Exercise: Check your wardrobe and can you find any clothing that is also made through a “global supply chain?” Please feel free to submit your picture with a brief description of your item to firstname.lastname@example.org.
A timely, informative and intellectual discussion with Roberto Azevêdo, Director General of the World Trade Organization on the state of global trade and its governance. Some important key points during Roberto’s presentation/discussion:
- Trade has proved to be one of the most powerful pro-growth, anti-poverty tools in history: In recent decades it has helped to lift one billion people out of poverty in developing countries. The World Bank found that income grew more than three times faster for developing countries that lowered trade barriers than for those that did not. in the US, estimates show that the gains from globalization have raised real household incomes by up to $10,000 annually.
- Trade means more choice, lower prices and real dollar in the pocket for consumers: A joint study by UCLA and Columbia found that people with high incomes could lose up to 28% of their purchasing power if borders were closed to trade. But the poorest consumers, they could lose up to 63% of their spending power.
- Trade is imperfect: Despite the obvious overall gains, trade can have negative effects in some parts of the economy. And those effects can have a big impact on some people’s lives. But we would be betraying those very same people, and many, many more, if we turned against trade and allowed the negative arguments to go unanswered.
- Trade protectionism is an ineffective and very expensive way of protecting jobs: In the latter part of the 20th century, the EU protected various industries — including steel, agriculture and textiles. The French economist Patrick Messerlin analyzed this approach. He found that the average cost per job saved was several hundred thousand euros, or about 10 times the corresponding wage in each of those industries. The US applied tariffs on Chinese truck tires in 2009. Around 1,200 jobs were saved, but this came at a cost of $1.1 billion in higher prices for consumers. That works out as a cost of about $900,000 per job. The Petersen Institute estimates that these higher prices also resulted in around 2,500 job losses in the tire retail sector due to slumping sales.
- Trade protectionist solutions do not reflect the nature of the modern economy and the international nature of production: Most goods aren’t made in one country. Most exports have components which have been imported. So by restricting imports, a country can restrict its own ability to export. Trade protectionism is also a two-way street. It leads to retaliation and the domino-effect.
- Unemployment is not strictly or mainly a trade issue, trade measures will NOT address this disorder: trade is a relatively minor cause of job losses. The evidence shows that well over 80% of job losses in advanced economies are not due to trade, but to increased productivity through technology and innovation.
- The real economic revolution that is happening today: Studies suggest that almost 50% of existing jobs in the US are at high risk of automation. An International Labor Organization (ILO) study on Cambodia, Indonesia, Vietnam, Philippines and Thailand found that 56% of jobs are at high risk of automation. And that’s just on average. In some sectors over 80% of jobs are at risk. In Japan, there are 315 robots per 10,000 workers. In China that number is only 36 — but it is rising fast. In the US, the number is 164, which is still relatively low. But it is set to go up!
Questions for thinking:
- How do we ensure that trade can continue to promote growth and lift people out of poverty?
- How to RESPOND to the rising anti-trade sentiment in public discourse? Is trade protectionism the right approach?
- How to ensure that the benefits of trade reach further and wider– in other words, how to create a more inclusive global trading system? How to harness the power of e-commerce to support inclusiveness?
- How do we help small and medium sized enterprises (SMEs) to leverage technology so that this marketplace doesn’t just become the preserve of the big players?
- How can the trading system adjust to the shift from a world of few, large, known exporters to a world in which exporters are many, small and unknown? How can we ensure that this transition works for consumers?
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).
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.
[Note: The 2017 U.S. Fashion Industry Benchmarking Study has been released]
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
The global apparel and footwear industry enjoys a 5 percent value growth in 2015. Asia Pacific remains the world’s largest apparel and footwear market, with market value increased by $30 billion USD in 2015. In particular, the United States, China and India contributed more than half the absolute increased value.
Market growth in Western Europe remains stagnant in 2015. However, some countries performed better than others. For example, apparel and footwear sales continued to experience significant losses in Greece and Italy with 7 percent and 2 percent declines in 2015, respectively. France didn’t do very well either and size of the French market is expected to contract by $1.5 billion USD by 2020. In comparison, UK, Western Europe’s largest market, posted modest 1 percent growth in 2015. Performance in Germany remained overall stable.
The US market continues to perform well with healthy value growth of 4 percent in 2015. However, the performance of key players such as J Crew and Gap, both of which plan to close a significant number of physical stores and lay off employees, highlight the increasingly competitive trading environment. US consumers overall remain cautious and adopt a value- driven approach to buying clothes resulting in a continuous discounting cycle, negatively impacting profit margins and slowing growth for the industry as a whole. From 2013 to 2014, volume growth of apparel sales in the United States exceeded value, primarily due to discounting, the proliferation of fast fashion brands and greater availability of low prices online. However, value growth returned to a more robust position in 2015, as a strengthening economy, improvements in the labor market and rising wages support future growth.
Sportswear is maintaining its momentum, increased by 8 percent in market value from 2014 to 2015, faster than any other apparel product categories. Consumers no longer consider sport a task that needs to be checked off on a day-to-day basis but instead it has become a lifestyle. Athleisure remains a heavily prominent trend as more consumers adopt an active and healthy lifestyle, increasing the demand for athletic products that are technically advanced and fashionable. In response to the evolving athleisure trend, major sportswear brands have turned their attention to women’s sports apparel and footwear. With Skechers, Lululemon, Under Armour and Nike reporting growth of 33 percent, 20 percent, 19 percent and 12 percent, respectively, in 2015.
Currency weakness, political unrest and tough economic environments continue to result in slowing growth among the emerging markets. However, internet retailing & e-commerce is a spotlight. Apparel and footwear sales through internet retailing grew by 23 percent in 2015 globally and are expected to continue providing impressive growth for apparel brands to 2020. Global mobile internet retailing has grown at a rapid of 92 percent over 2011-2015, highlighting the increasingly vital role mobile is playing within the buying process. Notably, emerging markets are accounting for a significant proportion of growth and are expected to boast a higher market size than developed markets by 2018.
Data source: Euromonitor Passport
(photo courtesy: Amcham Vietnam)
Herb Cochran is the Executive Director at the American Chambers of Commerce (AmCham) Vietnam. He has helped transform AmCham Vietnam into an influential organization that promotes trade and investment between Vietnam and the United States, with a focus on developing networking, information-sharing, and advocacy activities to improve the business environment.
Herb mobilized AmCham Vietnam members’ substantial efforts to conclude negotiations on the Vietnam-U.S. Bilateral Trade Agreement and Vietnam’s WTO Accession, and to have these two agreements approved by the U.S. Congress. As a result, trade between Vietnam and the U.S. increased from $1.2 billion in 2000 to about $36 billion in 2014. And Herb expects that total Vietnam-U.S. trade will reach $ 72 billion in 2020.
With Herb’s leadership and support, AmCham Vietnam’s committees and industry sector experts have helped improve mutual understanding on key issues in U.S.-Vietnam trade and investment, including implementation of trade agreements, preserving Vietnam-U.S. apparel trade, strengthening governance and anti-corruption efforts, improved industrial relations, Project 30 (simplification of Vietnam’s administrative procedures), work force development for modern manufacturing, promoting trade and investment between the U.S. and Vietnam’s Southern Key Economic Region, and the Asia Development Bank’s strategy for the economic and social development of Vietnam and the Greater Mekong Subregion.
Prior to joining AmCham, Herb was Commercial Attaché at the U.S. Embassy in Hanoi and Principal Commercial Officer at the U.S. Consulate General in Ho Chi Minh City. He helped establish the commercial office of the U.S. Embassy in Hanoi, hiring staff and establishing trade and finance programs, including the U.S. Export-Import Bank, Overseas Private Investment Corporation (OPIC), and U.S. Trade and Development Agency (USTDA). In 1998-99 he established the commercial office of the U.S. Consulate General in Ho Chi Minh City.
Herb also served as Regional Director, East Asia and Pacific, U.S. Commercial Service, based in Washington DC. His responsibilities included program, personnel, and budget support for the commercial departments of 15 United States Embassies in the Asia/Pacific region, from Tokyo, Seoul, and Beijing in Northeast Asia, to all the countries of Southeast Asia, and down to Australia and New Zealand. Other international working experiences of Herb include: Commercial Counselor at the U.S. Embassy in Bangkok, Thailand, Commercial Attaché at the U.S. Embassy in Tokyo, Japan, U.S. Consulate General in Osaka, Japan, and Action Officer at the State Department’s Office of Japanese Affairs.
Born in North Carolina, Herb earned a B.A. from the University of North Carolina at Chapel Hill (History), and a Certificat from the Institut d’Études Politiques (Sciences Po) in Paris. He is also a graduate of the Industrial College of the Armed Forces in Washington DC (National Defense Strategy).
Sheng Lu: Can you provide us an overview about the US-Vietnam business ties?
Herb Cochran: Vietnam has succeeded at attracting foreign direct investment (FDI) and increasing trade. U.S. – Vietnam trade in 2015 will likely reach over $45 billion, another annual increase of over 20%. Vietnam accounts for 25% of all U.S. imports of goods from the Association of Southeast Asian Nations (ASEAN). The numbers are likely to reach $80 billion and a 33% market share by 2020.
More details can be found from a few recent AmCham statements to government officials and to press inquiries:
- AmCham Statement at the Vietnam Business Forum, Dec 1, 2015
- AmCham Statement at Vietnam Business Forum, Jun 2015
- Vietnam – U.S. Trade Status and Outlook, Oct 2014
Note: Vietnam Business Forum a “structured dialogue” of about three hours 2 times a year, in June and in December, where the business associations present their views of the business ties and business environment and suggest areas for improvement.
Sheng Lu: What are the main reasons that U.S. companies come to invest in Vietnam? Are most U.S. business operations in Vietnam profitable?
Herb Cochran: Foreign Direct Investment into Vietnam has been increasing recently, as companies prepare for ASEAN integration, for the Trans-Pacific Partnership (TPP), and for the expectation that 59% of global middle class consumer spending will be in the Asia – Pacific region by 2030, up from 23% in 2009. For example:
- P&G announced a $100 million Gillette razor blade factory, in Binh Duong
- Nestlé recently opened a $237 million coffee processing facility, in Dong Nai
- A Korean firm, Hyosung, that has a 40% share of global spandex production, recently opened a new factory.
These are all world-class factories, by global companies, for export to ASEAN, TPP, and Asia-Pacific markets. Not to mention the high-tech investments by Intel, Samsung, Apple, and others in the microelectronics and consumer electronics sector.
Main reasons that U.S. companies come to invest in Vietnam include:
- Availability of low cost labor
- Availability of trained personnel
- Stable government and political system
Regarding Vietnam’s business and investment environment, please also see the summary below from ASEAN AmChams’ Business Outlook Survey 2016.
Sheng Lu: Given the increasing labor cost in China, many people see Vietnam as an alternative sourcing destination for labor-intensive products such as apparel and footwear. What’s your view on this trend?
Herb Cochran: I agree. In Aug 2013, we had a delegation visit AmCham HCMC from AmCham Hong Kong, Footwear and Apparel Committee. They said, “We represent 80% of the apparel and footwear sourcing in the world. We are in Hong Kong because most of our sourcing is in China. But we are leaving China, for various reasons. Vietnam’s participation in TPP is certainly an attraction, but we are leaving China with or without TPP. We want to know if Vietnam will welcome us.”
It should be particularly noted that between 2013 – 2015, about $3 billion was announced in FDI in textiles to meet the yarn-forward rules of origin requirements of TPP. One estimate projects Vietnam’s apparel exports to the U.S. under TPP “… would be as high as US$ 22 billion” by 2020. Another projects that Vietnam’s apparel and footwear exports would increase by 45.9% over the baseline by 2025. A third expert said she expects the TPP will “change the sourcing landscape drastically;” and Vietnam’s share of the U.S. apparel import market could go from 10% to 35% very quickly.” [Note: 35% of the U.S. apparel imports market is $35 billion. I think this is the most interesting estimate, a microeconomic estimate from an industry expert and not a “macroeconomic model estimate.”] And Mr. Le Tien Truong, Deputy Director of VINATEX, expects that Vietnam’s exports of textiles and apparel could reach $50 billion by 2025. [I think this estimate is overoptimistic.]
Below is a historical comparison of U.S. imports of apparel from China, “2nd Tier Countries,” and “Other.” from 2005 to 2025. The actual trade statistics from 2005 to 2015 show that U.S. Imports of Apparel from China doubled from 2005 (when quotas on WTO members were lifted) to 2010, but they have been “flat” since then. Value of imports from 2016 to 2025 are forecasted numbers.
Sheng Lu: In your view, what commercial opportunities does the Trans-Pacific Partnership (TPP) present to U.S. companies in Vietnam, especially in the textile and apparel industry?
Herb Cochran: The most authoritative study was done by Professor Peter Petri of Brandeis University and the Peterson Institute. According to the findings:
The TPP would increase Vietnam’s exports from the expected “baseline” in 2025 without TPP of $239.0 billion (of which apparel and footwear exports would total $113 billion) by $67.9 billion to $307 billion (of which apparel and footwear exports would increase by $51.9 billion to $165 billion). In percentage terms, total exports would increase by 28.4% over the baseline, and apparel and footwear exports would increase by 45.9% over the baseline. Total Net Exports increase: 67.9 / 239.0 = 28.4%.
In addition, the expected Gross Domestic Product (GDP) growth benefits are substantial, Vietnam’s GDP in 2025 with TPP, would be 10.5% higher than the baseline estimate. This is particularly important now that Vietnam is in a “structural growth decline” period, according to the World Bank. Those are economic projections that give a general idea.
Sheng Lu: How is TPP discussed in Vietnam such as its local media?
Herb Cochran: Very positively. For example, see the below link: “89% of public in Vietnam thinks the TPP is “ … a good thing.” http://www.amchamvietnam.com/30448353/89-of-public-in-vietnam-supports-tpp-pew-research/
Part of the reason for this positive viewpoint is the series of seminars that we in AmCham HCMC organized in 2013 to explain about the TPP, create better understanding of and support for the TPP especially in the Vietnam business community.
Sheng Lu: What is the outlook for TPP ratification in Vietnam?
Herb Cochran: Very good. At the closing ceremony of the 14th Plenum of the 11th Party Central Committee, the Party General Secretary, Nguyen Phu Trong, said members of the Party Central Committee reached consensus on the signing and ratification of the Trans-pacific Partnership Agreement in conformity to laws on signing and joining international treaties. Mr. Trong said: “The TPP will bring great benefits but also opportunities and challenges to Vietnam. These challenges have been identified during Vietnam’s 30 years of renewal and international integration. With efforts, creativity, and determination of the Party, army, people, and the business community, we are confident that we will overcome all challenges and grasp opportunities created by the TPP to achieve rapid, sustainable growth.”
Sheng Lu: While living in Vietnam, have you encountered any culture shock? Can you share some stories with our students?
Herb Cochran: No culture shock. During my career as a U.S. Foreign Service Officer, I lived in Vietnam, Japan, and Thailand for about 22 years, so I am used to living abroad. And I have lived in Vietnam since Jan 1997. I guess rather than “culture shock,” you might say that I have “culture insights” from time to time. The most common insight here in Vietnam is how polite, warm and gracious most people are. It is still a traditional society, very family oriented. One cultural insight is how they celebrate “death anniversaries” for many years, with special celebrations on certain multi-year anniversaries, to keep family ancestors in their memories, called lễ giỗ.
Sheng Lu: Last but not least, for our students interested in working/interning in Vietnam, do you have any suggestions?
Herb Cochran: It’s very tough to get started. Click the below link for some comments that I have put together in response to many questions: http://www.amchamvietnam.com/faqs/faq-how-do-i-find-employment-opportunities-with-amcham-member-companies/. A short commentary is that I think it is probably better to start in the U.S. with a large organization that has global operations, e.g. Walmart, Nike, etc., and learn about that organization’s international operations and get started that way. Especially when your students are younger, maybe not yet married, no children, etc. One real problem for American citizens is that they are taxed in the U.S. and in the country of employment, so that they are generally 25% to 50% more expensive than U.S. non-citizens.
International trade plays a critical role supporting textile and apparel (T&A) “Made in USA”, according to latest firm-level data from the Office of Textiles and Apparel (OTEXA) under the U.S. Department of Commerce.
First and formost, textile and apparel “Made in USA” today contain imported components. Data collected from the OTEXA “Made in USA” Sourcing database shows that using imported inputs such as cut parts, fabrics, accessories and trims is a very common practice among the total 122 companies which claim making either yarn, fabric, home textiles, technical textiles or apparel in the United States. Particularly, more than 76% of companies which make apparel in the United States say they use imported inputs, followed by companies which make technical textiles (52%) and fabrics (46%). Moreover, the lack of sufficient supply of locally made fabrics is the top reason why U.S. T&A companies use imports as alternatives.
The supportive role played by imports to T&A “Made in USA” also explains why the U.S. T&A industry is in favor of the passage of the American Manufacturing Competitiveness Act 2016 (Miscellaneous Tariff Bill, MTB). The Bill, which passed by the U.S. Congress in May, will eliminate or reduce hundreds of import duties on textile raw materials and intermediate products that are not produced or available domestically in the United States.
On the other hand, export promotes “Made in USA” textiles and apparel as well. Data from the OTEXA “Made in USA” sourcing database shows that as many as 88.9% of U.S.-based yarn manufacturers, 82.9% of technical textile manufacturers, 75% of fabrics manufacturers and 76% of home textile manufacturers currently export and sell their products overseas.
For more detailed data and analysis, please stay tuned…