Comment: The decline of the US garment industry
The United States is home to the world's largest garment consuming country. Yet it has virtually no viable domestic garment making industry. David Birnbaum suggests the US Government might want to level the playing field by offering US garment producers the same benefits as suppliers located in countries with free trade agreements with the United States.
This is a remarkable state of affairs. The United States invented the clothing ready-to-wear industry. At the end of World War II, the US was home to the world's largest domestic garment making industry, yet today US domestic production accounts for less than 3% of retail sales. No other country in the world imports more than 97% of its garments.
Industries decline over time, but this collapse can be described only as a singularity. It is as if some unique plague swept the country affecting no-one but sewing machine operators who were almost entirely wiped-out.
How did this occur? How can it be more cost effective to import garments from 10,000 miles away than to truck them from a factory located 20 miles from the customer?
Even more remarkable is our willingness to accept this situation, as if the collapse of the US garment making industry was the result of some irreversible act of God.
The voices on the left tell us the US garment making industry was destroyed by cheap garment imports from poor countries where workers were paid slave wages and forced to work in sub-standard conditions.
The voices on the right are equally adamant that the fault lies with rapacious labour unions who forced domestic factories into bankruptcy.
There is a measure of truth in both explanations. However, it is a small measure indeed.
Consider this: the 27 countries of the EU are collectively the world's largest garment consumer. The EU is also a region where wages are at least comparable to US wages; where working conditions are far better than those in Los Angeles and New York City's Chinatown district; and where unions are far more powerful than those in the US.
Despite the high wages, good working conditions and strong organised labour movement, the garment industries in the EU countries not only survive, but intra-EU imports account for 47% of all EU garment imports (not even including consumption of domestic production). Compare that with 3% for the US.
Consider this: The EU region is now the world's fastest growing garment supplier to the US. As of year-to-date June 2012, the EU market share of garment imports to the US increased 9.9%. Over 50% of those imports came from a single country - Italy - which has now surpassed such relatively low labour cost suppliers as Egypt, Jordan, Haiti and the Dominican Republic.
How can the EU garment industry prosper while the US garment industry collapses? How did this ridiculous situation arise? More importantly, what can the US Government do to restore its domestic garment industry?
I have thought about this problem for some time. As I see it, two key factors may not only explain the problem, but also provide a practical solution:
- EU exporters have one disadvantage. Unlike the countries listed above, the EU does not enjoy duty-free access to the US market.
- EU exporters have one advantage. They enjoy duty-free access for a wide range of materials produced by other countries in the EU.
Here is my solution:
The United States should enter into a free trade agreement (FTA) with the United States, to offer duty-free access to the United States for garments produced in the United States.
I am quite serious.
Currently, US domestic garment producers are not afforded the same benefits as suppliers located in countries with free trade agreements with the United States. I am suggesting that the US Government might want to level the playing field.
US garment-related FTAs have specific country of origin rules.
Ideally the US government might offer the US the same liberal country-of-origin rules as they give to Israel, Jordan, Egypt and the AGOA countries of Sub-Saharan Africa: duty-free access for all garments regardless of the origin of the fabric. This would be generous indeed.
However, the US Congress and Administration may argue that the United States is not as strategically important to the US as Israel, Jordan and Egypt nor as worthy of special humanitarian consideration as the countries of Sub-Saharan Africa. There is also some consideration that the US domestic textile industry may complain.
If indeed the US Government concludes that the United States is not entitled to the same generosity as it gives to other countries, the US government may offer the US the less liberal country of origin rules it gives to Mexico, Canada and the six DR-CAFTA countries of Honduras, El Salvador, Guatemala, Nicaragua, Dominican Republic and Costa Rica. This is duty-free access based on the yarn-forward rule plus duty-free access for garments produced from third country fabrics which are not available from US textile mills.
Since US domestic textile producers make a relatively limited range of textiles, the domestic garment makers would have access to a wide range of duty-free materials. This would make the domestic garment industry more competitive.
This is a question of US Government priorities. How important is the United States to the US Government? To what degree should US interests be considered in US trade policy? These are important questions, but frankly ones that we should never have had a need to ask.
David Birnbaum is the author of The Birnbaum Report, a monthly newsletter for garment industry professionals. Each issue analyses in-depth US garment imports of four major products from 21 countries, as well as ancillary data such as currency fluctuations, China quota premiums and clearance rates. Click here to visit David's website.
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