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

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

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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.]


Minimum Wage in the Apparel Industry Continues to Rise in Most Asian Countries in 2016

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Apparel producers across Asia may face a more than 5% minimum wage increase in 2016, according to an industry source. India, Malaysia, Thailand and Pakistan may see the biggest increase of minimum wage (up more than 15%) among the leading Asian apparel producers, whereas minimum wage in Bangladesh and Philippine may remain roughly unchanged from last year.

As noted by the industry source, this year’s minimum wage increase comes from various reasons. In Cambodia, the increase is mostly pushed by local labor unions. Indonesian government raises the wage aiming to shorten the gap between minimum and living wage in under-developed regions. Additionally, countries such as India adjust their minimum wages more based on economic factors such as inflation rate, GDP growth rate and consumers’ price index.    

Data further shows that the gap in minimum wage between Asian apparel producers somehow is widening. For example, monthly minimum wage in some parts of China has reached $321 USD in 2016, which is $253 USD higher than in Bangladesh ($68 USD/month), up from $225 USD in 2015. A wide gap in minimum wage is also found within some Asian countries. For example, in Philippine, Indonesia and China, the highest minimum wage could be almost twice as high as the lowest minimum wage in the country.

Despite the increase, minimum wage in Asia remains a fraction of the level in the developed countries. For example, minimum wage in the United States was $7.5/hour in 2015, meaning a worker’s monthly minimum wage shall no less than $1,200 (assume working 40 hours/week, 4 weeks/month).

USTR Michael Froman Comments on the Textile and Apparel Chapter under TPP

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In an event hosted by the Council on Foreign Relations on October 15, 2015, U.S. Trade Reprehensive Michael Froman left a comment on the textile and apparel chapter (T&A) under TPP. He said that:”

“You know, we worked very hard to find solutions that could address the broad range of stakeholder interests here, even when we had conflicting interests here in the U.S. I’ll take textile as an example. You know, we have a domestic textiles industry that’s been investing in more production in the U.S., growing their employment in the U.S. And obviously we have a strong sector of our economy that brings in apparel from other countries, apparel importers and retailers. We worked very closely with both groups of stakeholders to come up with a solution, to come up with an outcome that we think both will be comfortable with and both will be supportive of. And that’s been very important to us to try and address the broad range of U.S. stakeholder interests, whether it’s labor, environment, importers, exporters, to make sure we’re covering everybody’s interests well.”

In the remarks, Forman also ruled out the possibility that TPP would be renegotiated. He said that:

“So this isn’t one of those agreements where, you know, you can, you know, reopen an issue or renegotiate a provision. This is one where, you know, every issue is tied to every other issue and every country’s outcome is balanced against every other country’s outcome. And so that’s the agreement that we’ll be putting forward under TPA for a vote by Congress.”

According to Inside U.S. Trade (October 9, 2015), the final TPP reflects some of the key priorities of the U.S. textile industry by allowing limited exceptions from the prevailing yarn-forward rules of origin and by including tariff phaseouts for “sensitive apparel items” of 10 to 12 years.

Besides the basket of goods that will become duty-free upon entry into force (which include cotton shirts and cotton sweaters), TPP sets up three other categories for tariff reductions on apparel:

TPP apparel

Major exceptions other than the “short supply list” mechanism under TPP include:

  • An “earned import allowance program for cotton pants made in Vietnam from third-country fabric by importing a specified amount of U.S. cotton pants fabric. This would allow cotton pants from Vietnam would enter the U.S. duty-free as soon as the agreement is implemented. It is said the ratio for the program is “close” to 1:1. However, for men’s cotton pants, there could be a 15 million square meter equivalents (SMEs) annual cap until year 10, after which it will increase to 20 million. There is no quantitative limit for the other types of cotton pants that can be shipped under the program, such as women’s, girls’ and boys’ pants.
  • A limited list of cut-and-sew items that Vietnam and other TPP countries can ship to the U.S. under the preferential TPP duty rate. These include synthetic baby clothes, travel goods including handbags, and bras.

Review & Comments: “The People’s Republic of Capitalism”

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  • How do you like the documentary “The people’s Republic of Capitalism” we watched last Thursday?
  • What impressed you most? What surprised you most?
  • How do you compare your life with any characters in the documentary? (the Missourian lady, her boss who moved factories to China, the Mexicans who worked on US cotton farms, the Chinese girl working on the production line, the Chinese high school student who comes from a poor rural area and her mother….)
  • What arguments made in the video you do NOT agree?

Please feel free to share your thoughtful comments and I look forward to exciting discussions with you.

The Importance of CAFTA-DR and NAFTA to the U.S. Textile Industry

A recent study of the United States International Trade Commission reaffirms the special roles played by free trade agreements in supporting the regional trade-production network (RTN) for textile and apparel products in America and promoting the export of U.S.-made textile to developing countries in the region in particular. However, also as mentioned in the report, the influence of such RTN has sustantially declined since the full elimination of quota system in 2005. The implementation of the new FTAs established between US and countries in Asia-Pacific pose new uncertanties to the RTN in America, given the trade diversion effect commonly seen in FTAs.