Michaela D. Platzer
Specialist in Industrial Organization and Business
Textiles are a contentious and unresolved issue 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, and Japan, a major manufacturer of high-end textiles and industrial fabrics, are also participants in the negotiations.
U.S. textile manufacturers produce yarn, thread, and fabric for apparel, home furnishings, and various industrial applications. In 2012, the U.S. textile industry generated $54 billion in shipments and directly employed about 233,000 Americans, accounting for 3% of all U.S. factory jobs. About 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 $2.1 billion in yarns and fabrics in 2012.
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 dutyfree. 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 strict “yarn forward” rule that allows a garment to enter the United States duty-free only if yarn production, fabric production, and cutting and sewing of the finished garment all occur within the TPP region. U.S. negotiators have also proposed that certain textile inputs “not commercially available” in TPPmember countries could be sourced from outside the region, including China. On the other side, retailers and apparel companies with extensive global supply chains want maximum flexibility for sourcing and are less concerned about whether textiles manufactured in the United States are used; they urge textiles and apparel to be treated like other products in any TPP agreement, and want any apparel cut and sewn within the TPP area regardless of where the fabric originates to be eligible for duty-free entry. 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.
Date of Report: November 20, 2013
Number of Pages: 26
Order Number: R42772
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