Gail Strickler, Former Assistant US Trade Representative for Textiles, on Trump’s Trade Policy

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Gail Strickler, Assistant U.S. Trade Representative for Textiles (2009-2015), who negotiated the textile chapter under the Trans-Pacific Partnership (TPP), visited UD on April 13 and delivered a public lecture on The Global Apparel Industry – Style and Substance. The event is part of the Fashion and Diplomacy Lecture Series sponsored by the Institute for Global Studies and the Department of Fashion and Apparel Studies.

During the talk, Gail made a few comments regarding trade policy in the Trump administration:

First, Gail believes that the existing U.S. free trade agreements (FTAs), trade preference programs (PTAs) and the U.S. commitments at the World Trade Organization (WTO) are unlikely to be undone by President Trump because retaliatory actions from other trading partners would be inevitable.

Second, regarding the North American Free Trade Agreement (NAFTA), Gail doesn’t think the proposed renegotiation would threaten the benefits presently enjoyed by the U.S. textile and apparel industry. Gail also thinks the Central America Free Trade Agreement (CAFTA-DR) is a lifeline for the U.S. domestic textile manufacturing sector. Notably, NAFTA and CAFTA-DR together account for almost 70% of U.S. yarn and fabric exports.

Third, as observed by Gail, Wilbur Ross, the Commerce Secretary, has been given an expanded role in trade in the Trump Administration. Gail believes Ross’s appointment is likely to bode well for NAFTA and CAFTA-DR on textiles because Ross until recently owned the International Textile Group (ITG), which has significant investments in Mexico and relies heavily on CAFTA-DR for its textile sales.

However, Gail doesn’t think concentrating on trade deficits to define trade policy is a very “good method” of navigating the trade world. Interesting enough, last time when the U.S. trade deficit significantly shrank was during the 2008 financial crisis.  

Gail is also a strong advocator of sustainability in the textile and apparel sector. She believes that trade programs can play a vital role in encouraging sustainable development, improving labor practices and facilitating sustainable regional supply chains. According to Gail, powerful the labor provisions in trade programs can be if strong incentives are coupled with a credible threat of rapid enforcement – little evidence of effectiveness if only one (or fewer) of these conditions is met. However, comparing with enforcing labor provisions, Gail finds promoting and enforcing environmental sustainability standards through trade agreements is much more complex in the textile and apparel sector and will require creativity and strong participation from private sectors and consumers.

Before the public lecture, Gail visited FASH455 and had a special discussion session with students on topics ranging from the textile and apparel rules of origin in TPP, NAFTA renegotiation, AGOA renewal and state of the U.S. textile and apparel industry.

Outlook for Trade Policy in the Trump Administration and Impact on the Textile and Apparel Industry: A Summary of Views from Experts

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TPP is in trouble, but NOT dead

David Spooner, Partner at Barnes & Thornburg LLP, Former Chief Textile & Apparel Negotiator at the Office of the U.S. Trade Representative, and Former Assistant Secretary of Commerce for Import Administration: “it will be a tough road to pass it (the Trans-Pacific Partnership, TPP) during the Trump Administration…However, there may be opportunities for the (fashion) industry if Trump brings new faces to the Office of the U.S. Trade Representative (USTR) and takes a fresh look at trade agreements.” Source: https://www.usfashionindustry.com/news/off-the-cuff-newsletter/2803-recap-28th-apparel-importers-trade-transportation-conference

Jeffrey J. Schott, Senior Fellow of the Peterson Institute for International Economics: “What’s the future for TPP? Most likely, Trump will simply not implement it. Without US participation, the pact cannot definitively enter into force. It’s death by malign neglect.” “But the 11 other TPP countries may not sit idly on the sidelines waiting for US ratification. Instead, they could agree among themselves to extend the TPP benefits to each other on a provisional basis, leaving the door open for US participation in the future. If the United States subsequently ratifies the TPP, the pact would then enter into force on a permanent basis.” Source: https://piie.com/blogs/trade-investment-policy-watch/tpp-could-go-forward-without-united-states

Steve Warner, President/CEO BeaverLake6 Group LLC, former President and CEO of the Industrial Fabrics Association International (IFAI): “TPP was dead going forward. TPP isn’t actually bad for the technical textiles industry except in a few instances. The real bad culprit, though, is the passage of the Trade Promotion Authority (TPA), which I opposed when it was being hotly debated in 2015. TPA gave no wiggle room for lawmakers to make even slight changes in the TPP when it was presented by the Obama administration that could at least mollify a representative’s constituents. You couldn’t just like parts of the agreement; you had to like all of it. Thus, you were either with it entirely or have to go against it. It proved to be safer to go against it. As for T-TIP, it was going to be a tough deal to conclude when the European Union insisted a primary objective for them was the elimination of the Berry Amendment protection for US domestic manufacturers” Source: http://www.beaverlake6.com/in-my-opinion/

Face uncertainties but with hope

Michael Singer, vice president of customs compliance at Macy’s and chairman of the U.S. Fashion Industry Association (USFIA): “I do see some opportunities believe it or not, and I had to struggle really hard to come up with something positive. From the regulatory basis, there may be an opportunity for some easing of government laws and mandates.” “One of the key issues we now face is how the administration and Congress will handle trade issues in 2017… We all know how important trade and the access to world markets is in our ability to provide our customers the choices and products they expected, and yet there is no doubt the protectionist sentiment in our country is at historic levels. USFIA will be doing our best to make sure that this remains a top priority and we clearly communicate the importance and benefit of trade to U.S. consumers and the U.S. economy.” Source: http://wwd.com/business-news/government-trade/donald-trump-on-trade-taxes-and-regulations-10702130/

 Julia Hughes, President of the U.S. Fashion Industry Association (USFIA): “A lot of folks were surprised by the (election) outcome… We can see we have our work cut out for us…We’re going to be dealing with a lot of unknowns even with the continuation of a Republican Congress.” Source: http://www.just-style.com/analysis/tpp-is-not-going-to-happen-in-a-trump-administration_id129272.aspx

Daniel J. Ikenson, director of Cato’s Herbert A. Stiefel Center for Trade Policy Studies: “If he (Trump) is able to expand and diversify the pool of people advising him, there is a reasonable chance that President Trump’s actions will be less bellicose than his rhetoric has been. After all, as someone who wants to make America “great again,” President-elect Trump will want the policies implemented by his administration to help grow the economy. Trade agreements have succeeded in that regard and, in addition to the TPP, there are plenty of countries and regions willing to partner, including the European Union and the United Kingdom (separately), and plenty of alternative negotiating platforms for accomplishing trade and investment liberalization. ” Source: https://www.cato.org/blog/shifting-gears-contemplate-trumps-trade-policies

David Spooner, Partner at Barnes & Thornburg LLP, Former Chief Textile & Apparel Negotiator at the Office of the U.S. Trade Representative, and Former Assistant Secretary of Commerce for Import Administration: “I think there’s some opportunity in a Trump administration…Assuming chaos provides opportunities, and if Trump brings in new faces to USTR, it might give us an opportunity to do new things in trade. We’ve been screwed by the yarn-forward rule for decades. Maybe there’s an opportunity to do things, even if it’s around the margins.” Source: https://sourcingjournalonline.com/tpp-ttip-wont-happen-trump-administration/

Robert Antoshak, managing director at Olah Inc.: “First, (Trump) he’ll let TPP, the Trans-Pacific Partnership) just wither on the vine. It’s pretty easy to kill TPP by doing nothing; Congress hasn’t voted on it yet. Next, he may activate the escape clause in NAFTA (the North American Free Trade Agreement with Canada and Mexico), which gives signatories a six-month window to exit the agreement. During that time, he could use an exit for political gain in the media – imagine the headlines about the US pulling out of NAFTA – but in reality, he could use the time to renegotiate portions of the agreement. And then there’s T-TIP, the Transatlantic Trade and Investment Partnership free trade deal with the EU. Personally, I’m going to keep a close eye on relations between the White House and 10 Downing Street. The commonalities between the forces supporting Brexit and Trump are all too similar. Why negotiate with all of the EU, when it may be more politically expedient for Trump to negotiate a separate economic-trade deal with Theresa May?” “I am confident that he (Trump) will attempt to alter the global hierarchy. One way of changing the system will be to focus on trade. He can make tactical adjustments to trade policy that will not only give him the front-page news he craves, but will enact the kind of systemic change upon which he ran for president.” Source: http://www.just-style.com/comment/trump-trade-policy-who-knows-what-hell-do_id129295.aspx

US-China Trade War? Keep a close watch

Augustine Tantillo, president and chief executive officer of the National Council of Textile Organizations (NCTO): “(I) would be surprised if Trump does not take some steps to crack down on currency devaluation, particularly as it relates to China.” Source: http://wwd.com/business-news/government-trade/donald-trump-on-trade-taxes-and-regulations-10702130/

 Chad Bown, Senior Fellow of the Peterson Institute for International Economics: “What he (Trump) has said is that they (China) manipulate their currency and he has threatened to impose tariffs upwards of 45%. The concerns with doing that is that we (USA) do have a trade agreement with 163 other economies of the world, the WTO. China is a part of that and by doing that (imposing tariffs upwards of 45%) unilaterally, would be violating our commitments, legal commitments to our trading partners under that deal and China would be authorized and probably would retaliate and strike back and probably do the same thing against the United States which would mean U.S. companies and exporters that make goods and agricultural products, and send those to China would suffer as a retaliatory response.” Source: https://www.c-span.org/video/?417891-3/washington-journal-chad-bown-trade-policy-trump-administration

Textile and apparel industry needs NAFTA 

Steve Lamar, executive vice president for the American Apparel & Footwear Association(AAFA): “It is well established that CAFTA and NAFTA are critical for the U.S. textile and apparel industry. The things we have continued to argue is how to find ways to make it better… NAFTA was negotiated when there were no other free-trade agreements and the world was surrounded by quotas and rules of origin that catered to the United States. But the industry has evolved.” “Trump will renegotiate NAFTA and is only threatening to abrogate the free-trade accord… Trump likes to build up leverage to get the best possible deal, and he can view trade with that same lens.” Source: https://www.apparelnews.net/news/2016/nov/17/how-would-end-nafta-affect-la-apparel-industry/

Augustine Tantillo, president and chief executive officer of the National Council of Textile Organizations (NCTO): “there will be a ‘level of caution,’ when it comes to renegotiating NAFTA. This agreement has been in place for a while and it would be clearly disruptive to simply walk away from it at this point.” Source: http://wwd.com/business-news/government-trade/donald-trump-on-trade-taxes-and-regulations-10702130/

Leonie Barrie, Managing editor of Just-Style: “Will a Trump administration revisit NAFTA? Such a prospect is a concerning one because NAFTA’s free trade framework with Mexico has been at the heart of many sourcing strategies in North America. The US exported $6.5bn of apparel and textiles to Mexico last year and, in turn, Mexico shipped $4.2bn to the US. Earlier this year executives told just-style that if Trump went ahead with threats to build a 3,200-kilometre fence on the Mexican-American border to stem immigration, it could cut $2.2bn or 20% of the $11bn in US-Mexican textiles and apparel trade in its first year.” Source: http://www.just-style.com/comment/what-might-a-trump-presidency-mean-for-apparel_id129260.aspx

Please feel free to respond to any comments above or leave your thoughts.

The Future of the Asia-Pacific Region as a Textile and Apparel Sourcing Destination: Discussion Questions Proposed by FASH455

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#1 How have US importers/retailers/fashion brands which source from China reacted to China’s rising labor cost in recent years? Any specific examples of companies’ practices and strategies?

#2 It is widely reported that China’s labor cost has been rising quickly in recent years (around 14% annually between 2010 and 2014). But trade data didn’t show a significant drop of China’s textile and apparel exports to the US. Why is that?

#3 Why do you think people have a conception of China being a “highly reliable” sourcing destination for textile and apparel? What is China’s unique competitiveness?

#4 Many domestic and foreign firms have started investing in textile/fiber factories in Vietnam because of the yarn forward rules of origin in TPP. Would it be in the United States’ best interest to become one of these investors? Why or why not?

#5 In the class we discussed the “flying geese model” and the phenomenon of “Factory Asia”. Particularly, Asian countries are forming an ever more integrated textile and apparel supply chain—for example, apparel manufacturers in Asia are gradually using more textile inputs made in Asia rather than made outside the region. Does it mean that the United States has no role to play in Asia-based textile and apparel supply chain? Will the TPP make a difference?

#6 Should US allow China to join the TPP? Why or why not? If China joins the TPP, what will be the implications for the pattern of textile and apparel trade in the Asia-Pacific region?

 #7 What is the relationship between the Regional Comprehensive Economic Partnership (RCEP) and the Trans-Pacific Partnership (TPP)? Alternatives? Competitors? Friends? Foes? Why are there so many different free trade agreements (FTA) in the same region?

Please feel free to share your thoughts and recommend any additional articles/readings/resources relevant to the discussion. Please mention the question # in your reply.

 

TPP: A Conversation with U.S. Trade Representative Michael Froman

The following summary of the event is written by Natalie Smith, a student in FASH455 Fall 2016.

  • Michael Forman continually talked about the benefits of passing the TPP during the end of Obama’s term and during the lame duck period. If the TPP is not passed during this time, the bill could sit in congress for years since the two presidential candidates are against free trade.
  • Michael Forman also mentions some outstanding issues that have surrounded the TPP. One main problem is the dairy industry, which is export and import sensitive and the need for a balance to set their needs. Additionally, the pork industry has problems with implementation, especially with Japan. There are also concerns with the financial services and data flows.
  • However, Michael Forman stated the urgency of implementing the TPP as quick as possible. If it is not implemented rapidly China has the ability to set the rules of trade. China, similar to the U.S. wants to move into the Asian Pacific market, however the TPP has different objectives then other Chinese trade agreements. The TPP has a focus on labor and environmental standards and IP standards. Although, it seems the goal is to eventually get China to join the TPP. Forman mentioned if China does not end up joining the TPP, we want them to be forced to live in a TPP world, which includes high standards.
  • Michael Forman further discusses the Trans-Atlantic Trade and Investment Partnership (T-TIP), which they hope to soon reach an agreement on with the European Union. They recently finished their thirteenth round of negotiations, the main outstanding problems with the TTIP are the uneven growth, Greek crisis, and euro skepticism. Nevertheless, the TTIP is a positive agenda item to help promote job growth in Europe.

A few things that stuck out to me from this dialogue included Forman’s belief of California being the state to benefit the most from the TPP. Currently, California exports $170 billions of goods and are strong in manufacturing, agricultural, entertainment, IP industries, etc. I also found it interesting that he continually reiterated that we have not lost jobs in the U.S. solely because of globalization but mainly because of automation.

Debate on the Trans-Pacific Partnership and the Textile and Apparel Industry: Questions from FASH455

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#1 Overall, do you think the Trans-Pacific Partnership (TPP) reflect the commercial interests of the U.S. textile industry and/or U.S. apparel industry? Why?

#2 We know that the U.S. textile industry (such as NCTO) strongly supports a strict yarn-forward RoO in TPP whereas apparel retailers and fashion brands (such as USFIA and AAFA) say the yarn-forward style RoO is outdated and unworkable for apparel companies’ global apparel supply chain.  If you were U.S. policymakers, what would you do to “balance” these two conflicting arguments?

#3 Research shows that many free trade agreements enacted in the United States are with a very low utilization rate. Will TPP face the same fate? Why or why not?

#4 It is said that TPP has the strongest protections for workers of any trade agreement in history, requiring all TPP Parties to adopt and maintain in their laws and practices the fundamental labor rights as recognized by the International Labor Organization (ILO). But why do most U.S. labor unions still oppose the agreement?

#5 Will TPP exert a negative impact on the Western Hemisphere supply chain? Why or why not? How should apparel manufacturers in the NAFTA and CAFTA-DR region respond to the potential impact of TPP, especially the intensified competition from Vietnam?

Please feel free to share your thoughts and recommend any additional articles/readings/resources relevant to the discussion. Please mention the question # in your reply.

CRS Releases Updated Study on the U.S. Textile Industry and the Trans-Pacific Partnership (TPP)

crs-reportOn September 1, the Congressional Research Service (CRS) released its updated study on the U.S. textile industry and the Trans-Pacific Partnership (TPP). According to the report:

First, TPP is suggested to have a limited impact on U.S. domestic textile and apparel manufacturing, because:

1) Automation rather than imports is found to be the top factor causing job losses in the U.S. textile industry in the past decade;

2) U.S. is one of the very few TPP members whose textile output mostly went into home textiles, floor coverings and other technical textile products rather than apparel.

3) More than 90% of apparel sold in the United States is already imported. Some companies maintain U.S. manufacturing of high-value products or products requiring quick delivery, which are not likely to be supplied by other TPP members.

4) A quantitative assessment conducted by the U.S. International Trade Commission (USITC) in May also suggests that U.S. imports of textiles will only climb 1.6% by 2032 if TPP enters into force in 2017. Over the same 15-year period, both output and employment in the U.S. textile industry could slightly shrink by 0.4% as a result of the implementation of TPP.

Second, TPP could challenge the Western-Hemisphere supply chain and negatively affect U.S. textile exports to the region:

1) TPP will make apparel manufacturers located in Mexico and Central America lose one important advantage—duty free access to the U.S. market, when competing with Asian TPP members such as Vietnam and Malaysia.  The Central American-Dominican Republic Apparel and Textile Council also estimates the CAFTA-DR region could see a contraction of 15%-18% in industrial employment resulting from lost production orders in the first year after the TPP agreement is implemented.

2) The major products sourced by U.S. apparel companies from the Western Hemisphere region include basic, low-value knitwear garments such as shirts, pants, underwear, and nightwear, with a focus on men’s and boys’ wear. However, these products are with low time sensitivity but high price sensitivity, meaning Asian TPP members can easily offer a more competitive price and take away sourcing orders after the implementation of TPP.  

3) Because of physical distance and abundance of local supply, leading Asian TPP apparel exporters such as Vietnam seldom use US-made yarns and fabrics. Supported by foreign investments, Vietnam is also quickly building up its own textile manufacturing capacity, which is expected to reach 2 million metric tons for fabrics and 650,000 metric tons for fibers by 2020. This implies that TPP may help little creating new export markets for US textile products, despite the restrictive yarn forward rules of origin.

Additionally, TPP could result in intensified competition in the technical textile area, which is of strategic importance to the future of the U.S. textile industry:

1) If the proposed agreement is implemented, those segments of the U.S. textile industry that supply industrial textiles are likely to face greater competition from rising imports from Japan.

2) TPP will allow Japanese industrial textiles to newly get duty free access to Mexico and Canada, which are the largest export markets for U.S. industrial fabrics in 2015. However, TPP won’t help US companies get more favorable access to China, which is the top export market for Japanese industrial fabrics.

2016 U.S. Fashion Industry Benchmarking Study Released

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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