WTO Forecasts World Trade to Grow 2.4% in 2017

world trade

In its latest trade statistics and outlook report, the World Trade Organization (WTO) forecasts the world merchandise trade volume to grow within a range of 1.8-3.6% in 2017 (on average 2.4%). This growth rate is slightly up from a very weak growth of 1.3% in 2016. WTO expects trade growth to further pick up to 2.1-4% in 2018.

On the positive side, the global GDP growth is expected to rebound to 2.7% in 2017 from 2.3% in 2016, which will contribute to the expansion of world trade. Notably, WTO expects emerging economies to return to modest economic growth in 2017. However, WTO sees policy uncertainty, including the imposition of restrictive trade measures and monetary tightening, a main risk factor to world trade this year.

wto

WTO also noted that since the financial crisis, the ratio of trade growth to GDP growth has fallen to around 1:1. And 2016 marked the first time since 2001 that this ratio has dropped below 1, to a ratio of 0.6:1. Historically, the volume of world merchandise trade has tended to grow about 1.5 times faster than world output. WTO is cautiously optimistic that the ratio will partly recover in 2017, but the ratio will remain a cause for concern.

At the press conference, Trump Administration’s trade policy receives significant attention. But according to  Roberto Azevêdo, Director-General of WTO, “just an overall statement of the intention to go one particular way or another, does not tell us what the trade policy is and does not tell us what the impact of that trade policy will be. Instead, the devil is in the details”. Roberto said he is waiting to see Trump’s new trade team in place (for example, the new US Trade Representative) and he looks forward to the meaningful dialogues with the team to know more details and clarity of U.S. trade policy. Until then, any comments on the impact of Trump Administration’s trade policy would be just speculations.

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WTO Reports World Textile and Apparel Trade in 2015

textile

clothing

According to the newly released World Trade Statistical Review 2016 by the World Trade Organization (WTO), the current dollar value of world textiles (SITC 65) and apparel (SITC 84) exports totaled $291 billion and $445 billion respectively in 2015, but decreased by 7.2 percent and 8.0 percent from a year earlier. This is the first time since the 2009 financial crisis that the value of world textiles and apparel exports grew negatively.

However, textiles and apparel are not alone. The current dollar value of world merchandise exports also declined by 13 percent in 2015,to $16.0 trillion, as export prices fell by 15 percent. In comparison, the volume of world trade grew slowly at a rate of 2.7 percent, which was roughly in line with world GDP growth of 2.4 percent. WTO says that falling prices for oil and other primary commodities, economic slowdown in China, a severe recession in Brazil, strong fluctuations in exchange rates, and financial volatility driven by divergent monetary policies in developed countries are among the major factors that contributed to the weak performance in world trade.

Textile and apparel exports

China, the European Union and India remained the top three exporters of textiles in 2015. Altogether, they accounted for 66.4 percent of world exports. The United States remained the fourth top textile exporter in 2015. The top ten exporters all experienced a decline in the value of their exports in 2015, with the highest declines seen in the European Union (-14 percent) and Turkey (-13 percent). The smallest decline was recorded in China (-2 percent).

Top three exporters of apparel include China, the European Union and Bangladesh. Altogether, they accounted for 70.3 percent of world exports. Among the top ten exporters of apparel, increases in export values were recorded by Vietnam (+10 percent), Cambodia(+8 percent), Bangladesh (+6 percent) and India (+2 percent). The other major exporters saw stagnation in their export values (United States) or recorded a decline (all other top ten economies).

china's market share

Additionally, despite reported rising production cost, China’s market shares in world textile and apparel exports continued to rise in 2015 (see the figure above).

Textile and apparel imports

The European Union, China and the United States were the top three importers of textiles in 2015. However, altogether they accounted for only 37 percent of world imports, down from 52.8 percent in 2000. Because a good proportion of textiles made by developed countries (such as the United States) are exported to developing countries for apparel manufacturing purposes, the pattern reflects the changing dynamics of world apparel manufacturing and exports in recent years.

Because of consumers’ purchasing power (often measured by GDP per capita) and size of the population, the European Union, the United States and Japan remained the top three importers of apparel in 2015. Altogether, they accounted for 59 percent of world imports, but down from 78 percent in 2000. This indicates that import demand from other economies, especially some emerging markets, have been growing faster over the past decade.

world trade 2016

ILO Evaluates Trade Impact of Labor Provisions in Free Trade Agreements

labor provision

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

labor provisions

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

USITC Studies the Impact of Trade on Manufacturing Jobs in the U.S. Textile and Apparel Industry

job impact of trade

employment in the US T&A industry

In its newly released Economic Impact of Trade Agreement Implemented under Trade Authorities Procedures, 2016 Report, the U.S. International Trade Commission (USITC) provides a quantitative assessment on the impact of trade on manufacturing jobs in the U.S. textile and apparel industry. According to the report:

  • Manufacturing jobs in the U.S. textile and apparel industry have been declining steadily over the past two decades. Between 1998 and 2014, employment in the NAICS 313 (textile mills), NAICS314 (textile product mills) and NAICS 315 (apparel manufacturing) sectors on average decreased annually by 7.6 percent, 4.3 percent and 11.2 percent, respectively.
  • Rising import is found NOT a major factor leading to the decline in employment in the U.S. textile industry (NAICS 313)–as estimated, imports only contributed 0.4 percent of the total 7.6 percent annual employment decline in the U.S. textile industry. Instead, more job losses in the sector are found caused by improved productivity as a result of capitalization & automation (around 4.6 percent annually) and the shrinkage of domestic demand for U.S. made textiles (around 3.5 percent annually) between 1998 and 2014.
  • Rising imports is the top factor contributing to job losses in apparel manufacturing (NAICS 315), however. As estimated by USITC, of the total 11.2 percent annual employment decline in apparel manufacturing, almost all of them is affected by imports (10.8 percent). On the other hand, increased domestic demand for apparel (such as from U.S. consumers) is found positively adding manufacturing jobs by 2 percent annually in the United States from 1998 to 2014.
  • To be noted, USITC did not estimate the impact of trade on employment changes in the retail aspect of the industry. According to the U.S. Bureau of Labor Statistics, approximately 80 percent of jobs in the U.S. textile and apparel industry came from retailers in 2015. These retail-related jobs are typically “non-manufacturing” in nature, such as: fashion designers, merchandisers, buyers, sourcing specialists, supply chain management specialists and marketing analysts.

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

Why NCTO and Euratex Disagree on the Textile and Apparel Rules of Origin in T-TIP?

eu-and-us-ta-rules-of-origin1

In an April 13 press briefing, the National Council of Textile Organizations (NCTO) which represents the U.S. textile industry, insists the Trans-Atlantic Trade and Investment Partnership (T-TIP) shall adopt the so called “yarn-forward” Rules of origin (RoO). Yarn-forward (or “triple transformation”) in T-TIP means, in order to receive preferential duty treatment provided under the trade agreement, yarns used in textile production in general need to be sourced either from the US or EU.  All 14 existing free trade agreements (FTA) in the United States adopt the yarn-forward RoO.

In comparison, in its position paper released in June 2015, the European Apparel and Textile Confederation (Euratex), which represents the EU textile and apparel industry, favors a so called “fabric forward” RoO in T-TIP instead of “yarn-forward”. Fabric-forward (or “double transformation”) in T-TIP means in order to receive preferential duty treatment provided under the trade agreement, fabrics used in apparel production in general need to be sourced either from the US or EU, but yarns used in textile production can be sourced from anywhere in the world.

US

Exploring data at the 4-digit NAICS code level can find that the United States remains a leading yarn producer. Value of U.S. yarn production (NAICS 3131) even exceeded fabric production (NAICS 3132) in 2014. This means: 1) U.S. has sufficient capacity of yarn production; 2) it will be in the financial interests of the U.S. textile industry to encourage more use of U.S.-made yarns in textile production in the T-TIP region (i.e. pushing the “yarn-forward” RoO).

eu textile production

EU yarn import

However, data at the 4-digit NACE R.2 code level suggests that EU(28) was short of €5,643 million local supply of yarns (NACE C1310) for its manufacturing of fabrics (NACE C1320) in 2013 (latest statistics available). This figure well matched with the value of €4,514 million yarns that EU (28) imported from outside the region that year. Among these yarn imports (SITC 651), over half came from China (22%), Turkey (19%) and India (13%), whereas only 5% came from the United States. Should the “yarn-forward” RoO is adopted in T-TIP, EU textile and apparel manufacturers may face a shortage of yarn supply or see an increase of their sourcing & production cost at least in the short run.

Sheng Lu

The Percent of U.S. Apparel Imports Entering under Free Trade Agreements Fell to a Record Low Level in 2015

FTA use 2015 1

Latest statistics from the Office of Textiles and Apparel (OTEXA) show that the share of U.S. apparel imports entering under free trade agreements (FTAs) fell to a record low level of only 15.4 percent in 2015. This figure was not only lower than 16.2 percent in 2014, but also was THE lowest one since 2006, despite the implementation of a few new FTAs during that period.  

FTA use 2015 2

Among the major FTAs reached by the United States, the U.S.-Bahrain has the highest utilization rate of 99.7 percent in 2015 (note: utilization rate =value of imports entering under FTA from a particular country/value of imports from a particular country), whereas a couple of FTAs whose utilization rate is below 80 percent, such as CAFTA-DR (75.8 percent), U.S.-Korea FTA (75.2 percent), U.S.-Israel FTA (65.5 percent), U.S.-Australia FTA (53.7 percent) and U.S.-Morocco FTA (34.6 percent). A low utilization rate implies that U.S. companies did not claim the preferential duty benefits while importing apparel from these FTA regions.

FTA use 2015 3   

On the other hand, CAFTA-DR and NAFTA altogether account for around 76 percent of U.S. apparel imports entering under FTAs in 2015. This result is consistent with the findings in the 2015 U.S. Fashion Industry Benchmarking Study which also finds that CAFTA-DR and NAFTA were the two most frequently utilized FTAs reported by the survey respondents.

As a result of the lower share of apparel imports entering under FTAs, the American Apparel and Footwear Association Apparelstat 2015 released this week found that the effective average U.S. apparel import duty reached 13.54 percent in 2014, which is even higher than 11.97 percent in 2001. In comparison, over the same period, the average U.S. import duty on ALL products dropped from 1.64 percent in 2001 to 1.40 percent in 2014.

by Sheng Lu