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The U.S. Textile and Apparel Industry in the Age of Globalization

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 Global Economy Journal
Volume , Issue   Article 

The U.S. Textile and Apparel Industry in the

Age of Globalization

Kathleen Rees∗ Jan Hathcote†

∗
Louisiana State University, kfkr000@[Link]
†
University of Georgia, jhathcote@[Link]

Copyright 2004
c by the authors. All rights reserved. No part of this publication may
be reproduced, stored in a retrieval system, or transmitted, in any form or by any means,
electronic, mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher, bepress, which has been given certain exclusive rights by the
author. Global Economy Journal is produced by The Berkeley Electronic Press (bepress).
[Link]
 The U.S. Textile and Apparel Industry in the
Age of Globalization
Kathleen Rees and Jan Hathcote

Abstract

The contemporary U.S. textile and apparel industry has faced significant challenges
as the volume of imported goods entering the domestic market has continually increased.
In attempts to both foster development in select world regions and maintain viability of
the domestic industry, the U.S. government has negotiated a variety of trade agreements
extending preferential treatment, including duty- and quota-free access to the U.S. mar-
ket for apparel and other textile products manufactured in developing countries in the
Caribbean Basin, sub-Saharan Africa, and the Andean region. In addition, provisions
included in the agreement granting China, the world’s largest producer of textiles and
apparel, admission to the World Trade Organization have allowed this country to become
an immediate beneficiary of the MFA quota phase-out. This article examines the current
state of the domestic textile and apparel industry and provides an overview of trade agree-
ments enacted during the past decade that are of specific interest within the textile and
apparel sector. It offers insight into challenges and opportunities for both the domestic
textile and apparel industries in an age of rapid globalization as final elimination of the
existing quota system in 2005 approaches.

KEYWORDS: Apparel, international, textiles, trade

Rees and Hathcote: The U.S. Textile and Apparel Industry in the Age of Globalization 1

INTRODUCTION

The United States possesses one of the world’s largest and most lucrative
markets for textile and apparel products. In 2003, U.S. consumption of apparel
and footwear amounted to more than $311 billion (American Textile
Manufacturers Institute, 2004). In terms of per capita fiber consumption, U.S.
consumers have out-consumed individuals in other developed countries by a ratio
of almost two to one and have consumed more than their counterparts in
developing countries by ten fold (Dickerson, 1999).1
The U.S. market has been very attractive for producers in not only developing
countries attempting to establish an initial presence within the textile and apparel
industries, but also developed countries trying to maintain production within
mature industries. Countries in several regions have successfully negotiated
agreements providing preferential access to the lucrative U.S. textile and apparel
market prior to the elimination of the Multifiber Arrangement (MFA) quota
system in 2005. Within the last decade trade agreements have been established
with Mexico and Canada (NAFTA), sub-Saharan Africa (AGOA), the Andean
Region of South America (ATPA), and the Caribbean Region (CBTPA). In
addition, as China, the world’s most prolific producer of textiles and apparel, was
granted accession to the World Trade Organization, it also gained full benefit
provided by the quota phase-out. This paper provides: (a) an examination of the
contemporary U.S. textile and apparel industry, (b) a brief overview of recent
trade agreements of specific interest within the industry, and (c) an assessment of
opportunities afforded and challenges confronting the textile and apparel industry
in select world regions as the proposed 2005 elimination of existing quotas
approaches.

THE U.S. TEXTILE AND APPAREL INDUSTRY

In meeting consumer demand for apparel and textile products, the United
States has attempted to maintain a viable level of domestic production while
becoming the world’s largest single country importer of both textiles and apparel.

1
Kathleen Rees is an Associate Professor of Textiles, Apparel Design, and Merchandising in the
School of Human Ecology at Louisiana State University.

Jan M. Hathcote is an Associate Professor of Textiles, Merchandising and Interiors in the College
of Family and Consumer Sciences at the University of Georgia.

Produced by The Berkeley Electronic Press, 2005

2 Global Economy Journal Vol. 4 [2004], No. 1, Article 4

As shown in Table 1, according to World Trade Organization data, the share of

world imports of apparel taken by the United States almost doubled from 16.4
percent in 1980, when the U.S. share was second only to that of Germany, to 31.6
percent in 2000. Simultaneously, U.S. share of world imports of textiles increased
more than two fold, from 4.5 percent in 1980 to 9.4 percent in 2000 (World Trade
Organization, 2002).

TABLE 1. Select Country Shares of World Imports of Textiles and Apparel,

1980-2000

$US % Share % Share % Share

Billions World Imports World Imports World Imports
2000 1980 1990 2000

Apparel
United States 66.39 16.4 24.1 31.6
Japan 19.71 3.6 7.8 9.4
Germany 19.31 19.7 18.2 9.2
United Kingdom 12.99 6.8 6.2 6.2
France 11.48 6.2 7.5 5.5

Textiles
United States 15.71 4.5 6.2 9.4
China 12.83 1.9 4.9 7.7
Germany 9.32 12.1 11.0 5.6
United Kingdom 6.91 6.3 6.5 4.1
France 6.75 7.2 7.0 4.0

Data Source: World Trade Organization, 2002.

As the U.S. share of world imports has increased, concern has been expressed
within the domestic textile and apparel industry on three fronts: (a) continued loss
of employment, (b) displacement of U.S. products by less expensively produced
foreign goods originating in developing countries, resulting in an ever increasing
trade deficit, and (c) the industry’s ability to maintain domestic production within
a highly competitive, global setting. During the past five years, the United States
has suffered a loss of approximately 11 percent of all manufacturing jobs
(Friedman, 2003); during the same time period, the domestic textile and apparel

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Rees and Hathcote: The U.S. Textile and Apparel Industry in the Age of Globalization 3

sectors experienced job losses of 29 percent and 33 percent, respectively.

Employment in the U.S. textile and apparel complex peaked at almost 2.5 million
in 1973, prior to implementation of the Multifiber Arrangement (U.S. Department
of Commerce, 1992). As illustrated in Figure 1, with only minor exceptions
during the past 25 years, both segments of the industry have suffered continual
declines in employment. In the past decade alone, the textile and apparel industry
has incurred a job loss in excess of 50 percent. Loss of jobs was particularly high
in 2001, when the industry experienced a decline of 62,000 jobs in the textiles
sector and 67,000 jobs in apparel production (Ellis, 2003a). By mid-2004, fewer
than 703,000 workers remained employed in the textile and apparel industry
(Ellis, 2004c), and it has been estimated that, by the end of the current decade, an
additional 400,000 jobs will be lost (Davis, 2004).

FIGURE 1. U.S. Employment in Textile and Apparel Production, 1974-2002

1600

1400

1200

1000
Thousands

800

600

400

200

0
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002

Year

Textiles Apparel

Data Source: American Textile Manufacturers Institute, Various years.

While overall loss of domestic jobs has been of great concern, regional effects
of employment losses have also been notable. The states of North and South
Carolina, for example, provide approximately 40 percent of the nation’s textiles

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4 Global Economy Journal Vol. 4 [2004], No. 1, Article 4

jobs (Mecia, 2003). Within a five year period, North Carolina alone lost nearly 44
percent of its textiles jobs, while the number of apparel employees in the state
declined by over 45 percent. Simultaneously, the textile sector in South Carolina
suffered a 37 percent loss of employment, and the number of jobs in the state’s
apparel industry decreased by almost 50 percent (American Textile Manufacturers
Institute, 1997; American Textile Manufacturers Institute, 2002; National Council
of Textile Organizations, 2004).
As indicated by declines in employment in the Carolinas, loss of jobs within
the apparel sector has been more notable than that within the textile industry. U.S.
employment in the apparel sector has declined from over 1.4 million workers in
1973 to fewer than 313,000 workers in 2003 (American Textile Manufacturers
Institute, 2004; U.S. Department of Commerce, 1992). Domestic employment
losses within the apparel industry have been of special concern because this is a
manufacturing segment that, historically, has employed large numbers of women
and minorities. Being highly labor intense, decline of employment within apparel
sector is likely to have occurred as a result of inability to automate garment
manufacturing processes and shifting of production offshore, to low wage,
developing countries having large, unskilled labor supplies, need for earning
foreign exchange, and, therefore, special interests in developing export production
capabilities (Dickerson, 1999).
Increased levels of imports also have resulted in a rising trade imbalance for
the textile and apparel industries. In 2003, the United States imported over $85
billion in textiles and apparel, while exporting less than $16 billion. The trade
deficit for this sector increased from just over $2 billion in 1974, when the
Multifiber Arrangement was originally implemented in an attempt to constrain the
increasing volume of imports entering key developed country markets, especially
the U.S. and Western European markets, to more than $70 billion in 2003
(American Textile Manufacturers Institute, 2004). Figure 2 illustrates the
continual growth experienced in imports of textiles and apparel and the
burgeoning trade deficit that exists for this sector. The largest share of the
increasing trade deficit has been attributed to rapid growth in apparel imports,
with an estimated 96.6 percent of garments available in the U.S. market being of
foreign origin (American Apparel and Footwear Association, 2003). A notable
spike in imports occurred after January 2002, as quotas were released on
additional textile and apparel categories, while exports of textiles and apparel
continued to decline. By the end of 2003, the trade deficit for apparel had
escalated to $63.2 billion, while that for textiles amounted to $6.8 billion
(American Textile Manufacturers Institute, 2004).

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Rees and Hathcote: The U.S. Textile and Apparel Industry in the Age of Globalization 5

FIGURE 2. U.S. Textile and Apparel Trade, 1974-2003

$90,000

$80,000

$70,000

$60,000
$ US Millions

$50,000

$40,000
Trade
Deficit
$30,000

$20,000

$10,000

$0
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
US Textile & Apparel Imports US Textile & Apparel Exports

Data Source: American Textile Manufacturers Institute, Various years.

Although the U.S textile and apparel complex has suffered significant loss of
employment and has grappled with an ever increasing trade deficit, prior to the
mid-1990s it was able to maintain, and actually increase, levels of production.
Between 1980 and 2000, output per hour for U.S. textile production increased, on
average, 3.8 percent annually. During the same time period, the average annual
increase in hourly output for the apparel sector was 3.9 percent (Gelb, 2002). As
indicated in Figure 3, however, corresponding with creation of the World Trade
Organization in 1995 and implementation of the initial phase-out period of the
MFA quota system, the dollar value of U.S. textile production began to level, and
the value of apparel production began to decline. Domestic textile and apparel
production was especially affected in 2001, when textile production declined 12.8
percent, and apparel production fell 11.8 percent. The textile sector rebounded
slightly in 2002, when it experienced a 0.9 percent increase in production, while
apparel production experienced an additional 3.6 percent decline (Ellis, 2003a).
The increase in production enjoyed by the textile industry in 2002 was short lived,

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6 Global Economy Journal Vol. 4 [2004], No. 1, Article 4

however. In 2003, textile production declined 7.4 percent, and capacity utilization
dropped to the lowest level ever recorded for this sector. U.S. production in the
apparel segment declined an additional 10.7 percent in 2003 (Ferreira, Taylor,
Brocklehurst, & Sheffer, 2004). Decreases in production, as declines in
employment, have often been blamed on increased outsourcing, intensified
foreign competition, inability to match production costs enjoyed by low-wage,
developing country suppliers, and liberalization of trade. In reality, however, it is
likely that production levels have been maintained, to large extent, as a result of
capital investment, innovation, and increased employment of technology
accompanied by increased production efficiency (Dickerson, 1999).

FIGURE 3. U.S. Textile and Apparel Production, 1975 – 2000

30

25

20
$U.S. Billions

15

10

0
1975 1980 1985 1990 1995 2000

Textiles Apparel

Data Source: U.S. Department of Commerce, Various years.

LIBERALIZATION AND SPECIAL TRADE CONCESSIONS

In the past decade, special challenges and opportunities have been presented to
a variety of stakeholders in the U.S. textile and apparel complex. Textile and
apparel producers, retailers and importers, trade associations, and unions have

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Rees and Hathcote: The U.S. Textile and Apparel Industry in the Age of Globalization 7

taken special interest in addressing means of maintaining and enhancing U.S.

production for both the domestic market and international export markets. In
addition, attention has focused on either producing or gaining access to
competitively priced goods of appropriate levels of quality that can be delivered
in a timely manner. Attempts have been made, therefore, to simultaneously
protect domestic producers and expand opportunities for exports and imports
textiles and apparel. To this end, the U.S. government has actively been involved
in crafting and implementing a variety of trade agreements that hold significant
implications for both domestic and foreign interests in the textile complex.
One of the most far reaching agreements of the past decade occurred with
conclusion of the Uruguay Round of negotiations of the General Agreement on
Tariffs and Trade in December 1993. The final agreement included creation of not
only the World Trade Organization, but also the Agreement on Textiles and
Clothing (ATC), which assumed responsibility for implementing the ten-year
phase-out of the quota system originally enacted under the auspices of the
Multifiber Arrangement. Elimination of existing quotas imposed on textile and
apparel imports from developing countries is expected to create opportunities and
challenges for producers as it dramatically impacts world trade flows within this
sector.
In addition, implementation of the North American Free Trade Agreement in
1994 and specific trade agreements contained within the trade acts of 2000 and
2002, as well as China’s accession to the WTO in 2001, have dramatically altered
domestic production and two-way trade within the textile and apparel industry. As
illustrated in Figure 4, some countries and regions included in these agreements,
such as the “Asian Tigers” (China, Hong Kong, South Korea, and Taiwan) and
Caribbean Basin countries, possess a significant presence as primary foreign
suppliers of textile and apparel products to the U.S. market, while others,
including the sub-Saharan and Andean countries, only recently have begun to
establish a presence.

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8 Global Economy Journal Vol. 4 [2004], No. 1, Article 4

FIGURE 4. U.S. Imports of Textiles and Apparel from Select World Regions,
1993 and 2003
14000

12000

10000
Million SMEs

8000

6000

4000

2000

0
C, HK, K, T CBI Sub-Saharan Andean

1993 2003

Data Source: U.S. Department of Commerce, 2004.

AFRICAN GROWTH AND OPPORTUNITY ACT

Title I of the Trade and Development Act of 2000, also known as the African
Growth and Opportunity Act (AGOA), was enacted to strengthen U.S.
relationships with developing countries in sub-Saharan Africa intent on making
political and economic reforms. AGOA supporters proposed that establishing
preferential trade with the United States would play a significant role in furthering
development efforts within the sub-Saharan countries. The main impetus of the
act, therefore, focused on enabling these countries to participate in the global
economy and, thereby, reduce existing poverty within the region (U.S. Newswire,
2000). Terms of the agreement allowed preferential access for imports from
eligible countries provided they made progress regarding: (a) establishment of
market-based economies, (b) elimination of barriers on U.S. products, (c)
elimination of corruption, (d) protection of human rights and worker rights, (e)
protection of intellectual property rights, and (f) elimination of child labor

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Rees and Hathcote: The U.S. Textile and Apparel Industry in the Age of Globalization 9

practices. The original AGOA agreement was to remain in effect through

September 2008 (Steele, 2002).
The African Growth and Opportunity Act, as originally written, was designed
to foster use of U.S. manufactured fabric in export production of apparel in the
sub-Saharan region and encourage development of the textile and apparel
industries within sub-Saharan countries. Therefore, apparel constructed within
participating AGOA countries from U.S. fabrics, regional fabrics, and yarns not
available in the United States, was allowed duty- and quota-free entrance to the
United States. Elimination of quantitative restraints typically imposed on apparel
produced in developing countries was intended to provide incentive to develop
production capabilities within these countries. Duty-free access to the U.S.
market, effectively, eliminated the 17.5 percent average tariff, thereby enhancing
cost competitiveness of qualifying sub-Saharan goods. Currently, 37 sub-Saharan
countries are eligible for AGOA benefits, and 25 have satisfied the general
conditions set forth in the agreement to be granted quota- and duty-free access to
the U.S. market for qualifying apparel products (Country eligibility, 2004).
With AGOA’s support in development of the apparel sector, exports from the
region have experienced significant growth, albeit it from a very small base. In
2003, AGOA exports of textiles and apparel to the United States exceeded $1.5
billion. The sub-Saharan countries, collectively, provide over 2 percent of total
volume of apparel imports and slightly less than 2.5 percent of total value of
apparel imports entering the U.S. market (U.S. Department of Commerce, 2004).
In many of the sub-Saharan countries, apparel represents the single most
important, if not the only significant, manufactured export and a significant means
of employment creation. It is estimated that between 100,000 and 200,000 jobs
had been created in textile and apparel industries of beneficiary countries
(Malone, 2003b).
To further support development in the poorest and least developed sub-Saharan
countries, a second provision, the Special Apparel Provision, was added to the
AGOA agreement. To qualify for this provision, a country’s 1998 per-capita gross
domestic product must have been $1,500 or less (Malone, 2002). To date, 23 of
the lesser-developed sub-Saharan countries have been granted Special Apparel
Provision status (Country eligibility, 2004). Under the special provision, through
September 2004, quota- and duty-free treatment is applied to apparel
manufactured in these countries with use of imported, third-country fabrics rather
than U.S. or regional fabrics (Malone, 2002).
Use of the Special Provision has been of particular importance to development
of the apparel sector in qualifying countries and has resulted, to some extent, in
initiating textile production capacity within the region. With this provision, export

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10 Global Economy Journal Vol. 4 [2004], No. 1, Article 4

growth rates in qualifying lesser-developed countries, such as Lesotho, Kenya,

and Swaziland, have exceeded 50 percent, while exports from countries which did
not originally qualify for the Special Provision actually experienced significant
declines (Malone, 2003b). Expansion in apparel exports also has been
accompanied by creation of much needed employment. The apparel industry in
Lesotho, for example, experienced an increase in production workers from
approximately 20,000 in 2000 to some 54,000 in 2004 (Njobeni, 2004). The
industry in Madagascar recently created an additional 40,000 new jobs (Fisher-
Thompson, 2004). Integration of the textile and apparel sectors has also begun to
occur to a small extent within the region. In 2001, approximately 97 percent of
qualifying AGOA exports to the United States consisted of apparel produced
using third-country fabrics (Malone, 2002). By 2004, approximately 80 percent of
sub-Saharan apparel exports incorporated third-country fabrics (Njobeni, 2004).
While expansion of production within the region has occurred, much of the
increased production in the lesser-developed countries has been attributed to
Asian investment, particularly from China, Hong Kong, and Taiwan. Apparel
production within the lesser-developed sub-Saharan countries has incorporated a
significant volume fabrics sourced from Asian countries, notably China and India
(Malone, 2003b).
As reliance on the Special Access Provision has been established, concern has
been raised regarding sustainability of the infant apparel industries in these
countries once the provision expires in September 2004, forcing qualifying sub-
Saharan countries to convert to normal AGOA status (Steele, 2002). In response
to these concerns, in July 2003, AGOA III was signed into law, extending
preferential treatment under AGOA through 2015, per the renewal provision
included in the original agreement. Benefits granted under the Special Access
Provision were extended through September 2007 (Kaper, 2004). Extension of
AGOA, however, may be a relatively moot issue, given the approaching final
phase-out of MFA quotas at the end of 2004. AGOA benefits available to sub-
Saharan countries after this date will provide only duty-free treatment for textile
and apparel exports as MFA quotas for all countries are eliminated (Malone,
2003b).

CARIBBEAN BASIN TRADE PREFERENCE ACT

The United States has long had significant interests regarding textile and
apparel trade with countries in the Caribbean Basin. While textile and apparel
products were specifically excluded from preferential treatment granted to exports
from CBI countries under the original Caribbean Basin Economic Recovery Act

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Rees and Hathcote: The U.S. Textile and Apparel Industry in the Age of Globalization 11

of 1983, special access was subsequently provided for goods through Section 807
of the U.S. Tariff Code (subsequently 9802.00.80 under the Harmonized System).
The 807 program was designed to provide not only support for economic and
industrial development within the Caribbean Basin, but also some level of
protection for U.S. textile interests. The 807 provision enabled U.S. producers to
export cut or formed garment pieces to CBI countries for more labor-intense
assembly, with duty applied at a reduced rate, only on the value added upon re-
importation of the goods to the United States. Under the Special Access program
(also known as 807A and 9802.00.80.10) garments assembled in the Caribbean of
components cut, or knit to shape, of U.S. fabrics were provided both benefit of
reduced tariff rates and guaranteed access levels of quota. This, in effect, provided
quota-free access to the U.S. market for much of the apparel produced within the
region. Given preferential treatment through the 807 and 807A programs,
production sharing arrangements between interests in the United States and
Caribbean Basin flourished, and the CBI countries, collectively, became both
important suppliers of apparel to the U.S. market and major consumers of U.S.
textile and apparel exports (James, 1994b; Leigh, 1990). By the mid-1990s,
annual Caribbean apparel exports destined for the United States exceeded $4
billion and accounted for almost 25 percent of total U.S. apparel imports,
approaching the volume and percent share provided by China or Hong Kong, the
primary foreign suppliers at that time (James, 1994a).
With passage and implementation of the North American Free Trade
Agreement, Caribbean Basin apparel producers, highly reliant on preferential
access to the U.S. market, became increasingly concerned regarding their ability
to remain competitive with Mexican producers who benefited from quota- and
duty-free access for goods meeting NAFTA rules of origin. Requests for parity
under NAFTA, or receiving NAFTA-like treatment for goods produced within the
Caribbean Basin, were not forthcoming until passage of the Trade Act of 2000.
Included in this bill, Title II The Caribbean Basin Trade Preference Act (CBTPA)
provided, essentially, NAFTA-like treatment for qualifying apparel imports from
specified Caribbean countries. The bill was designed to encourage continued U.S.
two-way trade in textiles and apparel with a region that historically had
incorporated significant volumes of U.S. textile components. The basic rule of
origin adopted within the Caribbean Basin Trade Preference Act, therefore, was a
yarn-forward rule. Duty- and quota-free access to the U.S. market was granted for
goods assembled in CBTPA countries of fabric produced in the United States
from U.S. yarns. To enhance production sharing with the CBI region, qualifying
goods could be cut or knit to shape in either the United States or one of the
Caribbean countries and assembled in a qualifying Caribbean country. Significant

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12 Global Economy Journal Vol. 4 [2004], No. 1, Article 4

exceptions were included in the agreement, however, and special rules were
applied to specific categories of apparel such as brassieres; short supply yarns and
fabrics as included under NAFTA or determined by the Committee for
Implementation of Textile Agreements; foreign findings and trims; handloomed,
handmade, and folklore articles; and luggage. Use of regional fabrics, in some
cases, was permitted but subjected to tariff rate quota limits (Office of Textiles
and Apparel, 2001). Modifications of the original CBTPA provisions regarding
both the type and volume of textile and apparel products eligible for receiving
preferential treatment were included in the Trade Act of 2002.
The vast majority of textile and apparel exports from CBTPA countries
continue to be destined for the U.S. market. Production is highly focused on
cotton garments, particularly woven cotton apparel basics and underwear, with
some 70 percent of U.S. imports from this region being cotton products and 35
percent comprised of underwear. Thus, production in this region suffers from lack
of product differentiation, exacerbated by the inability of CBI producers to offer
full package production (Speer, 2001). Interests within the U.S. textile sector, as
well as specific Central American countries and the Dominican Republic, are
hopeful that the proposed U.S. / Dominican Republic-Central American Free
Trade Agreement (DR-CAFTA) will provide continued support for apparel
production within this region and enhance competitiveness against key Asian
suppliers of the U.S. market (USA: Trade deal signed, 2004).

ANDEAN TRADE PROMOTION AND DRUG ERADICATION ACT

The Andean Trade Preference Act (ATPA), enacted in 1991, was a ten-year
agreement enacted to enhance economic development of regional trading partners
Bolivia, Colombia, Ecuador and Peru by allowing duty-free imports into the
United States and its territories (U.S. Department of State, 2002). The original
ATPA excluded both textiles and apparel articles (Office of Trade Operations,
2002). Section 3103 of the Trade Act of 2002, known as the Andean Trade
Promotion and Drug Eradication Act (ATPDEA), however, included provisions
for granting apparel exports made of U.S. or regional fabrics quota- and duty-free
access to the U.S. market. In most respects, terms of ATPDEA provided identical
treatment for goods originating within Andean countries as that extended textile
and apparel exports from Caribbean Basin countries under Title II of the Trade
Act of 2000. Under APTDEA, qualifying goods must be manufactured from the
yarn forward of inputs produced in either the United States or one of the four
designated Andean countries. In addition, provisions for use of regional fabrics
are especially generous. During the first year of implementation, use of regional

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Rees and Hathcote: The U.S. Textile and Apparel Industry in the Age of Globalization 13

fabrics and yarns was limited to 2 percent of the total U.S. apparel imports during
the previous year. In effect, this permitted use of more than 350 million square
meter equivalents (SMEs) of regional inputs, or more than twice the number of
SMEs of apparel the United States has ever imported from this region. The limit
on regional inputs will increase incrementally to 5 percent by October 2006,
permitting use of an estimated one billion SMEs of regional yarn and fabric
intermediate goods (American Textile Manufacturers Institute, 2002; Ellis,
2002a).
Producers within the Andean region are known for their ability to provide
quality goods and quick response time. In addition, there are no quality of life or
environmental issues associated with manufacturing in the region (Haisley, 2002).
Countries within the ATPA region, therefore, would appear to be attractive
sources for U.S. apparel importers. With elimination of the 17 percent average
tariff on apparel, it was anticipated that quality products could enter the United
States at competitive prices (Ellis, 2002b). Apparel produced in this region,
however, has tended to be more expensive than that sourced from competing CBI
countries. The cost of woven apparel produced in the Andean region has been
found to be approximately 25 percent higher, while the cost of knit garments has
been nearly 75 percent higher than that of similar goods originating in the
Caribbean Basin. Higher prices of goods produced in ATPA countries have been
attributed to elevated security costs, more expensive transportation costs and
labor, and higher prices demanded for garments manufactured from specialty
fabrics (Lamar, 2001).
Andean producers also have tended to be less engaged in production sharing
arrangements with U.S. producers (largely because there was no 807A-type
program access provided for the Andean region) and more reliant on textile
suppliers outside the United States than Caribbean producers. Manufacturers in
ATPA countries have depended on U.S. suppliers for the largest share of textile
inputs, but have also sourced significant amounts of intermediate goods from
within the region, Asia, and Europe (Lamar, 2001).
While potential exists for expansion of trade under preferential treatment
provided apparel exports destined for the U.S. market, ATPA producers continue
to provide only a minor portion of textile and apparel products entering the United
States. In 2001, the Andean region supplied approximately 141.6 million SMEs of
apparel valued at $753.6 million, which was less than 1.4 percent of total U.S.
apparel imports. With enhanced access to the U.S. market, by 2003, ATPA
apparel exports to the United States had increased by almost 40 percent in terms
of value to $1.05 million and by nearly 45 percent in volume to 205.1 million
SMEs. Peru and Columbia have accounted for the largest portion of apparel

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14 Global Economy Journal Vol. 4 [2004], No. 1, Article 4

exports from this region, jointly providing over 95 percent of the dollar value of
U.S. apparel imports from the four ATPA countries. Columbia has been the
largest volume supplier in the region. In 2004, Columbian producers contributed
nearly 60 percent of the total volume of Andean apparel shipments to the U.S.
market (U.S. Department of Commerce, 2004).

CHINA’S ENTRY INTO THE WORLD TRADE ORGANIZATION

Particular interest in the textile and apparel industry has focused on China.
This country has long been a low-cost, large volume supplier and currently enjoys
the distinction of being the world’s largest single country exporter of both textiles
and apparel (World Trade Organization, 2004a; World Trade Organization,
2004b). The Chinese industry is poised to be a primary beneficiary of trade
liberalization under the MFA quota phase-out, due to inclusion of an agreement in
China’s 2001 accession to the World Trade Organization permitting it to
immediately become a beneficiary of the quota phase-out, rather than being
subjected to the original ten-year phase-out period (World Trade Organization,
2003).
In addition to possessing significant cost advantages, Chinese export
production has been enhanced by rapid economic development, government
investment in requisite production equipment, facilities, and infrastructure, and a
textile sector capable of providing a wide variety of quality inputs. Chinese
manufacturers also possess significant expertise in apparel production that
provides both higher quality output and production of more sophisticated products
than those manufactured in many other developing countries, such as Mexico,
India, Indonesia, and CBI countries. As a result, China has been described as
being in “a virtually unrivaled competitive position when it comes to
manufacturing apparel” (Cunningham, 2002, p. 12).
The superior competitive position of the Chinese industry, coupled with
liberalization of quota constraints, unleashed concern regarding potential surges in
textile and apparel exports from this country. Therefore, China’s admission to the
WTO also included additional provisions permitting unilateral re-imposition of
quotas on sensitive categories of textiles and apparel on a year-by-year basis
through 2008, or 2013 if market disruption occurs. China further agreed to open
its markets to WTO members, reduce its existing 22.1 percent duty to 17 percent,
eliminate other non-tariff barriers, and allow foreign firms distribution rights
(Cunningham, 2002; Osteroff, 2000; Ramey, 2000).
China’s export activity following accession to the WTO and initiation of the
third phase of the MFA quota phase-out on January 1, 2002, began to bring

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concerns regarding its potential to overwhelm other foreign suppliers of the U.S.
market to fruition. While Mexico earned the distinction of becoming the leading
foreign supplier of textiles and apparel to the U.S. market during the post-NAFTA
period of 1996 through 2001, the volume of imports from China rapidly surpassed
that from Mexico in 2002. During 2002, U.S. imports of Chinese textiles and
apparel experienced triple digit monthly increases and an annual growth rate in
excess of 100 percent, making China the largest textile and apparel supplier,
again, for the first time since 1995. As total U.S. textile and apparel imports
increased by 25 percent in 2002, those from China increased by almost 120
percent, resulting in China alone contributing more than half of the year’s
increase in imports (Ellis, 2003b). Substantial growth in imports from China
continued through 2003, resulting in China possessing a 22.3 percent share of
total U.S. textile and apparel imports by the end of the year. This was a significant
increase over the 6.7 percent share held by China in 2001, immediately prior to
the release of phase three quota categories (Ellis, 2004a).
Exceptional growth in U.S. imports from China was particularly notable in five
categories: manufactured fiber furnishings, manufactured fiber luggage, infants’
apparel, knit fabrics, and the generic “other cotton textiles” category (largely
consisting of handbags, travel-sports bags, dish towels, and surgical towels). Each
category contained items for which quotas were removed, either in part or totally,
with implementation of the third phase of the U.S. quota phase-out scheme
(American Textile Manufacturers Institute, 2002; Ellis, 2003b). In 2002, growth
rates for U.S. imports from China in some quota-released categories exceeded 500
to 1,000 percent. This was followed by a 126 percent growth rate in Chinese
imports in decontrolled categories during the first six months of 2003 (American
Textile Manufacturers Institute, 2003). In just over two years, China’s import
share for all 29 categories of textiles and apparel no longer subject to quota
constraints increased from 9 percent to 65 percent (Ellis, 2004a).
Given the unprecedented magnitude of import surges in quota released
categories, accompanied by significant drops in prices, the American Textile
Manufacturers Institute and other industry interests requested that the consultation
process be initiated with China and quotas be re-imposed on five categories of
Chinese goods (including bras, knit fabrics, gloves, nightwear, and luggage)
entering the U.S. market. This action was based on concern regarding the welfare
of the textile industry and its employees and was undertaken while no other WTO
signatory country had petitioned for re-imposition of quotas on China’s exports
(ATMI Asks Commerce, 2002; Downside of PRC, 2002; Ellis, 2003b). In
November 2003, the United States formally requested consultations with China
and simultaneously imposed quota constraints on three textile and apparel

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16 Global Economy Journal Vol. 4 [2004], No. 1, Article 4

categories (cotton knit fabrics, bras and other body supporting garments, and
dressing gowns and robes) entering the U.S. market (Ellis, 2004b).

CONCLUSIONS

As competition within the global textile and apparel industry has intensified
with implementation of a variety of agreements liberalizing access to the U.S.
market and the approaching extinction of the MFA quota system, there has been a
great deal of speculation regarding what is to become of both the domestic
industry and that in other countries in which the United States has special interest.
At present, the majority of the textile and apparel industry’s concern is focused on
continual loss of employment, potential market disruption with the final quota
phase-out period, and the proposed elimination of tariffs on textile and apparel
imports within the Americas as set forth by the Bush administration (King, 2003).
Growth in Chinese exports, which initially experienced increases in excess of
500 to over 1,000 percent for quota released categories, has raised concern
regarding not only the impact on U.S. producers and suppliers, but also that on
less developed foreign supply countries with infant industries that need time to
develop requisite competitiveness within the global setting. While China’s share
of U.S. imports in categories released from quota constraints experienced
extraordinarily rapid growth, imports in many of these categories from other less
developed countries such as the Philippines, Thailand, Bangladesh, Indonesia,
Bangladesh, and Mexico experienced negative growth rates and/or declines in
U.S. market share (Field, 2004; U.S. Department of Commerce, 2002; U.S.
Department of Commerce, 2004). Additional concerns have been voiced that
China’s market share for apparel will increase to between 50 and 90 percent, as it
has for other goods, such as shoes and toys, that have not been subjected to
quantitative restraints and result in further erosion of domestic employment in the
industry (Malone, 2004; Rugaber, 2003).
As competition within the global textile and apparel industry intensifies, the
Caribbean countries and Mexico may be able to compete, to some extent, based
on relative production cost advantages, speed to market capabilities, and
continuation of established production sharing arrangements. These countries’
primary advantages will result from geographic proximity to the U.S. market,
which facilitates not only an abbreviated turnaround time requisite for fashion
goods and ability to engage in merchandise replenishment via electronic
interconnectivity, but also expedited shipping and delivery times. To remain
competitive, however, manufacturers in these countries must move beyond simple
offerings of assembly to buyers’ specifications and toward full package

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Rees and Hathcote: The U.S. Textile and Apparel Industry in the Age of Globalization 17

production and offerings of quality goods that are innovative in design. Caribbean
producers will also need to expand manufacturing capabilities beyond current
concentration on cotton woven apparel of basic construction and cotton
undergarments. Problems regarding lack of access to financing required for
continued growth and expansion of textile and apparel trade will need to be
addressed. Many U.S. banks have been unable, or unwilling, to factor transactions
in the Caribbean, and difficulties have been encountered in evaluating and
managing credit risks. Lack of stringent legal requirements on financial
disclosures and a less sophisticated approach to corporate finance have impeded
growth in CBI trade (Malone, 2002).
Exports from sub-Saharan countries have enjoyed relatively rapid growth,
albeit from a relatively small base, since implementation of the African Growth
and Opportunity Act, yet efforts will need to be expended to sustain growth and
viability of the industry. As international competition intensifies with the final
phase-out of existing quotas, some producers in this region are likely to find they
simply cannot compete with more established, world producers. The weakest
aspect related to creation of a sustainable industry within the less developed sub-
Saharan countries is lack of access to domestically produced textile inputs for the
region’s growing apparel industry. Producers in countries such as Mauritius, with
significant experience in apparel manufacturing and operations within a vertically
integrated industry, may be able to remain competitive, while those in other
countries that have yet to develop domestic textile resources may find foreign
competition overwhelming. Some of the less developed AGOA countries may
also be confronted by withdrawal of both foreign investment and textile inputs, as
Asian investors and suppliers will no longer need benefits currently provided
under AGOA, in order to have quota-free access to the U.S. market (Malone,
2003b). A final challenge for some sub-Saharan countries will be maintenance of
political and economic stability. Madagascar, for example, suffered significant
work stoppage in the industry in 2001, when disputes regarding the presidential
election led to strikes and inability to meet production and shipments for a brief
time (Malone, 2003a).
Ironically, it is possible that the domestic U.S. textile and apparel industry may
be the beneficiary of uncertainties introduced through international events. While
domestic production no longer possesses cost advantage, it does possess the
ability to generate rapid turnaround times and enjoys the luxury of not being
affected by potential delays in clearance of goods at ports of entry due to more
aggressive and intrusive screening of goods due to concerns regarding terrorism.
As the situation in the Middle East continues, some suppliers and importers have
raised concerns about their abilities to make and receive shipments in a timely

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18 Global Economy Journal Vol. 4 [2004], No. 1, Article 4

manner, as well as concerns regarding access to shipping vessels and potential

shipping embargoes, given the worst case scenario. Current world events may
encourage U.S. retailers and consumers to reconsider advantages offered through
the domestic industry’s promotions of Crafted with Pride and once again seek
products Made in the U.S.A.

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