NAFTA Renegotiating Objectives Related to the Textile and Apparel Industry

Untitled

On Tuesday (July 17, 2017), the Office of the U.S. Trade Representative (USTR) released its detailed and comprehensive summary of the renegotiating objectives of the North American Free Trade Agreement (NAFTA). In the statement, USTR says that “through the renegotiation of NAFTA, the Trump Administration will seek a much better agreement that reduces the U.S. trade deficit and is fair for all Americans by improving market access in Canada and Mexico for U.S. manufacturing, agriculture, and services.”

Several released negotiating objectives address textile and apparel (T&A) directly or are highly relevant to the sector:

Trade in Goods

  • Improve the U.S. trade balance and reduce the trade deficit with the NAFTA countries.
  • Maintain existing duty-free access to NAFTA country markets for U.S. textile and apparel products and seek to improve competitive opportunities for exports of U.S. textile and apparel products while taking into account U.S. import sensitivities.

Rules of Origin

  • Update and strengthen the rules of origin, as necessary, to ensure that the benefits of NAFTA go to products genuinely made in the United States and North America.
  • Ensure the rules of origin incentivize the sourcing of goods and materials from the United States and North America.
  • Establish origin procedures that streamline the certification and verification of rules of origin and that promote strong enforcement, including with respect to textiles.
  • -Establish origin procedures that streamline the certification and verification of rules of origin and that promote strong enforcement, including with respect to textiles.

Customs and Trade Facilitation

  • Provide for automation of import, export, and transit processes, including through supply chain integration; reduced import, export, and transit forms, documents, and formalities; enhanced harmonization of customs data requirements; and advance rulings regarding the treatment that will be provided to a good at the time of importation.

Comments:

  1. Notably, reducing the trade deficit and bringing more manufacturing jobs back to the United States are at the core of the NAFTA’s renegotiating objectives. These two goals are also highly consistent with Trump’s rhetoric on his trade policy.
  2. A dilemma facing the T&A sectoral negotiation is that the United States currently runs a robust trade surplus with Canada and Mexico for textiles: in 2016, the value of U.S. trade surplus (i.e. the value of exports minus the value of imports) totaled $680 million for yarns (up 56.7% from 1994), $4,342 million for fabrics (up 202.9% from 1994) and $1,461 million for made-up textiles (up 223.5% from 1994). Meanwhile, although the United States is in a trade deficit with NAFTA partners for apparel ($1,130 million in 2016), U.S. apparel imports from Canada and Mexico often contain textile inputs “Made in the USA” through the Western-Hemisphere supply chain. Blindly cutting the trade deficit on apparel ironically could affect the U.S. textile exports to the NAFTA region negatively.
  3. Based on the released objectives, it seems unlikely that the NAFTA renegotiation will liberalize the yarn-forward rules of origin for textile and apparel. On the contrary, USTR could review the current exceptions to the yarn-forward rules, including the tariff preference levels (TPL) and some special regimes such as the 9802 program related to fabric sourcing to strengthen the manufacturing base and create MANUFACTURING jobs in the United States. Recognizing the competing arguments between the U.S. textile industry and the apparel industry (fashion brands and retailers) regarding the necessity and impact of these exceptions, USTR also needs more inputs of how companies use exceptions like the TPL in sourcing and why they use them.
  4. Other than the rules of origin, trade facilitation and customs enforcement will be another major agenda related to the T&A sector in the NAFTA renegotiation. Elements from the newly enforced Trade Facilitation and Trade Enforcement Act of 2015 could be added to the updated NAFTA.
  5. A positive aspect of the NAFTA T&A sectoral negotiation is that all parties alongside the supply chain, from U.S. cotton growers, textile mills to apparel retailers and brands recognize the value of NAFTA and no one calls for pulling out of the agreement. It is also a consensus view of the U.S. T&A industry that NAFTA renegotiation should “do no harm”, i.e. strengthening rather than weakening the current supply-chain partnership between NAFTA members. Additionally, stakeholders in the U.S. T&A industry unanimously support keeping the renegotiation trilateral, but agree to use bilateral provisions to address some particular concerns.
  6. The NAFTA renegotiation may officially start on August 17 or 18, 2017. However, Time is the enemy of the NAFTA renegotiation. While there is a strong incentive for all parties to finish the negotiation by the end of 2017 given the upcoming U.S. mid-term election and the Mexican presidential election in 2018, the ambitious renegotiation agenda makes it extremely challenging to meet that goal. Risks are still there that Trump may pull the United States out of NAFTA should he lose patience for the renegotiation. Notably, Trump’s dislike of NAFTA is real.

Sheng Lu

Related: US Textile and Apparel Industry and NAFTA: Key Statistics (updated July 2017)

USTR Hearing on the Renegotiation of NAFTA: Textile and Apparel Industry

US Textile and Apparel Associations Comment on NAFTA Renegotiation

Advertisements

US Textile and Apparel Industry Associations Comment on NAFTA Renegotiation

This week, several leading U.S. textile and apparel industry associations submitted their comments to the Office of the United States Trade Representative (USTR) regarding the renegotiation objectives of the North American Free Trade Agreement (NAFTA). Below is a summary of these organizations’ viewpoints based on their submissions:

NAFTA renegotiation

Appendix: Submitted written comments

Market Size of the Global Textile and Apparel Industry: 2015 to 2020

Textile Mills Market

textile

The textile mills market includes yarns and fabrics. The market value includes domestic production plus imports minus exports, all valued at manufacturer prices.

The value of the global textile mills market totaled $667.5 billion in 2015 (around 83.1% were fabrics and 16.9% were yarns), up 1.5% from a year earlier. The compound annual growth rate of the market was 4.4% between 2011–15. Asia-Pacific accounted for 54.6% of the global textile mills market value in 2015 and Europe accounted for a further 20.6% of the market.

The global textile mills market is forecast to reach $842.6 billion in value in 2020, an increase of 26.2% since 2015. The compound annual growth rate of the market in the period 2015–20 is predicted to be 4.8%.

Apparel market

apparel

The apparel market covers all clothing except leather, footwear and knitted items as well as other technical, household, and made-up products. The market value includes domestic production plus imports minus exports, all valued at manufacturer prices.

The value of the global apparel market totaled $842.7 billion in 2016, up 5.5% from a year earlier. The compound annual growth rate of the market was 5.2% between 2012–16. Asia-Pacific accounted for 60.7% of the global textile mills market value in 2016 and Europe accounted for a further 15.0% of the market.

The global apparel market is forecast to reach $1,004.6 billion in value in 2021, an increase of 19.2% since 2016. The compound annual growth rate of the market in the period 2015–20 is predicted to be 3.6%.

Apparel retail market

retail

The apparel retail industry consists of the sale of all menswear, womenswear and childrenswear. The industry value is calculated at retail selling price (RSP), and includes all taxes and duties.

The value of the global apparel retail market totaled $1,254.1 billion in 2015 (52.9% womenswear, 31.2% menswear and 15.9% childrenswear), up 4.8% from a year earlier. The compound annual growth rate of the market was 4.5% between 2011–15. Asia-Pacific accounted for 36.8% of the global textile mills market value in 2015, followed by Europe (27.8%) and the United States (24.0%).

The global apparel retail market is forecast to reach $1,65.2 billion in value in 2020, an increase of 31.8% since 2015. The compound annual growth rate of the market in the period 2015–20 is predicted to be 5.7%.

Data source: MarketLine (2017)

I am Textiles and Apparel

This video is a recent joint effort by faculty in the textile and apparel (T&A) programs across the country with the hope to inspire critical thinking on the future of the T&A academic discipline and help others know better about what we are doing in terms of teaching and scholarships.

How should the T&A academic discipline define itself in the 21st century? What are our unique contributions to the university community, the society and the world? How are we different from programs such as “Art & Design” and “Business”? What is your vision for the future of the T&A academic discipline? Please feel free to share your view.

What Will Happen to the U.S. Textile and Apparel Industry if NAFTA Is Gone?

References and tables_Page_1.jpg

References and tables_Page_2

Since its taking effect in 1995, NAFTA, a trade deal between the United States, Mexico, and Canada, has raised heated debate regarding its impact on the U.S. economy. President Trump has repeatedly derided NAFTA, describing it as “very, very bad” for U.S. companies and workers, and he promised during his campaign that he would remove the United States from the trade agreement if he could not negotiate improvements.

The U.S. textile and apparel (T&A) industry is a critical stakeholder of the potential policy change, because of its deep involvement in the regional T&A supply chain established by the NAFTA. Particularly, over the past decades, trade creation effect of the NAFTA has significantly facilitated the formation of a regional T&A supply chain among its members. Within this supply chain, the United States typically exports textiles to Mexico, which turns imported yarns and fabrics into apparel and then exports finished apparel back to the United and Canada for consumption.

So what will happen to the U.S. T&A industry if NAFTA no longer exists? Here is what I find*:

figure 1

First, results show that ending the NAFTA will significantly hurt U.S. textile exports. Specifically, the annual U.S. textile exports to Mexico and Canada will sharply decline by $2,081 million (down 47.7%) and $351 million (down 14%) respectively compared to the base year level in 2015.Although U.S. textile exports to other members of the Central America Free Trade Agreement (CAFTA-DR), will slightly increase by $42 million (up 1.5%), the potential gains will be far less than the loss of exports to the NAFTA region.

2

Second, results show that ending the NAFTA will significantly reduce U.S. apparel imports from the NAFTA region. Specifically, annual U.S. apparel imports from Mexico and Canada will sharply decrease by $1,610 million (down 45.3%) and $916 million (down 154.2%) respectively compared to the base year level in 2015 (H2 is supported). However, ending the NAFTA would do little to curb the total U.S. apparel imports, largely because U.S. companies will simply switch to importing more apparel from other suppliers such as China and Vietnam.

3

Third, ending NAFTA will further undercut textile and apparel manufacturing in the United States rather than bring back “Made in the USA.” Specifically, annual U.S. textile and apparel manufacturing will decline by $1,923 million (down 12.8%) and $308 million (down 3.0%) respectively compared to the base year level in 2015 (H3 is supported). Weaker demand from the NAFTA region is the primary reason why U.S. T&A manufacturing will suffer a decline.

These findings have several important implications. On the one hand, the results suggest that the U.S. T&A will be a big loser if the NAFTA no longer exists. Particularly, ending the agreement will put the regional T&A supply chain in jeopardy and make the U.S. textile industry lose its single largest export market—Mexico. On the other hand, findings of the study confirm that in an almost perfectly competitive market like apparel, raising tariff rate is bound to result in trade diversion. With so many alternative suppliers out there, understandably, ending the NAFTA will NOT increase demand for T&A “Made in the USA,” nor create more manufacturing jobs in the sector. Rather, Asian textile and apparel suppliers will take away market shares from Mexico and ironically benefit most from NAFTA’s dismantlement.

*Note: The study is based on the computable general equilibrium (CGE) model developed by the Global Trade Analysis Project (GTAP). Data of the analysis came from the latest GTAP9 database, which includes trade and production data of 57 sectors in 140 countries in 2015 as the base year. For the purpose of the study, we assume that if NAFTA no longer exists, the tariff rate applied for T&A traded between NAFTA members will increase from zero to the normal duty rate (i.e. the Most-Favored-Nation duty rate) in respective countries.

by Sheng Lu

State of the U.S. Textile and Apparel Industry: Output, Employment and Trade (Updated March 2017)

us textile industry 1

The size of the U.S. textile and apparel industry has significantly shrunk over the past decades. However, U.S. textile manufacturing is gradually coming back. Value added of U.S. textile manufacturing reached $17.98 billion in 2015, which was the highest level since 2009.

us T&A industry 2

Nevertheless, the share of U.S. textile and apparel manufacturing in the U.S. Gross Domestic Product (GDP) dropped to only 0.16% in 2015 from 0.57% in 1998.

us T&A industry 4

us T&A industry 3

The U.S. textile and apparel manufacturing is also changing in nature. For example, textiles had accounted for nearly 70% of the total output of the U.S. textile and apparel industry as of 2015, up from 58% in 1998. Meanwhile, clothing had only accounted for 12% of the total U.S. fiber production by 2012, suggesting non-apparel textile products, such as industrial textiles and home textiles have become more important part of the industry.

us textile industry 5

us textile industry 6

us textile industry 7

Manufacturing jobs are NOT coming back to the U.S. textile and apparel industry. From January 2015 to December 2016, U.S. textile manufacturing (NAICS 313 and 314) and apparel manufacturing (NAICS 315) lost 8,300 and 9,200 jobs respectively. However, improved productivity is one important factor behind the job losses.

us textile industry 8

us textile industry 9

U.S. remains a net textile exporter and a net apparel importer. However, the U.S. trade surplus in textiles significantly dropped to only $68 million in 2016 from $347 million a year earlier. More U.S.-made textiles are now exported than a decade ago. Meanwhile, the U.S. trade deficit in apparel reached $81,754 million in 2016, which was slightly smaller than $86,311 million a year earlier.  

Sheng Lu

Additional readings:  The Pattern of U.S. Textile and Apparel Imports

Discussion questions:

#1 Is the state of the U.S. textile and apparel industry consistent with the stage of development theory? Please specify your answer.

#2 Based on the statistics, do you think textile and apparel “Made in the USA” have a future? Please explain.

#3 Based on the statistics, what is the impact of trade on the development of the U.S. textile and apparel industry: positive, negative, mixed or you need more information (please specify) to evaluate?

#4 Overall, do you think the U.S. textile and apparel industry is in good shape? Why or why not?

Positions on Key Trade Issues: US Fashion Industry Association (USFIA) V.S. National Council of Textile Organizations (NCTO)

 

From left to right: Julia Hughes (president of USFIA), Auggie Tantillo (president & CEO of NCTO) and Robert Antoshak (Managing Director of Olah Inc., moderator)

In a panel discussion hosted by Kingpins on February 9, 2017, Julia K. Hughes, President of the United States Fashion Industry Association (USFIA), and Augustine Tantillo, President and Chief Executive of the National Council of Textile Organizations (NCTO) shared their respective perspectives on key trade issues facing the U.S. textile and apparel industry in 2017.

Trade and job creation in the United States

Julia Hughes: Discussion on the relationship of trade and jobs in the public is often misguided. We support U.S. manufacturing. But along the supply chain, from product development, sourcing, marketing to retailing, fashion brands and retailers have also created many well-paid non-manufacturing jobs in the United States. Study further shows that 70%-80% of the retail value of an imported clothing actually stays in the United States.

Auggie Tantillo: Pleased and excited to see the discussion on the possibility of bringing back/expanding manufacturing in the United States. Still the United States produces $65—70 billion worth of textiles annually, which support many manufacturing jobs in the sector.  The U.S. textile industry also makes around $2 billion investment annually (updating machines and equipment). We need to acknowledge the baseline value of manufacturing in the United States.  

Border Adjustment Tax(BAT)

Julia Hughes: BAT is a complicated issue. However, if the current BAT proposal is adopted, it will raise the retail price (meaning ordinary US consumers will have to pay more) and appreciate the U.S. dollar (meaning U.S. exports will get hurt). This is why USFIA along with 100+ companies and industry associations opposes any BAT.

Auggie Tantillo: NCTO strongly believes that updating the tax structure in the United States is long overdue. NCTO welcomes a serious look at the BAT proposal, since the United States is the only major economy in the world that does not adopt BAT. The United States doesn’t need to run such a high trade deficit. Instead, we need to make the tax structure supporting the U.S. manufacturing base.

North American Free Trade Agreement (NAFTA)

Julia Hughes: NAFTA is 20 years’ old and it can be improved. However, raising import tax (tariff) is NOT a good idea. NAFTA supports the Western-Hemisphere supply chain, which is critical for the U.S. textile and apparel industry. We need to defend this supply chain.  

Auggie Tantillo: NAFTA works and benefits its members on all sides of the border, including the United States. NCTO supports the continuation of NAFTA as well as to update and modernize the agreement as necessary.

Yarn-forward Rules of Origin (RoO)

Julia Hughes: Apparel is a global industry and apparel supply chain needs to be nimble. The yarn-forward RoO prevents apparel companies and retailers from fully enjoying the duty-free benefits under a free trade agreement (FTA) since not always the FTA region makes the needed products or their textile components. Exceptions to the yarn-forward rules such as the tariff preference level (TPL), provide necessary flexibility.  

Auggie Tantillo: The yarn-forward RoO has been a great success and we need to keep it (in existing and future trade agreements). The only things that need to be improved is the exception to the yarn-forward RoO (such as short supply list and trade preference level). RoO is supposed to keep benefits of a free trade agreement to its members only, yet these exceptions create loopholes and cause damages (to the U.S. textile industry).

On China

Julia Hughes: We need China, which still provides 40% of textiles and apparel consumed in the United States. It will be a disaster to trigger a trade war between the two countries.

Auggie Tantillo: We need to better help the Western-Hemisphere producers (in competing with textile and apparel made in China). China’s  40%+ market shares in the U.S. textile and apparel import market are not all based on its genuine competitiveness. Rather, China’s unfair trade practices such as IPR violation, government subsidy and unacceptable factory working conditions & environmental practices are of grave concerns.

Trans-Pacific Partnership (TPP)

Julia Hughes: TPP is not dead. On the other hand, countries around the world are actively negotiating new bilateral/regional free trade agreements. The United States doesn’t want to be left behind.

Auggie Tantillo: TPP is “in deep hibernation”, but trade agreement will never be really dead. It is still hopeful that TPP will come back later—but very likely to be in a different form, such as bilateral trade agreements. To be noted, many TPP members have already established bilateral/regional trade agreements with the United States.  

Discussion questions: 1) Why do you think Julia Hughes and Auggie Tantillo disagree on many trade issues? On which topics they actually agree with each other and why? 2) What’s your response to Julia Hughes and Auggie Tantillo’s comments on trade issues above? 3) Based on the panel discussion, why do you think textile and apparel companies need to care about trade policy? Please feel free to share your views.