U.S. Textile Manufacturing and the TPP Negotiations

Summary

Textiles and apparel are major issues in the ongoing Trans-Pacific Partnership (TPP) negotiations to establish a free-trade zone across the Pacific. Because the negotiating parties include Vietnam, a major apparel producer that now mainly sources yarns and fabrics from China and other Asian nations, the agreement has the potential to shift global trading patterns for textiles and demand for U.S. textile exports. Canada and Mexico, both significant regional textile markets for the United States, have also been accepted into the TPP talks.

U.S. textile manufacturers produce yarn, thread, and fabric for apparel, home furnishings, and for various industrial applications. In 2011, the U.S. textile industry generated $ 53 billion in shipments and directly employed about 238,000 Americans, accounting for 2% of all U.S. factory jobs. Approximately one-third of U.S. textile production is exported, with the bulk of the exports going to Western Hemisphere nations that are members of the North American Free Trade Agreement (NAFTA) or the Central American-Dominican Republic Free Trade Agreement (CAFTA-DR). Both free trade agreements provide that certain exports from member countries may enter the U.S. market duty-free only if they are made from textiles produced in the region. This has encouraged manufacturers in Mexico and Central America to use U.S.-made yarns and fabrics in apparel, home furnishings, and other products. Exports to the NAFTA and CAFTA-DR countries contributed to a U.S. trade surplus of $2.5 billion in yarns and fabrics in 2011.

The TPP has the potential to affect U.S. textile exporters in at least two ways.

First, it could enable Asian apparel producers, principally Vietnam, to export clothing to the United States duty- free. This would eliminate much of the advantage now enjoyed by Western Hemisphere apparel producers in the U.S. market and, because Vietnamese manufacturers make little use of U.S.- made textiles, could reduce demand for U.S. textile exports.

Second, if the TPP were to allow Western Hemisphere apparel manufacturers to use yarn and fabric made anywhere in the TPP region and still enjoy preferential access to the U.S. market, an enlarged Vietnamese textile industry could, at some future time, compete with U.S. exporters in Mexico and Central America.

Textile industry trade groups have urged the United States to insist on a “yarn forward” rule, requiring that yarn production, fabric production, and cutting and sewing of the finished garment all occur within the TPP region for the garment to enter the United States duty-free. On the other side, retailers and apparel companies want to be able to import apparel from the lowest-cost producer, regardless of whether U.S. textiles are used; they urge that textiles and apparel be treated like other products in any TPP agreement. Members of Congress have voiced their support for both sides.

The TPP seems likely to have less impact on those segments of the U.S. textile industry that do not supply apparel manufacturing. U.S. manufacturers of household and technical textiles appear to be internationally competitive, and it is not evident that lower-wage countries would have comparative advantage in these highly capital-intensive sectors.

Please click here to download and read the full report U.S. Textile Manufacturing and the TPP Negotiations (U.S. Congressional Research Service), October 5, 2012

Conclusion

Concerns about the health of domestic textile manufacturing have influenced many past trade negotiations, and now figure prominently in the regional TPP negotiations. For textile manufacturers, the inclusion of a significant apparel producer such as Vietnam in a free trade agreement holds the potential to dramatically shift global trading patterns.

Depending upon its provisions, it is imaginable that a TPP agreement could result in apparel made in Vietnam displacing apparel from the Western Hemisphere in the U.S. market, weakening the export markets now served by U.S. textile producers in Mexico and Central America. An alternative scenario might allow apparel manufacturers in Mexico, a TPP participant, to use textiles made in any TPP country and still enjoy duty-free access to the U.S. market; while no Asian TPP participant currently has the textile production capacity to supply Western Hemisphere producers in this way, it is conceivable that such capacity will be installed in the future.

U.S. textile manufacturing interests have urged U.S. negotiators to insist on a “yarn forward” rule in the TPP. This would require that for apparel, home furnishings, or technical textiles, to benefit from duty-free access, they would have to be assembled in a TPP country from fabric manufactured in a TPP country out of yarn produced in a TPP country. Such a rule would severely limit the ability of countries such as Vietnam to use Chinese or Indian yarns and fabrics in apparel, home furnishings, or technical textile products for the U.S. market, although it would not constrain imports if Vietnam were to develop a more fully integrated textile industry at some future time. However, a “yarn forward” rule would also affect U.S. apparel consumers and the household textiles and specialty textiles markets by making it difficult for importers to obtain these items at the lowest possible cost, as these products made in TPP countries from yarns and fabrics produced elsewhere would not qualify for duty-free treatment.

Domestic manufacturers of household and technical textiles seem less likely to be immediately affected by any TPP agreement. U.S. manufacturers appear to be internationally competitive in these sectors, and Vietnam’s low labor costs will provide little comparative advantage in areas where production is highly automated. In the case of technical textiles, U.S. manufacturers also benefit from proximity to their industrial customers. Domestic technical textile manufacturers point out that Vietnam has been expanding its reach into industrial fabrics and higher-end textiles in recent years, including tire cord and coated fabrics,81 but Vietnam will probably not be a significant global competitor in the near future.

Please click here to download and read the full report U.S. Textile Manufacturing and the TPP Negotiations (U.S. Congressional Research Service), October 5, 2012

Posted: Oct 17, 2012