FASH455 Discussion: Trade and Development

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#1 Why do you think the Indian girls from rural villages chose to leave their home for the new garment factory jobs in the city? Overall, was it a right choice for them?

#2 Were the Indian girls happy about their jobs in the garment factory? Why or why not?

#3 How do you compare your life to the Indian girls in the article? And please just imagine: ten years later, what will the life of these Indian girls look like? How about yours?

#4 How do you think these young girls feel about giving up their old lives for a shot at a new one? Do you believe that it would be hard to give up your customs and ways of life to try and give yourself a different future than the people you are used to? Do you think it’s hard for many families in Prabhati and Sashi’s village to accept the path they have taken instead of a traditional one?

#5 Do you think owners of the garment factory treated the Indian girls “fairly” according to the article? Why or why not? Please also briefly explain your benchmark for fairness.

Please mention the question # in your comment.

 

Are US Textile and Apparel Imports Using Free Trade Agreements? (Updated February 2017)

Free trade agreements (FTAs) are arrangement among two or more countries under which they agree to eliminate tariffs and non-tariff (NTB) barriers on trade among themselves (Cooper, 2014). Theoretically, companies shall be interested in increasing imports from FTA regions because of the duty free treatment (i.e. trade creation effect). Particularly not paying import tariff duty can be a great cost advantage for textile and apparel (T&A) companies given the fact that the average US import tariff rate was still as high as 8% for textiles and 11.6% for apparel in 2016 (WTO, 2017).

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Despite the potential benefit of using FTAs, data from the Office of Textiles and Apparel show that 85.7% of US T&A imports came from non-FTA regions in 2016. Interesting enough, although more FTAs have taken effect in the United States, T&A imported under FTA as a percent of total T&A imports dropped from 15.1% in 2008 to 14.3% in 2016.

Among the FTAs in force, the North American Free Trade Agreement (NAFTA) and the Dominican-Republic-Central America Free Trade Agreement (CAFTA-DR) altogether accounted for 75.9% of the value of total U.S. T&A imports under FTAs in 2016.

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Statistics further reveal that sometimes companies did not claim duty free benefits of FTAs even though they imported T&A from the FTA region. For example, in 2016 about 29.9% of U.S. T&A imports from South Korea, 24.3% from CAFTA-DR and 16.3% from NAFTA and 12.9% from Columbia did not enjoy the duty free treatment granted by the respective FTAs.

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Some industry experts say the complex T&A rules of origin is a major factor why US T&A companies are not using FTAs enough. According to the Office of Textiles and Apparel (OTEXA), there are more than 20 different tariff lines dealing with various T&A rule of origin situations under respective FTAs.

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Additionally, U.S. T&A importers seem to use the “short supply list” mechanism–an exception to the yarn forward rules of origin under FTAs, more actively. For example, in 2016 around 2.4% of US T&A imports under FTAs took advantage of the “short supply list” mechanism, increased from only 1.2% in 2008. Similarly, a record high of 6.2% of U.S. T&A imports under the CAFTA-DR used the short supply list in 2016.

Sheng Lu

International Trade, Globalization and the U.S. Economy: Discussion Questions Proposed by FASH455 Students

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The following questions are from students in FASH455 (Spring 2017). Please feel free to leave your comments and engage in our online discussion. Please mention the question # in your comment.

#1 Based on the readings, how do you see the relationship between “Made in the USA” and international trade today?

#2 What is your evaluation of President Trump’s proposal to levy 45% punitive tariffs on Chinese imports? Will the proposal bring back more jobs to the United States?

#3 It is said that globalization creates both winners and losers. From the readings, why do you agree or disagree with the statement?

#4 One of Donald Trump’s main campaign points was that he was going to bring jobs back to America and push for companies to move their factories out of countries such as Mexico and China. What role can international trade play in this effort?

#5 As we mentioned in the class, international trade is more than a purely economic issue. So what are the other non-economic impacts of trade? Can you provide any specific examples from the readings?

#6 As a result of globalization and trade, nature of the labor market is quickly changing, which has led to many workers without a college degree lost their jobs. In a market economy like the United States, is the government responsible for reeducating these workers or does the government bear no major responsibility?

#7 Is creating jobs in the United States a major responsibility for U.S. companies like Apple and Nike in today’s global economy? Why or why not?

How Americans Knew about Textile and Apparel Trade: New Survey Results

The following results are preliminary findings from the Cooperative Congressional Election Study (CCES) 2016 survey. The survey was administrated by YouGov/Polimetrix and conducted from September to October 2016.

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Acknowledgement:

Thanks to the University of Delaware Office of the Provost, Social Science Data Analytics Initiative, and Center for Political Communication in support of the data collection. For questions about the data, please contact Dr. Sheng Lu (shenglu@udel.edu).

 

Positions on Key Trade Issues: US Fashion Industry Association (USFIA) V.S. National Council of Textile Organizations (NCTO)

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From left to right: Julia Hughes (president of USFIA), Auggie Tantillo (president & CEO of NCTO) and Robert Antoshak (Managing Director of Olah Inc., moderator)

In a panel discussion hosted by Kingpins on February 9, 2017, Julia K. Hughes, President of the United States Fashion Industry Association (USFIA), and Augustine Tantillo, President and Chief Executive of the National Council of Textile Organizations (NCTO) shared their respective perspectives on key trade issues facing the U.S. textile and apparel industry in 2017.

Trade and job creation in the United States

Julia Hughes: Discussion on the relationship of trade and jobs in the public is often misguided. We support U.S. manufacturing. But along the supply chain, from product development, sourcing, marketing to retailing, fashion brands and retailers have also created many well-paid non-manufacturing jobs in the United States. Study further shows that 70%-80% of the retail value of an imported clothing actually stays in the United States.

Auggie Tantillo: Pleased and excited to see the discussion on the possibility of bringing back/expanding manufacturing in the United States. Still the United States produces $65—70 billion worth of textiles annually, which support many manufacturing jobs in the sector.  The U.S. textile industry also makes around $2 billion investment annually (updating machines and equipment). We need to acknowledge the baseline value of manufacturing in the United States.  

Border Adjustment Tax(BAT)

Julia Hughes: BAT is a complicated issue. However, if the current BAT proposal is adopted, it will raise the retail price (meaning ordinary US consumers will have to pay more) and appreciate the U.S. dollar (meaning U.S. exports will get hurt). This is why USFIA along with 100+ companies and industry associations opposes any BAT.

Auggie Tantillo: NCTO strongly believes that updating the tax structure in the United States is long overdue. NCTO welcomes a serious look at the BAT proposal, since the United States is the only major economy in the world that does not adopt BAT. The United States doesn’t need to run such a high trade deficit. Instead, we need to make the tax structure supporting the U.S. manufacturing base.

North American Free Trade Agreement (NAFTA)

Julia Hughes: NAFTA is 20 years’ old and it can be improved. However, raising import tax (tariff) is NOT a good idea. NAFTA supports the Western-Hemisphere supply chain, which is critical for the U.S. textile and apparel industry. We need to defend this supply chain.  

Auggie Tantillo: NAFTA works and benefits its members on all sides of the border, including the United States. NCTO supports the continuation of NAFTA as well as to update and modernize the agreement as necessary.

Yarn-forward Rules of Origin (RoO)

Julia Hughes: Apparel is a global industry and apparel supply chain needs to be nimble. The yarn-forward RoO prevents apparel companies and retailers from fully enjoying the duty-free benefits under a free trade agreement (FTA) since not always the FTA region makes the needed products or their textile components. Exceptions to the yarn-forward rules such as the trade preference level (TPL), provide necessary flexibility.  

Auggie Tantillo: The yarn-forward RoO has been a great success and we need to keep it (in existing and future trade agreements). The only things that need to be improved is the exception to the yarn-forward RoO (such as short supply list and trade preference level). RoO is supposed to keep benefits of a free trade agreement to its members only, yet these exceptions create loopholes and cause damages (to the U.S. textile industry).

On China

Julia Hughes: We need China, which still provides 40% of textiles and apparel consumed in the United States. It will be a disaster to trigger a trade war between the two countries.

Auggie Tantillo: We need to better help the Western-Hemisphere producers (in competing with textile and apparel made in China). China’s  40%+ market shares in the U.S. textile and apparel import market are not all based on its genuine competitiveness. Rather, China’s unfair trade practices such as IPR violation, government subsidy and unacceptable factory working conditions & environmental practices are of grave concerns.

Trans-Pacific Partnership (TPP)

Julia Hughes: TPP is not dead. On the other hand, countries around the world are actively negotiating new bilateral/regional free trade agreements. The United States doesn’t want to be left behind.

Auggie Tantillo: TPP is “in deep hibernation”, but trade agreement will never be really dead. It is still hopeful that TPP will come back later—but very likely to be in a different form, such as bilateral trade agreements. To be noted, many TPP members have already established bilateral/regional trade agreements with the United States.  

Discussion questions: 1) Why do you think Julia Hughes and Auggie Tantillo disagree on many trade issues? On which topics they actually agree with each other and why? 2) What’s your response to Julia Hughes and Auggie Tantillo’s comments on trade issues above? 3) Based on the panel discussion, why do you think textile and apparel companies need to care about trade policy? Please feel free to share your views.

Global Textile and Apparel Exports by Income Groups (2000-2015)

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As of 2015, over 40% of textile exports still come from high income countries. Meanwhile, upper middle income countries are quickly expanding exports and gaining more market shares from 2000 to 2015. However, textile exports from low income countries remain minimal.

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From 2000 to 2015, shares of apparel exports from high income countries dropped from 50% to 31%. Meanwhile, market shares of upper middle income countries increased from 32% to 46%. However, low income countries are becoming even more marginalized in apparel exports: their market shares slipped from 0.3% in 2000 to only 0.1% in 2015.

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Additionally, textile and apparel exports in general are economically more important for lower income countries than higher income countries. However, the percentage of textile and apparel in a country’s total merchandise exports seem to be declining across all income groups except for low-income countries.  Meanwhile, for a good number of low-income and lower-middle income countries such as Bangladesh, Gambia, Pakistan and Cambodia, textile and apparel remain one of their very few exporting opportunities.

Data source: World Trade Organization (2017), World Bank (2017); Country list (by income groups) can be found HERE

Acknowledgement: Thanks to Sheiron Crawford for assisting the data collection.