Analysis: "Made in China" clothing sales may shrink under Pacific trade pact

Texwinca Holdings

04/09/2014 06:00

By Krista Hughes 
    WASHINGTON, Sept 4 (Reuters) - "Made in China" will be a 
less frequent sight in U.S. clothing stores if the United States 
has its way in a new trade pact negotiated among 12 Pacific Rim 
nations. 
    Washington aims to engineer a deal where Vietnam, set to be 
one of the big winners among the members of the Trans-Pacific 
Partnership (TPP), would win apparel market share from China and 
other non-members, rather than Mexico and Central America. 
    Today, thanks to regional trade deals half of U.S. yarn and 
textile exports head south of the border, where cheap labor 
transforms them into clothes that mostly make it back to 
American shoppers, duty-free. 
    Many in the $57 billion U.S. yarn and textile industry fear 
the new pact, billed as the world's most ambitious trade 
agreement, will destroy that business model, which has helped 
the sector rebound from a decade-long slump and sustains more 
than 1.5 million regional jobs.  
    A U.S. official who spoke on condition of anonymity said 
tools such as rules of origin, which say how much local content 
is required to win duty-free status, and different timetables 
for tariff cuts could protect regional interests while also 
providing value for Vietnam.  
    People in the United States familiar with the negotiations 
are confident Vietnam could take considerable market share from 
China and other countries without trade preferences.  
    "If damage is done to Central America by the TPP, that has a 
devastating effect on the industry here," said Bill Jasper, 
chief executive of synthetic yarn maker Unifi  UFI.N . 
    "If structured properly and intelligently negotiated I think 
the majority of the impact is going to be on China and not on 
this region." 
    Clothing is a priority for Vietnam, which is hosting a round 
of negotiations on the pact this week, but is just one of many 
issues for other countries, which may seek concessions in other 
areas in return for siding with Washington on textiles. 
    The other TPP countries are Australia, Brunei, Canada, 
Chile, Japan, Malaysia, Mexico, New Zealand, Peru and Singapore. 
    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ 
     Apparel, textile trade graphic:  
    http://link.reuters.com/fat72w 
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> 
    In practice, different treatment of sectors depending on 
their U.S. economic impact could mean longer wait for tariff 
cuts on cotton garments like underwear and men's knit shirts, 
where Central America has greater market share. Tariffs on 
products where China dominates, such as down-filled jackets and 
synthetic dresses, could be cut quickly, giving Vietnam an edge. 
    Fabrics like silk and herringbone tweed, not mass produced 
by TPP nations, could bypass rules of origin demanding all 
clothing inputs from yarn on be sourced within the TPP, the U.S. 
official said, although Vietnam and many U.S. retailers would 
prefer a much longer list of exemptions.  
    Vietnam has already boosted its U.S.-bound exports by 38 
percent since 2010 even with tariffs adding as much as a third 
to costs. Peterson Institute for International Economics 
modeling forecasts a further 46 percent rise  in total exports 
by 2025, while exports from Mexico, China and India would fall.  
    Based on labor costs alone, U.S. and Central American 
textile firms are no match for their Asian rivals, although 
higher labor and environmental standards sought by the new pact 
are expected to push up costs for Vietnam. 
    Dan Nation, who heads the biggest U.S. yarn spinner, 
Parkdale Mills, said a living wage, benefits and respect for the 
environment were built into the cost structure of firms in the 
Americas, unlike in Vietnam, which the U.S. Department of Labor 
says is using child and forced labor.  
    "We have to do things they don't have to do, and we pay a 
lot more than 72 cents an hour," Nation said.          
     
    HOME ADVANTAGE 
    Still, the Americas have the advantage of proximity: to the 
consumer, increasingly important for "fast fashion" chains such 
as Zara  ITX.MC , H&M  HMb.ST  and Forever 21, and to cheap, 
high-quality U.S. cotton.  
    The benefits are substantial enough to keep investment 
pouring into the U.S. cotton industry. 
    Canada's Gildan Activewear  GIL.TO , which makes cotton wear 
in Honduras, Nicaragua and the Dominican Republic using U.S. 
yarn, is spending $340 million on U.S. spinning while Chinese 
textile manufacturer Keer Group plans a $218 million yarn 
spinning plant in South Carolina. "Apart from labor, all other 
manufacturing elements are cheaper in the States than in China," 
said Wally Wang, deputy general manager at Keer America. 
    Many industry insiders and experts contend the pact, which 
Washington hopes will reach broad agreement by November, will 
spark further changes in global textile and apparel trade?  
    China's share of the U.S. apparel market fell below 37 
percent in mid-2014 from over 39 percent in 2010, while 
Vietnam's has grown to more than 10 percent.  
    "Vietnam is already less expensive than China, but then with 
the duty-free preference you might get a 12 to 32 percent duty 
break, that's going to make a huge difference," said Julia 
Hughes, president of the U.S. Fashion Industry Association. 
    China's Ministry of Commerce did not respond to questions 
and the China Chamber of Commerce for Import and Export of 
Textile and Apparel declined comment.  
    But knitwear firm Shenzhou International Group  2313.HK , 
which is planning to build fabric and garment factories in 
Vietnam, said in an interim report last week unfavorable trade 
policies in major importing nations and rising manufacturing 
costs were crimping market share.  
    Other Chinese companies, such as fabric makers Texhong 
Textile Group  2678.HK  and Pacific Textiles Holdings  1382.HK , 
also look to use Vietnam as a base.  
    Rules of origin will force Vietnam to replace China as the 
main external supplier of yarn and textiles while it develops 
its own industry - possibly looking at Malaysia, or maybe even 
the United States.  
    Still, many experts warn that even with such constraints, 
the Americas' market share may also shrink after the TPP is 
implemented. 
    "It will have an effect and it could be a large one," said 
Patrick Conway, chair of economics at the University of North 
Carolina at Chapel Hill. 
 
 (Additional reporting by Michael Martina in Beijing, Donny Kwok 
in Hong Kong and Nguyen Phuong Linh in Hanoi; Editing by Tomasz 
Janowski) 
 ((krista.hughes@thomsonreuters.com)(+1 202 354 5854)(Reuters 
Messaging: krista.hughes.thomsonreuters.com@reuters.net)) 
 
Keywords: TRADE TEXTILES/