(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
According to statistics released by the European Apparel and Textile Confederation (Euratex), extra-EU trade for textile and apparel (T&A) achieved record high in 2015, suggesting a positive economic state of the industry.
Specifically, extra-EU T&A exports went up by 3.6 percent in 2015. Among the key export markets: thanks to the appreciation of U.S. dollar against Euro last year, EU’s textile and apparel exports to the United States respectively increased by 16 percent and 21 percent. Despite China’s slowed economic growth, EU’s export to China was also robust: 6 percent growth for textile and 19 percent growth for apparel. However, EU’s T&A exports to Russia (down 27 percent for textile and down 29 percent for apparel) and Ukraine (down 26 percent for apparel) sharped dropped, reflecting the substantial impact of political instability on trade.
In terms of the import side, extra-EU T&A imports rose 9.6% in 2015. China remained the top external T&A supplier to the EU, however, other Asian countries with lower-production cost are quickly catching up. This is particularly the case for apparel: while EU’s apparel imports from China went up 6 percent in 2015, imports from Bangladesh (up 24 percent), Cambodia (up 33 percent), Vietnam (up 26 percent), Pakistan (up 25 percent) and Myanmar (up 79 percent) grew much faster, suggesting a relative decline of China’s market share in the EU market.
The European Apparel and Textile Confederation (Euratex) recently released its position paper on textile and apparel (T&A) rules of origin in the Trans-Atlantic Trade and Investment Partnership (T-TIP). According to the paper:
First, Euratex supports “double transformation rules” as the basis of T&A rules of origin in T-TIP, with the accompany of flexibilities in some cases. In general, “double transformation” is equivalent to “fabric-forward” rules of origin, which is less restrictive than the “yarn-forward” rules of origin adopted in the United States. Euratex believes that “double transformation rules” is “aligned with market realities and developments of the European industry.”
In contrast, the National Council of Textile Organizations (NCTO) which represents the interests of the U.S. textile industry insists that T-TIP shall adopt the strict “yarn-forward” rule. Particularly, NCTO is worried that a less restrictive rules of origin in T-TIP will have ramifications for the negotiation of future FTAs, including the Trans-Pacific Partnership (TPP).
Second, Euratex opposes applying the “value-added rule” to the T&A sector in T-TIP. Based on the value-added approach, country of origin can be granted when “manufacture in which the value of all the materials used does not exceed certain % of the ex-works price of the products.” Value added is typically calculated based on a subtraction formula, i.e. value added=ex-works price of the product obtained minus the value of all the non-originating material.
Euratex does not think the “value added rule” will work for T&A, because: 1) “variability of the value of originating/non-originating products (fibers, yarns or fabrics) used in spinning or weaving or making-up” will make it practically difficult to calculate value added. 2) “the value added principle is uncontrollable as the added value can be influenced by many factors such as raw materials price, financing, exchange rate manipulations etc.”
In its annual release, the European Apparel and Textile Federation (Euratex) provides a skeletal statistical profile of the EU textile and apparel (T&A) in 2014. Most statistics cited in the report comes from the Eurostat.
In 2014, T&A production in EU enjoyed a slight growth. Output of Man-made fiber (MMF), textile (yarns, fabrics and made-ups) and apparel went up by 2.8 percent, 2.8 percent and 1.9 percent respectively from a year earlier. In 2014, about 48 percent of T&A industry output was contributed by the textile sector, followed by the apparel sector (46 percent) and the MMF sector (6%).
Employment and productivity
Employment in the EU T&A industry continues to move downward in size, shrinking from 1.66 million in 2013 to 1.63 million in 2014. The most significant drop happened in the apparel sector (-1.7%) and the textile sector (-1.3%), whereas employment in the MMF sector increased by 5 percent. As one important factor contributing to the job decline, productivity (measured by the value of output per person) in the EU T&A industry has constantly improved since 2010, especially in the textile sector (+22%).
Consumption data in 2014 is not available yet. Value of T&A consumption in EU (28) stood at €483.9 billion in 2013, a slight increase of 0.2 percent from 2012.
The two-way EU T&A trade enjoyed a robust growth from 2013 to 2014. Specifically, EU T&A exports increased by 3.5 percent (+2.2% for textile and +4.7% for apparel), which may attribute to the depreciation of euros against major currencies around the world. Interesting enough, EU’s T&A imports went up even faster in 2014—an overall 8.5 percent increase from 2013 (+7.6% for textile and +8.8% for apparel). With regard to EU’s key trading partners:
- China remained THE dominant external T&A supplier for EU in 2014. However. China’s market share in the EU apparel import market declined from 39.7 percent in 2013 to 38.8 in 2014, whereas China’s share in the EU textile import market went up from 31.5 percent to 32.6 percent. It seems China is gradually shifting towards more textile exports and less for apparel along with its industry adjustment in recent years.
- The United States remained the largest textile export market (11.1%) and the 5th largest apparel export market (11.7%) for EU in 2014. In the meanwhile, the United States is the 5th largest supplier of textiles to EU (however, U.S. market share declined from 4.0% in 2013 to 4.2% in 2014).
- Bangladesh’s apparel exports to EU increased by 12.7 percent from 2013 to 2014, which helped Bangladesh gained 15.1% market share, up from 14.6% a year earlier.
- Why do you think the German textile and apparel (T&A) industry supports the Trans-Atlantic Trade and Investment Partnership (T-TIP)? Should they?
- Should the U.S. textile industry worry about the competition from Germany after T-TIP?
- What strategy should the U.S. textile industry adopt in response to T-TIP?
Background: the German textile and apparel industry
- Similar as the case in the United States, the German T&A industry has significantly shrunk in size over the past few decades. In particular, employment and total industry output were only a fraction of what they were in the past.
- At the same time, the German T&A industry has undergone tremendous structural changes. While most simple production has gone overseas, German companies remain global leaders in the technical textile sector. Statistics show that the production of technical textiles in Germany went up by 40 percent from mid-1990s to 2011. Manufacturers of technical textiles in particular are benefiting from the increasing use of their products in new fields of application (e.g. vehicle construction, building industry, energy sector, medical technology and functional clothing).
- Additionally, German T&A companies in general support trade liberalization. On one hand, imported T&A components are of great importance for German T&A companies to get access to needed raw material today. On the other hand, German T&A companies are eager to explore export opportunities in many fast-growing emerging markets in the world. In 2011, Germany’s top export market for textiles were Poland, France, Italy and Austria. The United States was the largest non-European export market. Germany’s largest export market for apparel in 2011 include Austria, Netherlands, France, Switzerland and Poland.
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The American Apparel and Footwear Association (AAFA) and the US Fashion Industry Association (USFIA) , the two leading industry organizations representing the US fashion and apparel industry, jointly released a position paper this week on the Transatlantic Trade and Investment Partnership (T-TIP), which is currently under negotiation between the United States and the European Union.
The position paper spells out a few priorities deemed by the US fashion apparel industry for the T-TIP:
- Full, immediate and reciprocal elimination of tariffs, meaning import duties on all apparel products shall be eliminated on day one without phrase-out periods.
- Flexible rules of origin, meaning restrictive rules of origin such as “yarn-forward” which requires companies to use textile inputs from certain regions so as to enjoy the duty free market access shall be abandoned and replaced by simpler and more flexible ones.
- Regulatory coherence, such as harmonization on labeling regulations, harmonization of product safety and test method regulations, and establishing of a harmonized list of prohibited substances.
- Emphasis on facilitative customs provisions, meaning improving predictability, simplicity and uniformity in border procedures.
The European Branded Clothing Alliance is also a party of the joint statement; however, the European Textile and Apparel Confederation (Euratex) is not involved.
On the other hand, in May 2014, the National Council of Textile Organizations (NCTO), which represents the interests of the US textile industry, announced its priorities for the T-TIP negation, including:
- Adopt the “yarn-forward” rules of origin in T-TIP
- Set phrase-out periods for sensitive textile and apparel products
- Protect the Berry Amendment (which requires all US military uniforms have to be 100% made in USA)
In its annual release, the European Apparel and Textile Federation (Euratex) provides a skeletal statistical profile of the EU textile and apparel (T&A) in 2013. Most statistics cited in the report comes from the Eurostat.
In 2013, T&A production in EU overall remains stable. Output of Man-made fiber (MMF) enjoyed a 6.8 percent growth from a year earlier, although production of textile (yarns, fabrics and made-ups) and apparel respectively declined 0.1 percent and 4.2 percent. Accumulatively, from 2010 to 2013, production of MMF, textile and apparel in EU has down 15.2 percent, 8.1 percent and 13.3 percent respectively.
Employment in the EU T&A industry continues to move downward in size, shrinking from 1.73 million in 2012 to 1.64 million in 2013. The most significant drop happened in the apparel subsector, which suffered a 4 percent job loss from 2012 to 2013. The number of employment in the textile and MMF subsectors goes down 3.7 percent and 1 percent respectively.
Affected by the slow economic recovery in the region, EU consumers seem still hesitant in expending more money on T&A products in 2013. Value of T&A consumption in EU (28) stood at €483.9 billion in 2013, only a slight increase of 0.2 percent from 2012.
The two-way EU T&A trade enjoyed a modest growth from 2012 to 2013. Particularly, despite reported decline in production, value of EU apparel exports in 2013 increased 4 percent, reflecting the growing demand for “made in EU” apparel products in other parts of the world. In terms of import, consistent with the pattern of consumption, EU apparel imports slightly increased 1.7 percent from 2012 to 2013. It should be noted that China is gradually losing market share in the EU apparel import market. From 2012 to 2013, value of China’s apparel exports to the EU declined 4 percent, compared with 10 percent growth of Bangladesh.