Tariff Remains a Critical Trade Barrier Worldwide for the Textile and Apparel Sector

1

tariff rate

According to data from the World Trade Organization:

  1. In 2013, average applied tariff rate remained at 10.73% for textiles and 18.25% for apparel worldwide. Compared with the average tariff rate for all sectors, the rate for textiles on average is 1.4 percentage points higher and the rate for apparel is 8.9 percentage points higher. This implies that although tariff may not be a critical trade barrier for some sectors anymore, it still significantly matters for the textile and apparel sector.
  2. Least developed countries (LDC) overall set a higher tariff rate for textiles and apparel than the world average level. Ironically, many LDCs heavily rely on imports for textile supply. Should these LDCs lower their tariff rate for textiles, it may help apparel manufacturers there save sourcing cost for yarns and fabrics and improve the price competitiveness of finished apparel products.
  3. At the country level, countries with the highest tariff rate for textiles include Ethiopia (27.8%), Sudan (27.4%), Argentina (23.3%, Brazil (23.3%), Gabon (19.8%), Cameroon (19.6%), Chad (19.6%) and Congo (19.6%). And countries with the highest tariff rate for apparel include Zimbabwe (72.26%), South Africa (41.02%), Namibia (41.02%), Swaziland (41.02%), Botswana (41.02%), Lesotho (41.02%), Bolivia (40.0%), Sudan (40.0%), Argentina (35.0%), Ethiopia (35.0%) and Brazil (35.0%). Interesting enough, many of these countries are members of the African Growth and Opportunity Act (AGOA) which are eligible for the third country fabric provision.

Sheng Lu

Advertisements

Author: Sheng Lu

Professor @ University of Delaware

17 thoughts on “Tariff Remains a Critical Trade Barrier Worldwide for the Textile and Apparel Sector”

  1. I find it very surprising that the average tariff rates set by LDCs for the T&A industry is higher than for all countries as a whole. These countries rely on global trade the most to support economic growth and industrialization, so I would find it much more intuitive if the LDCs set lower tariff rates in order to keep their exports more globally competitive. Additionally, as we saw in the MFA case study, developing countries are in favor of increased access to developed countries markets through lower trade barriers. Therefore, it would make sense for developed countries to lower their own trade barriers as well.

    1. good thinking! One reason why many LDCs set a high tariff rate is because this is one of their main sources of tax revenue. Not like developed countries such as the US, these least developed countries do not have a strong domestic economy from which the government can collect sufficient tax. On the other hand, LDCs may want to use the high tariff rate to protect their domestic apparel manufacturing sector from cheap imports. This does lead to the question you may think about in case study 2: whether everyone was “happy” about removal of the quota system.

  2. I think it is very interesting that the tariff rate is higher for the apparel sector compared to the textile sector. Since textiles are more difficult to make and require more capital, I would expect the tariffs to be larger for that compared to apparel. I think that the LDCs should lower their tariff rates on their textile imports in order to improve their apparel sector. Apparel usually creates a lot of income and employment for the country, so it is important to keep that sector happy, which could be done by lowering the textile tariff rates.
    After reading the response to the comment above, I do understand why LDCs would increase their tariffs in order to gain tax revenue. This also makes sense of why the LDCs are the countries that have the highest tariff rates.

    1. great! PS: actually there is a terminology for the phenomenon you identified: tariff escalation, meaning a country sets higher import tariff duties on semi-processed products than on raw materials, and even higher tariff on finished products. The purpose is to encourage domestic manufacturing (i.e. process imported raw materials).

  3. It is so interesting that LDCs have the highest tariff rates! That is not something I would expect, but after reading the comments, I can see why. It makes sense that they would use this as a way to collect needed tax dollars. However, it is a bit risky in the sense that some developed countries may choose to produce elsewhere given the high rates, which could ultimately be devastating to the economies of some LDCs. The term described in the reply comment above, tariff escalation, is such an interesting concept. I wasn’t aware that some countries set tariffs in this way, but that makes complete sense in order to encourage domestic manufacturing.

  4. I agree with some of the comments above in that it is surprising to hear that LDCs have the highest tariff rates since in our case study on the MFA we learned that they were all about lowering trade barriers and becoming more global. However, I do see why they would put higher tariffs on their products. Currently we source so many things from LDCs, that they know to a point even if they put high taxes on their goods, we would still produce things from their countries because it is significantly lower than sourcing it somewhere else. I understand their higher rates, but I also think that if they want more countries to do business with them in the future, they should lower their tariffs because eventually they are going to get high enough that companies won’t see the benefit of producing there anymore.

  5. I agree with the comments above that it is very surprising that the LDCs have the highest tariff rates. A lot of the countries that we import from are LDCs so I understand why they would but a higher tariff on their products. It also makes sense that they would want to lower their trade barriers. I think it might be a good idea for them to lower their tariffs though, because it would increase the wealth of their apparel sector. Since they are the least developed countries, this would help them grow.

  6. I am caught a little off guard and somewhat confused about the differences in how high the apparel sector tariffs are compared to the textile sector. We always discuss in class how the apparel industry is more appealing for developing countries as it is labor intensive, has few barriers to entry, and does not require a lot of skills. Textiles, however, is a much more complex, capital intensive industry. I would logically assume that for this reason, tariffs would be higher for the textile industry rather than being higher for the apparel industry.

    1. good question! when we say apparel manufacturing “has few barriers to entry… does not require a lot of skills”, this refers to industry entry barriers– meaning almost any country in the world can make apparel. And probably this is the exact reason why competition in the apparel industry is very intense so that all countries would like to use high import tariff to protect its domestic apparel manufacturing from imports (this refers to market access). In comparison, textile is more difficult to produce (i.e. higher industry entry barriers), so that many countries have to rely on imports. In order to get cheaper inputs (and also because of less competition with domestic manufacturing), they allow lower import tariff. Hope it helps.

  7. It actually surprises me that the countries who have some of the highest tariffs on apparel are countries who are a part of AGOA. These countries are mainly developing countries that have minimal resources and means to use technology to produce their goods, but count on the vast abundance in labor that they occupy for producing goods. Having such high tariff rates on these products impacts the country in having higher costs which is unfair because of the poverty levels they have. I do believe that these AGOA countries should have the lowest tariff rates out of all the LDC countries.

  8. I find it very surprising that the countries that currently have some of the largest, and most extensive tariffs still have differences between the apparel and textile sectors. Before becoming aware of this information, I would have assumed that both the apparel and textile sectors would have similar tariffs, along with similar rates. However, I not realize that this difference in price is related to capital and difficulty. These large tariffs not only impact the domestic country, but they also impact the ability and desire for other countries to partake in trade due to their specific socio-economic climates.

  9. The average tariff rates of 10.73% for textiles and 18.25% for apparel worldwide are pretty shocking numbers to hear. I am surprised that these numbers are not a critical trade barrier for some countries. I agree with the comment above that these large tariffs greatly impact the ability for other countries to be involved in trade. The economic states of countries vary greatly and it turns out the that least developed countries set higher tariff rates for T & A than other countries. If these countries decided to lower their tariff rates, it could wind up helping them with growth. However, after reading comments above I also understand that the higher rates help the LDCs gain tax revenue. These facts were very interesting to me, as I would assume the least developed countries would require the least amount of tariff percentages.

  10. It makes sense to me to see that the tariff rates are, on average, significantly higher than the average tariff rates for all sectors of the global trade market. In the case of apparel trade, the tariff rate is as high as 18.25%. This makes sense because many developing countries start to develop and find their comparative advantages through skilled laborers and apparel manufacturing. Often, this is where trade begins. Developed countries such as the U.S., prefer to allocate their resources into manufacturing elsewhere and import apparel from the cheaper developing countries. The same theory goes for textile manufacturing, however, it is slightly lower than the apparel average because textile manufacturing usually begins when the country has developed slightly more. At this point the prices are not quite as low as they are with apparel, so the demand for textile imports from developing countries is not as high. Also, countries such as the U.S. have the advanced technology and skills to produce a strong textile industry, and they remain the fourth textile exporter in the world.

  11. I enjoyed reading this article, especially with the two graphs. Both graphs helped me to visualize what information was presented in the article. I think the difference in tariffs between apparel and textiles is very interesting. I would think that tariffs and any costs overall would be higher for textiles since making them is a greater deal even though more money is made off of selling apparel. I think that the LDCs should lower the tariffs rates on both textiles and apparel to improve both sectors. On the other hand, I understand why LDCs would either increase or have tariffs stay the same in order to gain a higher revenue, which also makes sense with LDCs being highest in countries with the highest tariff rates.

  12. This article raised an interesting point how LDC’s have the highest tariffs yet they are in the most need for more business. I believe that LDC’s need to set lower tariff rates so that they are more competitive and are more reasonably priced in relation to other countries. Although producing products in LDC’s may potentially be lower than other countries, the extremely high tariffs may cancel out the benefits of low wages and production costs. Apparel manufacturers strive to be extremely price competitive at all costs therefore they would benefit if LDC’s were able to lower they tariff’s. LDC’s strive to have more business and therefore should investigate ways to lower their tariff and improve their business strategy.

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