Sourcing Practices and Free Trade Agreements: Discussion Questions Proposed by FASH455

trans-pacific-partnership

Sourcing Practices

#1 Many US fashion companies choose to continue to diversify their sourcing base and they are actively seeking supplementary sourcing destinations. How to explain this phenomenon?

#2 U.S. apparel imports from Vietnam has been growing rapidly in recent years. Why do you think Vietnam has been able to expand as a garment exporter so quickly, outperforming most of its Asian competitors?

#3 Why would, after everything that happened at Rana Plaza, U.S. apparel companies still outsource to Bangladesh?

#4 Why would U.S. fashion companies want to become more diversified with the countries and factories that they are currently sourcing from? Is there still room for expansion for larger corporations who are already quite diverse with their sourcing base? Why or Why not?

#5 Why does the U.S. fashion industry still hold a positive view on the future of the industry despite the reported rising pressures of increasing production or sourcing costs? If China is a major factor causing the pressure of rising production and sourcing cost, why didn’t U.S. fashion companies just move out of China and switch to source from elsewhere?

Free Trade Agreement and Rules of Origin

#6 America most often applies the “yarn forward” standard for textiles and apparel. This states that the fibers can be produced in any country, but the spinning into yarn must take place in free trade area. Do you think this is the most beneficial method the U.S. can use? Would the United States be able to, in reality, employ a “fiber forward” standard instead and use the land in the U.S. Midwest to use domestically grown cotton or wool?

#7 Two debates over free trade agreements (FTAs) include: 1) FTAs act as a “stumbling block” to global trade liberalization, and 2) FTAs act as a “building block” to multilateral trade liberalization. What is your view, especially based on our analysis on the impact of NAFTA, CAFTA-DR and TPP?

#8 In class we discussed the special relationship between NAFTA & CAFTA-DR and the US  textile industry. Will the Trans-Pacific Partnership (TPP) help the U.S. textile industry further expand export opportunities in the Asia-Pacific region? On the other hand, how will TPP potentially affect the U.S. textile and apparel trade with the NAFTA and CAFTA-DR regions?

#9 Do you think that Rules of Origin (RoO)  are having a negative impact on the larger picture of global trade? Since RoO intends to limit preferential treatments to FTA member countries only, is this simultaneously hindering outside countries from maximizing their opportunities with countries they are not in an FTA with?

#10 If the “Yarn-Forward” rule were to be implemented by the TPP, what types of effects do you think we would see on US apparel consumers? What benefits would the US textile manufacturers have if this were to happen and would the benefits outweigh the cost to US consumers and the limits that would be placed on countries such as Vietnam?

[Please feel free to join our online discussion. For the purpose of convenience, please mention the question # in your reply/comment.]


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Author: Sheng Lu

Professor @ University of Delaware

21 thoughts on “Sourcing Practices and Free Trade Agreements: Discussion Questions Proposed by FASH455”

  1. #9)
    I do think that sometimes RoO can have a negative impact on the larger picture of global trade for a few reasons. Even though it may be good for the companies that are part of the specific FTA, I think that it is hypocritical and counterintuitive. It does not really foster globalization or free trade since it is very specific and has more and more regulations added on. That being said, the regulations do help make sure no one is taking advantage of something that they are not a part of.
    Smaller countries that are not part of FTA’s cannot grow when other countries have better opportunities that do not include them. This relates to absolute and competitive advantages and it sometimes seems that FTA’s go against these theories.
    I think that there need to be more opportunities to grow global trade for countries that are not part of the FTA. Even if the FTA is helping global trade for the specific countries, it hinders the previous relationships with countries that can no longer compete with lower duties and tariffs.

    1. great thinking! Many industry professionals feel the same way. They say free trade agreement is not “free” at all given the complicated rules of origin. Personally I believe this issue will be given more attention because of the emerging trend of global supply chain. additionally, there is a concept called “open regionalism”, meaning if country A and B reach a FTA, it “pushed” country C also to join the agreement so that country C’s exports to country A and B won’t be “discriminated against”.

  2. 2. While this may not be definitely right, after reading for the assignment, I now know that Vietnam is in the TPP. I think this has allowed for Vietnam to become a stronger competitor in the T&A industry, and is allowing it to outperform the other Asian competitors that are not in the the TPP.
    3. People still source from Bangladesh for a few reasons. For one, some companies may be hopeful in thinking that they are supporting a country that needs their sourcing. Other companies may just be using Bangladesh for its cheap labor prices, and for their ability to get away with it.
    7. FTA’s could definitely be viewed as both a stumbling block, and a building block. For example, the TPP seems to be excluding China, one of the biggest T&A factors in the world. While the US claims they are not doing this on purpose, China and the United States are huge competitors and by keeping China out of the TPP, the United States, along with other countries, just continue to grow as a stronger force in the T&A industry.

    1. great comments! Agree that Vietnam’s apparel exports to the US benefit from TPP (even the agreement hasn’t been implemented yet). A lot of foreign investments are also pouring into Vietnam to build new textile and apparel factories. In terms of China and its relationship with TPP, personally I feel it is mixed. From the perspective of the US textile industry, it could mean a disaster, but from a bigger picture of “pivot to Asia”, it may be a very positive thing–don’t forget China didn’t participate in the negotiation of TPP and those rules reflect the US interests… this is why in the class, I gave a overview about the overall us relationship with the Asia-Pacific region.

  3. 10) If the yarn-forward rule is implemented in the TPP it will be beneficial to US textile manufacturers but US consumers will see a higher price for the apparel due to the more costly yarn the countries that produce the apparel will have to use. It would be beneficial to the US by eliminating a lot of competition and it would improve our own economy. It may ruin some relationships in the long run with other countries so it is definitely a sensitive and controversial topic. Vietnam will be in a difficult place because it will not be able to import textiles from China and it could be more expensive for them.

  4. #3 I think that U.S. apparel companies continue to source in Bangladesh after the tragedy at Rana Plaza because it is still so cheap for them. I think that many of them are still more concerned with the cheap prices instead of focusing on factories that protect their employees. As we have learned in class this semester, many companies were forced to acknowledge what was going on over there after the tragedy happened, however, I think that there are some companies that would still choose to turn a blind eye to who is making their clothing and just focus on the cost of it.

    1. I agree! I believe that U.S. apparel companies continue to outsource to Bangladesh because Bangladesh relies on the U.S. apparel industry for their economy. It employs many people and it is cheaper for the U.S. apparel industry as well. Even though the working conditions are extremely poor which makes it dangerous for the employees, it benefits both countries. However, the working conditions remain an issue in Bangladesh and should be improved.

  5. #3 I believe that U.S. apparel companies continue to work with Bangladesh for multiple reasons. One of the reasons is due to the fact that labor continues to be extremely cheap, which makes the overall cost of the products lower as well. In addition, I believe that U.S. continues to source with Bangladesh, to provide them some economic support. Many companies and countries have pulled out of Bangladesh, due to the recent events along numerous other concerns. By producing products within Bangladesh, U.S. can help the country during this tough time while also working with Bangladesh to improve their working conditions.

    1. I agree with your views on why US companies continue to work in Bangladesh. After learning about the textile industry in Bangladesh and learning about these Trade Unions, I think that it’s even more important for US retailers to continue to rectify and fund the recovering factories. If the US does not participate in helping the conditions of Bangladesh, they are not team players when it comes to being or looking to be a part of Trade Unions.

  6. 4) The united states would want to become more diversified in the countries it sources from as a source of protection; in case one of the textile producing countries is effected in a way which disables their production ability. Having multiple source countries ensures that a natural disaster, etc will not completely harm the manufacturing industry within the U.S. Not being dependent on a single country also means that more textile producing countries are able to grow.

  7. #2 The U.S. apparel industry imports from Vietnam have been growing rapidly in recent years because the manufacturing of products in Vietnam is very cheap. More Vietnamese workers want to manufacture apparel because it a convenient job as well. I think Vietnam has been able to expand as a garment exporter so quickly in comparison to other Asian competitors because Vietnam is now a part of the TPP as opposed to other Asian competitors. China is the largest Asian manufacturer of apparel and footwear, while Vietnam is second. However, once Vietnam became a part of the TPP, the FTA allows no duties to be paid when exporting to the U.S. Therefore, the U.S. apparel imports from Vietnam have been growing rapidly in comparison to any other Asian competitor because of the TPP.

  8. #3 Why would, after everything that happened at Rana Plaza, U.S. apparel companies still outsource to Bangladesh?

    I am not surprised that United States apparel companies still outsource to Bangladesh. As they all strive for the lowest cost products with the greatest efficiency, the situation in Rana Plaza actually helps many companies. As Bangladesh manufacturers are now left scrambling to to retain their contracted brands they may be willing to produce at a lower cost. Interestingly enough this situation which was created by low production costs may be making the costs even cheaper. The Bangladesh are stuck in a difficult position. Either they fix their unsustainable practices and allow their reputation to ruin their business or do what they do best; giving brands products at the lowest cost.

  9. #3 Why would, after everything that happened at Rana Plaza, U.S. apparel companies still outsource to Bangladesh?

    It is sad to say, but I truly feel that apparel companies (not only in the U.S.) really only care about making a profit. Some of them might care about sustainability practices, and safe labor conditions, but not enough to lose sales over it. Bangladesh clearly has unsafe working conditions, but they also have very very cheap labor, which is an attractive attribute to apparel companies. I feel that U.S. apparel companies are under a lot of pressure from U.S. citizens to keep their prices as low as possible, and by sourcing from these outside countries, whether they have safe working conditions or not, they will continue to keep U.S. shoppers happy. Realistically, when U.S. shoppers are shopping for clothing, most of them are not thinking about where these products were made and what the working conditions were like in these countries while the products were made.

  10. 2) While the TTP agreement has not been implemented yet to include Vietnam, this country has a lot of potential in exporting textile and apparel in this industry. Now that the country is in the TPP, it will allow for Vietnam to become a stronger country, competitor and will improve their economy. By being in the TPP, it puts them ahead of other Asian, under developed countries, such as China, that are not included in the TPP agreement. By China not being in the TPP, it will balance out the power to other under developed countries.

  11. #1) We learned from a past blog post that many of the biggest American retailers source with over 3 different countries at a time. Building relationships with different countries has become a key concept in many company’s sourcing strategies. This comes from retailers goals to keep lead times short and costs low. In addition there are countries with high tariffs and quotas. Retailer’s desire to diversify their sourcing portfolios so they have options if tariffs are too high. With a range of countries to work with, retailer’s can look towards those with the best option for them.

  12. It is not surprising to me that after everything that happened at Rana Plaza, US companies still source in Bangladesh. US retailers are more concerned with finding the cheapest method of production that the safety of the workers. In such a competitive market, companies overlook safety conditions in the hopes of getting ahead of their competition.

  13. #1 I think U.S. fashion companies continue to diversify their sourcing base and are always looking to source from other destinations in order to constantly keep costs and lead times down. With changing policies and tariffs, it is important for companies to move around where prices are low and policies are favorable to them from a business standpoint. In order to keep up with quickly changing trends, it is also crucial that companies find manufacturers with the shortest lead times and they need to be sure their supply chains are efficient.

  14. #3 Despite everything that happened at the Rana Plaza , US apparel companies continue to outsource in Bangladesh because the products can be made cheaply and the labor is cheap. In the end, US consumers care about products with lower price points and businesses are competitive and will find the means to get them. Since the tragedy at the Rana Plaza, there have been strikes made to increase the conditions for workers there so I think that also contributes to why the US sources from there. There are some better inspections and better quality factories, however there is still a much needed room for improvement.

  15. 2) After the devastating Rana Plaza collapse in Bangladesh US apparel companies still insist on outsourcing their production in the country. I think there are many reasons for this. First, I believe that many individuals and possibly some retailers are not knowledgable of the circumstances that Bangladeshi workers undergo. I think it is a very difficult concept to grasp considering we live such different lives in America and it is hard to put our feet in their shoes. Bringing awareness of this tragic event will make retailers think twice before they outsource (I would hope). Another reason I think the US continues to outsource to Bangladesh is their extremely cheap labor margins. Fast fashion has a massive drive for quick production, large production orders, and cheap margins they are working with. Bangladesh offers all of these factors that some retail companies are looking for even though it puts a lot of pressure on the workers. I think that some of the companies have grown selfish as they have become immersed into the highly competitive global textile and apparel industry. Another reason (of many many more) I will touch on is the fact that many owners of apparel production factories in Bangladesh try to cover up the negative and poor conditions their factories allow. They know that they have rules to meet through the US retail companies… but the factories are desperate for their money so they will do anything it takes. This causes trust issues between retailers and suppliers, which makes it hard for US factors to choose where to outsource from.

  16. I think that U.S. companies choose to diversify their sourcing base for various resources. Lack of resources in the U.S. is a main reason. Not only this, but sourcing elsewhere to other countries may result in shorter lead times, faster manufacturing, and lower labor costs. Globalization is key in the T&A industry and is what makes the industry so diverse. Sourcing in multiple countries is a phenomena because the demand for high-quality low-cost products is higher than ever.

  17. #3 Companies should still outsource to Bangladesh. I know the Rana Plaza incident was tragic but this means we need to make their working conditions safer. If we stop sourcing in Bangladesh then more people will loose jobs and it will be so detrimental to their society. We should be helping them instead of hurting them! Many times what the key to helping them is getting the costumers support. If the customers are willing to pay more than they companies will be will to pay to get their garment factories inspected.

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