WTO, 2015). In 2014, around 55 percent of U.S. textile and apparel exports (or $13.3 billion) went to the other 11 TPP partners, and 17 percent of U.S. textile and apparel imports (or $17.8 billion) came from the TPP region (OTEXA, 2015).

Impact of TPP on U.S. Textile and Apparel Manufacturing: A Preliminary Estimation

TPP overall will have a negative impact on U.S. domestic textile and apparel manufacturing. In all simulated scenarios, the annual manufacturing output in the United States will decline by $846 million–$3,780 million for textile and $1,154 million–$1,828 million for apparel than otherwise.

2.The “yarn-forward” rule may not substantially benefit U.S. domestic textile and apparel manufacturing as some people had suggested, for two reasons: 1) results show that Vietnam is more likely to use Japanese textiles than U.S. textiles when yarn-forward rule is in place. 2) U.S. apparel imports from Vietnam directly compete with those imported from NAFTA and CAFTA regions, the largest export market for U.S.-made yarns and fabrics. When NAFTA and CAFTA’s market share in the U.S. apparel import market is taken away by Vietnam, U.S. textile exports to NAFTA and CAFTA will decline anyway, regardless of whether Vietnam uses U.S.-made textiles.

3.Results suggest that compared with the “yarn-forward” rule, development of Vietnam’s local textile industry will have an even larger impact on the future of U.S. domestic textile and apparel manufacturing. Particularly, when Vietnam becomes more capable of making textile inputs by its own, not only Vietnam’s overall demand for imported textiles will decline, but also Vietnam’s apparel exports will become even more price-competitive in the U.S. as well as the world marketplace.

“Import Sensitive” Clothing and the TPP X-basket : What might include

1

Based on examining three recent trade programs, including: U.S. International Trade Commission (USITC) monitoring program on T&A imports from China based on the U.S.-China Textile Memorandum of Understanding (MOU) (2008—present), Office of Textiles and Apparel (OTEXA) monitoring program on U.S. T&A imports from Vietnam (2007-2008) and U.S. textile safeguard measures against China (2003-2005), it seems “import sensitive” T&A in the United States mostly refer to cotton and man-made fiber apparel and fabrics. OTEXA product Code 338, 339, 340, 345, 347, 348, 352, 447, 638, 639, 640, 645, 646, 647, 648 and 652 are most likely to be included in the TPP X-basket.

Because Vietnam’s T&A exports to the United States heavily concentrate on these “import sensitive” T&A categories, the X-basket has the potential to substantially affect the actual trade liberalization that can be enjoyed by the T&A sector under TPP:

  • By the most conservative estimation, i.e. the X-basket only covers Category A “import sensitive” apparel products, it will affect about 41.6 percent of U.S. apparel imports from Vietnam (or 38.7 percent of total U.S. T&A imports from Vietnam) if trade pattern remains the same as in 2014.
  • In the worst case, i.e. the X-basket covers all “import sensitive” T&A products identified by this study, it will affect about 70.0 percent of total U.S. T&A imports from Vietnam, if trade patterns remains the same as in 2014.

2015 US Fashion Industry Benchmarking Study

3

The survey results show that TPP matters for the U.S. fashion industry, with as many as 79 percent of respondents saying implementation of the agreement will impact their business practices. Specifically:

  • 72 percent expect to source more textiles and apparel from TPP partners, suggesting the imminent impact of TPP for the U.S. fashion industry could be trade creation.
  • Fewer than 10 percent expect to source less from non-TPP members after the implementation of the agreement, suggesting the trade diversion effect of TPP could be limited.
  • 48 percent expect to strategically adjust or redesign their supply chain based on TPP, implying TPP could be a game changer and has the potential to shape new patterns of textile and apparel trade in the Asia-Pacific region in the long term.
  • However, as few as 7 percent expect to export more products to TPP partners, while only 10 percent expect to invest more in TPP partners (building factories, operating retail stores and e-commerce operations) after implementation of the agreement. It seems the U.S. fashion industry hasn’t focused much on TPP’s potential to promote exports and achieve greater market access.
  • Additionally, 45 percent say the TPP Short-Supply List should be expanded, and comments indicate the proposed “yarn-forward” Rule of Origin is a major hurdle to the industry realizing real benefits from the agreement. In fact, as many as 83 percent support or strongly support abandoning the strict “yarn-forward” Rule of Origin and adopting a more flexible one in future FTAs (Figure 21). This suggests that the benefit of TPP for the U.S. fashion industry and the utilization of the agreement will largely depend on the Rule of Origin. In particular, there is a strong call among U.S. fashion companies to make the textile and apparel Rule of Origin less restrictive and more flexible in TPP.

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

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.

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.

Advertisements

Author: Sheng Lu

Professor @ University of Delaware

8 thoughts on “Potential Impact of TPP on the Textile and Apparel Sector: A Summary of Recent Studies”

  1. I think it is very interesting to see how much of the Textile and Apparel manufacturing and economics are based on politics. So much of it is trade politics and the T&A industry in one country can be so greatly affected by the TPP, NAFTA, CAFTA, etc. Each country really has to push their own agenda, for example the U.S and the Yarn Forward Initiative, in order to improve the industry, or even stay afloat.

    1. I am glad you follow the news on TPP. Yes, it will have substantial impacts on the US T&A industry. Personally I see it is more than just politics, but also involves a lot of economics. We will cover this topic very soon in FASH455~ stay tuned

  2. “as few as 7 percent expect to export more products to TPP partners, while only 10 percent expect to invest more in TPP partners”

    This really stuck out to me in this article as being quite interesting. My understanding of TPP is that it is of course meant to impact trade patterns, but I was also under the impression that it was meant to do this exactly; promote the investment in TPP partners. I thought that this was one of the aims of the policy in order to further develop other countries and create alliances between countries, etc. If in reality only 10% end up investing more in TPP partners, then I think that would be a miss for the policy.

    1. great comment! Actually this result is a little surprising to me as well. A possible reason is that there were still many uncertainties about TPP when the survey was conducted (March-April 2015)–the TPP negotiation was still going on, the important legislation (Trade promotion authority bill) was still pending… so reasonably companies were not in the mood to commit to long-term investment in the TPP region. But since TPP now has concluded, maybe companies are changing their mind. We will continue to investigate the long-term impact of TPP in next year’s survey.

  3. “TPP overall will have a negative impact on U.S. domestic textile and apparel manufacturing. In all simulated scenarios, the annual manufacturing output in the United States will decline by $846 million–$3,780 million for textile and $1,154 million–$1,828 million for apparel than otherwise.”

    This quote taken directly from the blog post is shocking to me. After all of the information we have gathered through our studies this semester about the TPP, as well as the information expressed and relayed to our class by our guest speakers, it still comes as such a surprise to hear startling statistics such as this. The connotation throughout this entire post is extremely negative towards the TPP, where as Matt Priest when discussing the agreement with us made his positive opinions towards the agreement very clear. Although the agreement has developed more since this post was written, why does the United states want to continue with this agreement if any of the above information could prove to be true?

  4. Figure 19’s statistic about how 21% of companies do not expect any changes in their manufacturing and importing and exporting is quite surprising because I personally thought that it was quite high. And I also wonder why these companies think that way. Is it because they do not use TPP members? Otherwise I feel that there is a significant amount of companies that don’t use TPP members which is also very surprising.

  5. I never realized just how much politics comes in to play! After reading this article, I am still questioning why TPP is still a consideration of the T&A industry. It seems as though it is very controversial and may not benefit as much as much as we think. Why are we still pushing for TPP? Do we think that the addition of yarn-forward RoO will really be of benefit? After reading this article I am thinking otherwise.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s