In less than three years, quotas will be lifted on all apparel and textile imports for the 144 countries in the World Trade Organization, and it is expected to dramatically change the face of both industries.
The first significant step in that phaseout process began on Jan. 1, when the U.S. lifted quotas on a variety of products, including knit fabrics, suits, coats, jackets, shirts, blouses, dresses, skirts and trousers made of silk blends, ramie or linen, bras, robes and dressing gowns, and knit neckwear.
Textile and apparel manufacturers will be forced to embrace Darwin’s “Survival of the Fittest” theory, as the protections of the Multi-Fiber Arrangement are ushered out and a new global trading stage emerges.
“I expect more [textile] plant closures, and there will be no apparel industry in the U.S. to speak of,” predicted Charles Bremer, director of international trade at the American Textile Manufacturers Institute. “The only way the textile industry will survive, at least in the apparel fabric sector, is to export to the CBI and other countries with which the U.S. has preferential trade agreements.”
Most industry officials and observers contend the textile industry won’t disappear completely, but severe consolidation, under way for some time and accelerating lately with bankruptcies and severe cutbacks from major mills, is expected to continue. Some claim offshore textile production, particularly in Asia, will continue to grow in importance.
The potential winners of this new order are importers, retailers, manufacturers and ultimately consumers, although the argument persists over deflationary benefits to shoppers versus the loss of jobs in manufacturing and its impact on the economy. Retailers and manufacturers see it as a huge opportunity to consolidate foreign production and lower costs. That means the number of foreign exporting nations could also dramatically decline, which could be disastrous for some developing nations’ economies.
There is no dispute that China — a new member of the World Trade Organization — will be the dominant player when all quotas on textiles and apparel are lifted in 2005. The big question is which countries will be able to compete with the Asian giant.
There is near consensus among experts that trading blocs with preferential trade agreements offering duty-free and quota-free access to the U.S., with certain conditions, will remain competitive with China, though they will still be hurt. That would include Mexico and Canada as part of NAFTA; 24 Caribbean countries, 14 of which are eligible for trade breaks under the Caribbean Basin Trade Partnership Act, and 12 sub-Saharan African countries eligible for duty and quota benefits under the African Growth & Opportunity Act, which overall covers 35 nations.
Only a handful of countries that are not part of a preferential trade agreement will survive, according to most industry experts. These could include India, Pakistan, Jordan, Israel and non-WTO members Cambodia and Vietnam, which could be the wild cards in the global trade scheme. It will boil down to which countries can best combine low cost with quality and a good distribution infrastructure.
Countries with a developed apparel infrastructure, but an underdeveloped textile industry, such as the Philippines, Hong Kong, Korea, Taiwan, Bangladesh, Malaysia, Indonesia and Thailand, could lose everything, the experts said.
In the U.S., the price pressures at retail will continue to dictate the sourcing strategies of both textile and apparel manufacturers. Imports have already forced apparel retail prices to have their sharpest 12-month decline in 50 years, and a further lifting of quota restraints could translate into even sharper price declines, which can intensify the pressure on profits.
“You will continue to see a rise in apparel imports and market share going to foreign suppliers. There is no question about it,” said Carl Steidtman, chief economist at Deloitte Research. “The other aspect is that we have several more years of apparel price deflation ahead us.”
The retail price deflation will be driven by China’s accession to the WTO, the quota phaseout and a strong U.S. dollar, according to Steidtman.
Currency devaluation and imports have devastated the domestic textile industry, which lost 67,000 jobs for the year ending Dec. 31, according to ATMI. For the five-year period ending the same time, the textile industry lost 176,500 jobs, or 28 percent of its workforce, and ended last year with 444,400 jobs.
It has logged those losses despite a global recession that has dampened the growth of textile and apparel imports to the U.S.
In 2001, for the year to date through October, apparel and textile imports to the U.S. rose by 0.2 percent to 27.99 billion square meters equivalent, or a value of $60.7 billion. Approximately half of that is under quota, according to Donald Foote, director of the agreements division of Commerce’s Office of Textiles and Apparel. By comparison, apparel and textile imports to the U.S. in 2000 posted a 14.8 percent increase over 1999.
In 2001, Customs placed embargoes on 16 apparel quota categories, compared with 11 in 2000. Foote estimated another 50 to 60 categories were more than 90 percent filled at the end of the year. There are just under 1,000 apparel and textile quota categories.
“Most quotas don’t substantially restrict trade,” acknowledged Foote. “A significant number do, but on 1,000 quotas, you only had 16 embargoes [last year].”
Trade negotiators established the 10-year apparel and textile quota phaseout schedule in the GATT agreement during the Uruguay Round of global trade talks, which was completed in 1994. The majority of textile and apparel quotas on the biggest and most sensitive categories won’t be lifted until Jan. 1, 2005.
The third stage of phaseouts poses a particular threat to the knit fabric sector in the U.S., since imported knitted textiles can now enter the U.S. quota-free.
“The knit business is about half of what it used to be,” said Bremer, noting that at its peak, the industry produced two billion pounds. “You have people dumping knit fabrics all over this hemisphere. The big suppliers, Korea and Taiwan, were restrained because they were part of the group limit, and now they aren’t.”
Staring in the face of adversity, the U.S. textile industry is looking for ways to survive as 2005 grows closer.
The American Apparel & Footwear Association claims about 70 percent of all apparel currently sold in the U.S. is imported.
Another survival tactic textile manufacturers might be forced into is offshore production.
In the 1980s, apparel manufacturers began making the first shifts offshore, and that is one option most domestic textile manufacturers have only begun to explore.
It doesn’t appear to be a huge trend at the moment, but some companies seem to be turning away from a largely U.S.-only policy and looking at more sourcing opportunities and, in some cases, offshore production.
With the advent of NAFTA in 1994, many U.S. textile manufacturers began to explore foreign production and investment because of duty-free breaks. Guilford Mills, in its 10-K filing with the Securities and Exchange Commission, said it would close the last of its U.S. apparel fabrics manufacturing operations, but will continue to produce apparel fabrics in Mexico.
“At a time of severe crisis in the industry, the U.S. government needs to finally step up to the plate and demand a fair playing field for U.S. textile manufacturers,” said Charles A. Hayes, ceo of Guilford and president of the ATMI.
Beleaguered Burlington Industries, which filed for bankruptcy and recently laid off 4,000 workers, has cited competition from foreign imports for its woes. It invested in foreign production in Mexico like many other U.S. textile companies, but could not sustain those operations. It recently announced it would close a denim garment operation in Aguascalientes, Mexico.
“Our customers are getting their goods sewn in the Far East,” said Ross Haymes, chief economist for Burlington. “We want to leverage our knowledge and partner with a Far East mill, and it would be wise to do that in more than one country.”
To achieve that goal, Burlington created a sourcing subsidiary named Burlington Worldwide based in Hong Kong, to develop sourcing capabilities of apparel fabrics in the Far East.
Just about everything Roger Chastain, president of Mount Vernon Mills, produces is exported to the Caribbean and Mexico, he said.
“Imports have almost completely devastated the whole industry,” said Chastain. “Are there going to be many survivors? That’s questionable, unless we see change.”
WASHINGTON — In 2001, the U.S. Customs Service placed embargoes on 16 apparel quota categories from countries around the world after their allotments were filled. This followed embargoes on 11 apparel quota categories in 2000.
The following table compares the import quota categories for which Customs placed embargoes in 2000 versus 2001. Come 2005, all quotas will be lifted from apparel and textile imports.
Bangladesh: men’s cotton coats and women’s man-made fiber coats.
Burma: cotton trousers, man-made fiber trousers and ramie and silk blend trousers.
Cambodia: cotton and man-made fiber trousers.
Dominican Republic: cotton and man-made fiber trousers.
Turkey: cotton trousers, not including shorts, knit shirts and blouses, excluding tank tops and T-shirts.
United Arab Emirates: men’s woven shirts, cotton trousers and cotton knit shirts and blouses.
Bangladesh: men’s cotton coats and men’s man-made fiber coats.
China: cotton underwear.
Indonesia: cotton sweaters, pajamas and men’s man-made fiber coats.
Malaysia: cotton sweaters.
Pakistan: men’s cotton knit shirts, pajamas, cotton pillowcases, cotton terry towels and man-made fiber sheets.
Sri Lanka: cotton and ramie sweaters.
Turkey: cotton dressing gowns, cotton sheets and women’s wool trousers.
Source: U.S. Customs Service