ILO Evaluates Trade Impact of Labor Provisions in Free Trade Agreements

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The International Labor Organization (ILO) releases a new study, which looks at how the increasing number of labor provisions in free trade agreements are impacting the world of work. According to the study:

Labor provisions in free trade agreements take into consideration any standard which addresses labor relations or minimum working terms or conditions, mechanisms for monitoring or promoting compliance, and/or a framework for cooperation.  (See appendix: evolution of labor provisions in US free trade agreements).

As of December 2015, there were 76 trade agreements in place (covering 135 economies) that include labor provisions, nearly half of which came into existence after 2008. This represents more than one-quarter (28 percent) of the trade agreements which the World Trade Organization (WTO) has been notified of, and which are currently in force. Over 80 percent of agreements that came into force since 2013 contain such provisions. Countries most active in promoting labor provisions in free trade agreements include: Canada, the European Union, the United States, Chile, New Zealand and Switzerland. Some South-South free trade agreements also include labor provisions.

The study finds that there is NO evidence to support the claim that implementation and enforcement of labor standards leads to reduced trade. The findings show that trade agreements, with or without labor provisions, boost trade between members of the agreement to a similar extent. For country-partner pairs that have a trade agreement with labor provisions in force, bilateral trade is estimated to be on average 28 percent greater than what would be expected without such an agreement.

Results further show that, on average, trade agreements that contain labor provisions impact positively on labor force participation rates, bringing larger proportions of male and female working-age populations into the labor force and, particularly, increasing the female labor force. The study assumes that labor provisions in trade agreements can raise people’s expectations of better working conditions, which in turn increases their willingness to enter the labor force.

However, the study found NO statistically significant relationship between labor provisions and labor market outcomes such as wages, share of vulnerable employment or gender gaps at the aggregate level (i.e. consider all countries). On the one hand, this implies that labor provisions at least do not lead to the deterioration of other labor standards in a country. On the other hand, it indicates that labor provisions in free trade agreements have limited impact on the outcomes of the labor market.

Additionally, the study stresses that interaction among stakeholders, capacity-building and monitoring mechanisms – with the support of social dialogue are critical to achieve positive outcomes in the labor market. In a case study on the Cambodia–US Textile Agreement specifically, the report finds strong firm-level intervention, such as monitoring and compliance, improved wages at the firm level, including a notable reduction of the gender wage gap. In another case study, it is found that capacity-building measures brought to Bangladesh after the Rana Plaza tragedy have resulted in some visible improvements with respect to the number of trade unions, building safety and amendments in labor law in the country.

Appendix: Evolution of labor provisions in US free trade agreements

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Source: http://www.thirdway.org/memo/tpp-in-brief-labor-standards

2016 U.S. Fashion Industry Benchmarking Study Released

[Note: The 2017 U.S. Fashion Industry Benchmarking Study has been released]usfia 2016 cover_Page_1

The report can be downloaded from HERE

Key Findings of the study:

I. Business environment and outlook in the U.S. Fashion Industry

  • Overall, respondents remain optimistic about the five-year outlook for the U.S. fashion industry. “Market competition in the United States” is ranked the top business challenge this year, which, for the first time since 2014, exceeds the concerns about “increasing production or sourcing cost.”

II. Sourcing practices in the U.S. fashion industry

  • U.S. fashion companies are more actively seeking alternatives to “Made in China” in 2016, but China’s position as the No.1 sourcing destination seems unlikely to change anytime soon. Meanwhile, sourcing from Vietnam and Bangladesh may continue to grow over the next two years, but at a slower pace.
  • U.S. fashion companies continue to expand their global reach and maintain truly global supply chains. Respondents’ sourcing bases continue to expand, and more countries are considered potential sourcing destinations. However, some companies plan to consolidate their sourcing bases in the next two years to strengthen key supplier relationships and improve efficiency.
  • Today, ethical sourcing and sustainability are given more weight in U.S. fashion companies’ sourcing decisions. Respondents also see unmet compliance (factory, social and/or environmental) standards as the top supply chain risk.

III. Trade policy and the U.S. fashion industry

  • Overall, U.S. fashion companies are very excited about the conclusion of the Trans-Pacific Partnership (TPP) negotiations and they look forward to exploring the benefits after TPP’s implementation.
  • Thanks to the 10-year extension of the African Growth and Opportunity Act (AGOA), U.S. fashion companies have shown more interest in sourcing from the region. In particular, most respondents see the “third-country fabric” provision a critical necessity for their company to source in the AGOA region.
  • Free trade agreements (FTAs) and trade preference programs remain underutilized in 2016 and several FTAs, including NAFTA and CAFTA-DR, are utilized even less than in previous years. U.S. fashion companies also call for further removal of trade barriers, including restrictive rules of origin and remaining high tariffs.

The benchmarking study was conducted between March 2016 and April 2016 based on a survey of 30 executives from leading U.S. fashion and apparel brands, retailers, importers, and wholesalers. In terms of business size, 92 percent of respondents report having more than 500 employees in their companies, while 84 percent of respondents report having more than 1,000 employees, suggesting that the findings well reflect the views of the most influential players in the U.S. fashion industry.

For the benchmarking studies in 2014 and 2015, please visit: https://www.usfashionindustry.com/resources/industry-benchmarking-study

EU Textile and Apparel Industry Sees Commercial Opportunities in Trans-Atlantic Trade and Investment Partnership (T-TIP)

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(picture source: Euratex)

According to the European Apparel and Textile Federation (Euratex), Trans-Atlantic Trade and Investment Partnership (T-TIP), if reached and implemented, will bring substantial commercial benefits to the EU textile and apparel (T&A) industry. Euratex sees T-TIP has the great potential to help EU T&A expand exports to the U.S. market, particularly in two areas:

One is high-end apparel. The United States is EU’s third largest apparel export market only after Switzerland and Russia. In 2014, apparel exports from EU(28) to the United States exceed €2.5 billion and most products were much higher priced than those exported from elsewhere in the world. Euratex expects that when the high tariff facing EU apparel products in the U.S. market is removed—such as 28% tariff rate for women’s jacket, and customs red tape is cut, many small and medium (SME) sized EU T&A companies will be able to gain more access to the 300 million people U.S. apparel market.

The other is technical textiles: Euratex highlighted that “technical textiles, like high functionality fabrics used for firefighters’ uniforms or airbags, represent half of our textiles exports to the US. European home textiles are of great success in the US: more than €92million of bedlinen were sold in 2014. Nonwoven textile products for hygiene and medical purposes (cleansing tissues, surgical bedsheets, gauze, bandages, etc.) are a growing part of our exports to the U.S.. High-tech textiles products cover a wide range of applications – transport, construction, agriculture, defense, personal protection and much more.”

Moreover, it seems that the EU technical textile industry is very interested in getting access to the U.S. market currently protected by the Berry Amendment. Euratex sees “Opening business opportunities in public sector for technical textiles is a must in T-TIP. “Europe is a recognized leader in production of smart technical textiles due to advanced manufacturing technologies and constant innovation of materials and their application. The production of technical textiles in Europe significantly increased over the past ten years. With TTIP, the US public services will be able to benefit from the innovative products manufactured in Europe.” Euratex says.

Background: the state of EU-US textile and apparel trade

EU-US T&A trade

Apparel Industry is Not All about Labor Cost

While most discussions on improving corporate social responsibility practices in the apparel industry still focus on conventional solutions like higher labor standards and more effective monitoring programs, a recent Boston Consulting Group report suggests supply chain innovation also has its role to play.

One key argument of the report is: Although cost still matters in apparel sourcing, lower-cost can be achieved through means other than seeking cheap labor. For example:

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Engendering end-to-end supply chain efficiency through managing raw materials. Apparel companies may work with their suppliers further down the supply chain to optimize fabric selection, which usually account for as much as 60-70 percent of the total cost of a finished garment (v.s. 30-40 percent of labor cost). Some apparel companies have started to use fewer yarns and weight classes so as to reduce fabric count and lower down sourcing cost. Some other companies are realizing significant cost reduction by timing orders so as to level the load over the course of the year. [Note: looks like Uniqlo’s model]

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Building an integrated supply chain. As cited in the report, to balance sourcing cost and speed to market, one major apparel retailer builds 15 to 20 percent of the season’s styles and pre-positions about two-thirds of its raw material before the season (both in-house and from production partners). During the season, the company analyzes sales, staying in constant communication with its stores and with the design team. It resupplies items that are selling well through accelerated production and delivery, usually within three to four days. Designers then create new styles by adapting the best sellers using the pre-positioned material. [Note: looks like Zara’s model]

Innovating ways of production. The report suggests that bonding and gluing technologies (i.e. use bonded adhesive films and processes such as ultrasonic heating and high-frequency radiation to fuse together layers of fabric) can produce an entire small garment in 30 to 40 percent less time than conventional cut-and-sew. Digital technologies such as digital prototyping of textile designs can also significantly help apparel makers reduce waste and boost efficiency in pattern making. The potential application of 3D printing may further allow apparel makers to produce smaller batches, and possibly even allow for made-to-order production of individually designed and sized garments. This would not only allow companies to match the market’s growing need for speed, but also reduce the costs of retail inventory surpluses and associated price reductions.

Two additional thinking based on the report:

First, much attention has been given to the changing business environment of the apparel industry, such as rising labor cost in Asia, shifting market growth towards emerging economies and more sophisticated consumers’ demand in the era of omni-channel retailing. But what if the nature of the apparel industry is also changing: if one day labor cost is no longer a key factor in deciding where to produce and apparel production itself is no longer labor-intensive at all? Although automation of apparel production was not achieved in the 20st century, it may not be something totally impossible in the 21st century. We need to have bold thinking here.

Second, while the apparel industry is innovating its business model (i.e. the way to produce, the way to deliver products and the way to serve its customers), T&A educational programs also need to embrace innovative thinking. For example: are traditional course offerings sufficient enough (or still relevant) to prepare students’ job readiness in the 21st century? How to proactively respond to the changing nature of the apparel industry which has started to adopt more and more new technologies? What if we redefine the meaning of “T&A” majors and redesign the model of preparing the workforce for the apparel industry? (just like the question: for wearable technology, shall IT companies make apparel or apparel companies make IT products?)

Lectra Report: The Need for Transformation-An Analysis of the Fashion and Apparel Industry’s Evolution

Lectra

As the saying goes, change is the only constant in the fashion apparel industry. According to a newly released market report by Lectra*, “the pace of fashion has never been faster and neither has the pace of change”.

Lectra’s report highlights a few factors driving the changes in the fashion apparel industry:

1. Consumers

Consumers has much more control than in the past, implying the fashion industry can no longer define what to make and sell without taking consumers’ inputs into consideration. Some companies have alter their business models to be completely demand-driven, i.e. allowing integrating all their resources to meet the customized needs of all consumers.

Social and economic changes like internet access and growing prosperity, have also spurred the growth of new fashion markets in emerging countries that had typically been only supplier region, creating new opportunities for western fashion brands and retailers to expand business.

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2. Globalization

Historically, local brands dominate local market. However, because of the strategies of geographic expansion and international growth of many fashion brands, in more and more markets, local brands have to face competition from foreign brands. (for example: the Australian fashion industry is worried about the competition from H&M).

But globalization does not reduce diversity and localized consumer preferences. On the contrary, increased internationalization means that populations are more heterogeneous than in the past and retailers have to bring a localized response to individual markets.

3. Technology

New social media and mobile technologies have given consumers the power of instantaneous sharing and buying without restriction of time, place and in many cases, price. The availability of new technologies such as RFID, product life cycle management (PLM) and many other supply chain management tools have also enabled brands, retailers and manufacturers to reduce product development cycle, improve efficiency and better collaborate across the global process.

For example, digital prototyping gives companies the agility they need to adapt to changes in the market and test new products before they start to incur real production costs. PLM facilities the collaboration between design and development departments and breaks the silo mentality that has reigned for so long in the fashion and apparel industry, eliminating bottle- necks that resulted from outdated linear processes and increasing decision making power earlier on in product development.

4. Change of Business models**

In response to the application of new technologies and consumers’ updated demand, companies start to seriously reconsider their business models, especially the process of design, product development, production and distribution. As noted in the report, fashion brands, which have traditionally gone through retailers who sell on their behalf, have developed retail operations with the purpose of capturing a higher percentage of the final sale price and achieving complete control over the presentation, distribution and final price of their merchandise. Many retailers, however, also start to offer more and more private brands and exclusive products that can more effectively segment market and attract targeted consumers.

The traditional manufacturers are also looking for ways to cut costs and increase efficiency because of the pressure from retailers/brands. Manufacturers also have realized that selling directly to the end consumers is the most powerful way to protect revenue. As quoted by the report, roughly 60% of Chinese apparel manufacturers have launched their own brands. Armed with all that know-how, a growing number of Chinese manufacturers are now turning their efforts toward developing an offer for the domestic market and some are even setting their sights abroad. (recall the topic of “upgrading” in our lecture)

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*: Lectra is a company which provides fashion-focused technology solutions such as the CAD system and the product life-cycle management (PLM) system.

**: Corporate business strategies of fashion apparel companies in the 21st century world economy is specifically addressed in TMD432 (Fashion Retail Supply Chain Management).

Recent Scholarly Books about the Global Textile and Apparel Industry (Update: Aug 2014)

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Race against the machine

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Remember the four key words I mentioned in the class—globalization, technology, sustainability and leadership?

This is a short but inspiring book to read about technology and its impact on us:

 “When talking about jobs and unemployment, there has been a great deal of attention paid to issues like weak demand, outsourcing and labor mobility, but relatively little attention given to technology’s role. This was a serious omission. “

“Computers are now doing many things that used to be the domain of people only…Our technologies are racing ahead but many of our skills and organizations are lagging behind”

“technological progress does not automatically benefit everyone in a society. In particular, incomes have become more uneven, as have employment opportunities.”

For TMD/TM majors & faculties, it is critical (although sometimes painful) to think about: How technology advancement will affect the job availability and nature of the job in the fashion apparel industry in the years to come? Do we have/are we learning the “right skills” that can help us survive in the race against the machine in the 21st century?