EU Textile and Apparel Industry Sees Commercial Opportunities in Trans-Atlantic Trade and Investment Partnership (T-TIP)

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(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

EU-US T&A trade

Why NCTO and Euratex Disagree on the Textile and Apparel Rules of Origin in T-TIP?

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In an April 13 press briefing, the National Council of Textile Organizations (NCTO) which represents the U.S. textile industry, insists the Trans-Atlantic Trade and Investment Partnership (T-TIP) shall adopt the so called “yarn-forward” Rules of origin (RoO). Yarn-forward (or “triple transformation”) in T-TIP means, in order to receive preferential duty treatment provided under the trade agreement, yarns used in textile production in general need to be sourced either from the US or EU.  All 14 existing free trade agreements (FTA) in the United States adopt the yarn-forward RoO.

In comparison, in its position paper released in June 2015, the European Apparel and Textile Confederation (Euratex), which represents the EU textile and apparel industry, favors a so called “fabric forward” RoO in T-TIP instead of “yarn-forward”. Fabric-forward (or “double transformation”) in T-TIP means in order to receive preferential duty treatment provided under the trade agreement, fabrics used in apparel production in general need to be sourced either from the US or EU, but yarns used in textile production can be sourced from anywhere in the world.

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Exploring data at the 4-digit NAICS code level can find that the United States remains a leading yarn producer. Value of U.S. yarn production (NAICS 3131) even exceeded fabric production (NAICS 3132) in 2014. This means: 1) U.S. has sufficient capacity of yarn production; 2) it will be in the financial interests of the U.S. textile industry to encourage more use of U.S.-made yarns in textile production in the T-TIP region (i.e. pushing the “yarn-forward” RoO).

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EU yarn import

However, data at the 4-digit NACE R.2 code level suggests that EU(28) was short of €5,643 million local supply of yarns (NACE C1310) for its manufacturing of fabrics (NACE C1320) in 2013 (latest statistics available). This figure well matched with the value of €4,514 million yarns that EU (28) imported from outside the region that year. Among these yarn imports (SITC 651), over half came from China (22%), Turkey (19%) and India (13%), whereas only 5% came from the United States. Should the “yarn-forward” RoO is adopted in T-TIP, EU textile and apparel manufacturers may face a shortage of yarn supply or see an increase of their sourcing & production cost at least in the short run.

Sheng Lu

Potential Impact of the Trans-Atlantic Trade and Investment Partnership (T-TIP) on Related Textile and Apparel Trade Flows

The presentation was delivered at the 2015 International Textile and Apparel Association (ITAA) Conference in Santa Fe, New Mexico on November 13, 2015. Welcome for any suggestions and feedback.

Euratex Released Position Paper on Textile and Apparel Rules of Origin in T-TIP

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).

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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.”

Appendix:

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US Fashion and Apparel Industry Releases Position Paper on the Transatlantic Trade and Investment Partnership (T-TIP)

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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)

2014 USFIA Benchmarking Study Released

UntitledKey Findings

  • China will remain the dominant supplier, though Vietnam and Asia as a whole are seen as having more growth potential.
  • Companies aren’t leaving Bangladesh, and are committed to compliance.
  • Companies continue to look for opportunities closer to home, including the United States, as they diversify their sourcing.
  • Companies are diversifying their sourcing and expect to continue to do so. However, current FTAs and preference programs remain under-utilized or don’t represent a major component of respondents’ sourcing.
  • Respondents welcome the passage or renewal of all future trade agreements that intend to remove trade barriers and facilitate international trade in the industry.

About the Benchmarking Study
The 2014 USFIA benchmarking study is conducted based on a survey of 29 executives at 29 leading U.S. fashion companies from March to April 2014. The study incorporates a balanced mix of respondents representing various business types in the U.S. fashion industry, including retailers, importers, wholesalers, and manufacturers. The survey asked respondents about the business outlook, sourcing practices, utilization of Free Trade Agreements and preference programs, and views on trade policy.

The full study can be downloaded from HERE.

EU Commission Releases Negotiating Positions for Textile and Apparel in T-TIP

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The EU Commission released its negotiating positions for the textile and apparel sector in the Trans-Atlantic Trade and Investment Partnership (T-TIP) on May 14, 2014.  The position paper outlines a few areas that the EU Commission says it would include in the T-TIP negotiation with the United States:

  • Labeling requirements for textile & apparel and footwear products
  • convergence and/or harmonization of approaches to guarantee product safety and consumer protection
  • standards approximation

Earlier this year, USTR also released its negotiating objectives for the T-TIP. Specifically for the textile and apparel sector, USTR will “seek to obtain fully reciprocal access to the EU market for U.S. textile and apparel products, supported by effective and efficient customs cooperation and other rules to facilitate U.S.-EU trade in textiles and apparel.” USTR holds the positive view that “eliminating the remaining duties on our exports will create new opportunities for integration into European supply chains and to sell high-quality “made-in-USA” garments to European consumers.  Enhanced U.S.-EU customs cooperation will also help ensure that non-qualifying textiles and apparel from third countries are not being imported into the United States under T-TIP.

However, T-TIP negotiation somehow is under the shadow of the Trans-Pacific Partnership (TPP), another free trade agreement currently under negotiation among the United States and other eleven countries in the Asia Pacific region. As reported by the Inside US Trade, the National Council of Textile Organizations (NCTO) holds the view that TTP and T-TIP negotiation should be dealt with “sequentially”. NCTO would like to avoid a situation where the US makes a concession on textiles and apparel to the EU in T-TIP that goes beyond the US offer to Vietnam in TPP, causing Vietnam to demand the same concession in the TPP talks.

One of the most difficult issues on textiles and apparel in T-TIP will be the rule of origin, given that the U.S. and EU have taken vastly different approaches on this issue in their existing preferential trade agreements. The EU rule of origin for apparel essentially consists of two different rules — one that applies generally and one that can be used as an exception. Under the general rule, an apparel item qualifies as originating if it has undergone at least two “substantial processes” in the EU. In general, weaving the yarn into fabric and finishing the fabric are considered substantial operations. Under this scheme, EU manufacturers can use non-originating yarn to make qualifying apparel as long as that yarn is woven into fabric in the EU and also finished there. As a result, this part of the EU rule is sometimes referred to in the United States as the equivalent of a “fabric-forward” rule, since it usually requires all components of the item, starting with the fabric, to be made in the region.

The second part of the EU rule — which functions as an exception — essentially applies a more liberal rule for certain apparel and textile items. These items can qualify for tariff benefits even if only the printing or other downstream operations occur in the EU. Specifically, under this exception, a textile or apparel item that is made from non-originating fabric but for which the printing occurs in the EU can qualify for tariff benefits if the non-originating part of the item is no more than 47.5 percent of the value of the final product. EU manufacturers of printed bed sheets often take advantage of this printing exception (Inside US Trade).

Latest data from OTEXA shows that in 2013, U.S. textile and apparel imports from EU(28) totaled $4 billion, among which 52% were apparel products and 48% were textiles. Top product categories of U.S. textile and apparel imports from EU include non-woven fabrics, men&boys’ suits, dresses, floor coverings, other man-made fiber apparel, special purpose fabrics and women & girls’ coats. In comparison, U.S. textile and apparel exports to EU(28) reached $2.5 billion in 2013, among which only 29% were apparel products and 71% were textiles. Top product categories of U.S. textile and apparel exports to EU include specialty & industrial fabrics, felts & other non-woven fabrics, filament yarns, other made-up textile articles, waste & tow staples, women & girls slacks, shorts and pants as well as spun yarns & thread.

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