U.S. Textile Manufacturing and the Trans-Pacific Partnership Negotiations
Released: 2014-08-28T00:00:00

Introduction

The Trans-Pacific Partnership Agreement (TPP) is a proposed regional free trade agreement (FTA) currently under negotiation among 12 Pacific Rim countries. Initiated under President George W. Bush, the TPP concept has wide bipartisan support. As the negotiations progress, provisions concerning textile trade have become a major point of contention, attracting considerable congressional attention and debate. This report examines the potential implications of a TPP agreement, if one is reached, for the U.S. textile manufacturing industry.

In 2013, the United States exported about $14 billion in yarns and fabrics worldwide. More than half of this output was shipped to Western Hemisphere nations that are members of the North American Free Trade Agreement (NAFTA), the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR), and the Caribbean Basin Initiative (CBI). These FTAs 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 $2.4 billion in yarns and fabrics in 2013.

The TPP marks the first FTA negotiation for the United States initiated since the complete end of quotas on textile and apparel trade. Duty-free access to the U.S. market under TPP could be of considerable benefit to Asian manufacturers, which now face U.S. import duties on textiles and apparel of up to 32%. Textile industry trade groups have warned that, if approved, the TPP could lead to domestic job loss if it results in apparel producers in the Western Hemisphere, which often use U.S.-made textiles, losing U.S. market share to producers in Vietnam and other TPP countries. Aligned against them are retailers and apparel companies that want to be able to import apparel from producers wherever they are located, regardless of whether U.S. textiles are used; they urge full inclusion of textiles and apparel in any TPP agreement and favor preferential access for apparel cut and sewn from fabric made in countries not included in the TPP, such as China.

The U.S. Textile Industry and Its Markets

With nearly $57 billion in industry shipments in 2013, textile manufacturing, which produces yarns and fabrics from raw materials such as cotton and various man-made fibers, is a supplier industry to three industrial sectors. The apparel industry, which transforms textiles into clothing, consumed only 12% of U.S.-manufactured fibers in 2012. About 40% of textile output went into home textiles and floor coverings, while almost half was used in technical textiles such as conveyor belts and automotive floor coverings.

Textile manufacturing occurs largely in highly automated factories, whereas apparel manufacturing is characterized by decentralized, globally dispersed production networks that are coordinated by lead firms that control design, branding, and other activities. Many of the world's largest apparel retailing and marketing firms are headquartered in the United States, but because it typically costs less to manufacture apparel abroad, the United States imports far more clothing than it makes domestically. U.S. apparel shipments totaled more than $13 billion, and apparel manufacturers directly employed 143,600 workers in 2013 (see Appendix A ).

Unlike textile manufacturers, most U.S.-headquartered apparel firms have limited or no U.S. manufacturing capabilities. Some manufacture through a combination of facilities they own and third-party arrangements, often with foreign factories. Others rely entirely on arrangements with third-party suppliers, mostly in Asia. Large retailers frequently contract directly with apparel sourcing companies, which in turn portion out the production work to independent manufacturers. The United States was responsible for approximately 1% of the $460 billion of global apparel exports in 2013, according to statistics from the World Trade Organization. China, Vietnam, Indonesia, Bangladesh, and Mexico rank as the top apparel suppliers to the United States. Beyond apparel manufacturing, countless other functions related to apparel are done domestically, such as design, branding, and marketing of finished products.

The U.S. home furnishings industry has fared far better against import competition than the apparel industry, mainly because manufacturing of carpets, curtains, and tablecloths is highly automated. For example, the development of larger, faster carpet-tufting machines contributed to a decline in employment at U.S. carpet and rug mills, from 49,000 workers in 2003 to 31,200 in 2013. Shipments from U.S. carpet and rug mills totaled $8.9 billion in 2012. The health of the carpet and rug mills industry is tied in large part to conditions in the domestic housing and commercial building markets, raw material prices, and competition from foreign producers.

The output of technical textile mills is used across various industrial sectors. According to one recent estimate, automotive manufacturers use more than 200,000 tons of textiles for automotive interior fabrics, including upholstery, headliners, and door panels, excluding textiles for carpets, floor mats, tire cords, seat belts, or air bags. The Industrial Fabrics Association International (IFAI) estimated that in 2013 about 160,000 workers in the United States produced fabrics specifically for the technical textile market.

The Textile Manufacturing Process

Textile manufacturing begins with fiber, which can be harvested from natural resources (e.g., cotton, wool, silk, or ramie), manufactured from cellulosic materials (e.g., rayon or acetate), or made of man-made synthetic materials (e.g., polyester, nylon, or acrylic). After the raw fibers are shipped from the farm or the chemical plant, they pass through four main stages of processing (see Figure 1 ):

yarn production, in which fiber is spun into filament or yarn; fabric production, which can take place at very small mills or large textile mill operations, and involves primarily either weaving or knitting; finishing, which prepares the textiles for further use by processes such as bleaching, printing, dyeing, and mechanical or wet finishing; and, fabrication, where the finished cloth is converted into apparel, household, or industrial products.

Worldwide, in 2013, the textile industry produced 86.6 million metric tons of textiles. Man-made fibers accounted for more than two-thirds of total production, compared to the share of natural to man-made fibers at about half in the 1990s. Most of the global growth in man-made textile manufacturing has taken place in China, which by 2013 accounted for about two-thirds of total production. The United States was responsible for 5% of global production of man-made fibers in 2013. No other country produced more than 4% of the global total in 2013.

Cotton is the most important natural fiber. In the 2013-2014 marketing year, China ranked as the world's largest producer of cotton at 7 million metric tons, followed by India and the United States. Other large cotton producers include Pakistan, Brazil, Uzbekistan, and Turkey. Many of the leading cotton producers are also leading mill users of raw cotton. The top four consumers of cotton are China, India, Pakistan, and Turkey, which together account for more than two-thirds of world consumption. Consumption of cotton by U.S. textile mills peaked in 1997. Since then, due to the decrease in domestic textile production caused by competition from imported textile and apparel products, U.S. mill use of cotton has dropped about 70%. As for other natural fibers, two TPP negotiating partners, Australia and New Zealand, are among the world's leading wool-growing nations. Vietnam is a top 10 producer of silk, but accounts for only a small portion of global production. China and India are the world's two largest silk producers.

Domestic Textile Production

U.S. textile output has not recovered from the severe downturn in 2008 and 2009. Production at textile mills remains about 25% below the 2007 level, and production at textile product mills is approximately 30% less than in 2007. The value of shipments totaled nearly $57 billion in 2013, a 5% increase over 2012. This amounted to 1% of total U.S. manufacturing shipments (see Appendix A ).

According to government data, there were 2,555 fewer establishments manufacturing textiles in 2012 than in 2003. Appendix B provides an overview of selected U.S.-headquartered textile manufacturers. Although the National Council of Textile Organization (NCTO) reported in recent congressional testimony that "the textile industry has invested over $3 billion in new technologies, machinery, and manufacturing facilities since 2010," the most recent data, for 2012, show a continued drop in the number of establishments producing textiles.

Domestic textile manufacturers have invested heavily in technology to reduce operating costs. For example, modern industrial looms incorporate air-jets to weave at speeds of 2,000 picks per minute (compared with 200 picks in 1980, which at the time was considered fast). Some modern textile mills have become almost completely automated, churning out thousands of square yards every hour with as few as 10 or 20 employees. According to the U.S. Census Bureau, the U.S. textile industry invested $18.9 billion in new plants and equipment between 2001 and 2012. Since then, several manufacturers, including Gildan Activewear, Parkdale Mills, Zagis USA, and Keer, have announced plans to increase U.S. production of yarns, nonwoven and technical fabrics, and other types of textiles by building new textile plants or expanding current facilities.

Because yarn and fabric production are capital- and scale-intensive, they demand higher worker skills than apparel production. As a consequence, the textile industry has been less prone to relocation to lower-wage countries than apparel manufacturing. Significant production remains in the United States, Japan, and South Korea, where skilled labor is available and manufacturers can raise the capital to finance weaving mills costing an estimated $12 million to $25 million and spinning mills costing $50 million to $70 million.

Among all U.S. manufacturing industries, textiles rank near the top in productivity increases. This can be attributed both to automation and to the closure of less efficient mills. While imports of textiles and apparel undoubtedly have contributed to lower industry employment, over the past decade more than 200,000 textile manufacturing jobs have been lost due to automation, according to private estimates.

At the end of 2013, the domestic textile industry employed about 230,700 workers, accounting for fewer than 2% of the nearly 12 million domestic factory jobs (see Appendix A ). Average annual pay was $39,000 in 2013, far below the average of $61,096 for all manufacturing. Figure 2 shows employment has declined by two-thirds since 1990. Over time, employment has fallen most rapidly during economic downturns, but has failed to return to prerecession levels during the ensuing recoveries. The Bureau of Labor Statistics predicts overall textile manufacturing employment will shrink to around 180,000 by 2022.

Domestic textile production is primarily located in the southeastern states and in California, although every state has some textile manufacturing. In 2013, more than one-third of all textile jobs were located in Georgia and North Carolina. Appendix C compares textile employment in the top 10 states, which accounted for more than two-thirds of all textile jobs, in 2003 and 2013.

In related apparel manufacturing, employment has shrunk every year for more than two decades, resulting in 800,000 fewer U.S. apparel manufacturing jobs in 2013 than in 1990 as clothing manufacturers have transferred much of their production abroad. Some industry analysts assert that a "Made in the USA" label is being sought by more consumers, and a small and select group of apparel retailers, such as Brooks Brothers, has responded by resuming a portion of their manufacturing in the United States. In aggregate, however, apparel work has continued to diminish. Industry employment in 2013 dropped to nearly 144,000, representing a reduction of more than 55,000 jobs since 2008.

Global Textile Trade Shifts

For more than 40 years, developed countries, including the United States and the European Union, sought to protect their textile and apparel sectors from developing countries' exports through two multilateral agreements, the Multi-Fiber Arrangement (MFA) and the Agreement on Textiles and Clothing (ATC). Quotas on imports from more than 70 countries limited the quantities of textiles (such as cotton yarns and synthetic fabrics) and particular garments (such as t-shirts and sweaters) that could enter the United States and the European Union each year. This system made it necessary for buyers of textile and apparel products to source from countries for which quotas for particular products were available. This spread manufacturing to an ever-increasing number of countries, instead of concentrating it where production was cheapest.

The expiry of the ATC on January 1, 2005, eliminated all textile and apparel quotas for members of the World Trade Organization (WTO). Since then, buyers have been able to source from any WTO member country, subject only to tariffs. However, U.S. tariffs on textile and apparel imports vary considerably from country to country, governed by bilateral and regional arrangements discussed in greater detail below. The average U.S. tariff rate in 2012 was 7.9% for textiles and 11.4% for clothing, but rates on particular products could be as high as 32% (see Appendix D ).

According to the WTO, China was by far the world's largest exporter of textiles in 2013, with about a 35% global market share at $107 billion. China has been a major force in textiles for decades, but its export growth accelerated following its 2001 accession to the WTO and the expiration of the ATC. Now, more than 50,000 textile mills operate in China. China's textile exports have risen more than 550%, from $16 billion, since 2000 ( Figure 3 ). The European Union and India ranked as the world's second- and third-largest exporters of textiles in 2013. The European Union (based on extra-EU imports), the United States, China, Vietnam, and Hong Kong were the world's top five importers of textiles in 2013.

Apparel trade is more diversified than textile trade, as many nations have been able to develop export-oriented apparel industries on the basis of imported fabrics, without having large domestic textile production. China, the EU-28, Bangladesh, Hong Kong, and Vietnam ranked as the top clothing exporters in 2013. Central America, the Caribbean, and Africa, and countries throughout Asia, including Malaysia, also export large quantities of apparel.

U.S. Trade in Textile Products

In 2013, approximately one-third of U.S. textile production was exported, with a value of $17.8 billion (see Table 1 ). The United States has posted a modest trade surplus in fabrics and yarns for 19 years, but when made-up textile articles (e.g., sheets and towels) are included, the United States ran a textile trade deficit of $17.2 billion in 2013. Import penetration—the share of U.S. demand met by textile imports—reached 37% in 2013, from 31% in 2008 (see Appendix A ).

As Table 2 shows, the majority of yarns and fabrics exported from the United States are sold to NAFTA and CAFTA-DR countries. U.S. exports are often more expensive than those from other countries. Despite this cost differential, apparel producers in the NAFTA, CAFTA-DR, and CBI countries use U.S.-made textiles in products that are exported to the United States because the goods are free of U.S. tariffs. Mexico is the U.S. textile industry's largest foreign market, with exports of $4.2 billion in 2013. However, textile exports to Mexico have shrunk as a share of total U.S. yarn and fabric exports compared with 2000, as rising labor costs have made it a less attractive place to manufacture apparel and production has shifted to Central America. Less than $400 million of U.S.-made yarns and fabrics was exported to other prospective TPP member countries such as Japan, Malaysia, and Vietnam in 2013.

China, Canada, and the EU-28, with a combined total of $6.2 billion, provided more than half of the yarns and fabrics imported by the United States in 2013. Textile imports are sensitive to the economy: between 2008 and 2009, imports of yarns and fabrics shrank by 24%, but they rose 26% in 2010 and another 14% in 2011 as the economy improved. They increased only 1% in 2012 and again by 1% in 2013.

In the apparel sector, import penetration reached almost 90% of U.S. demand in 2013, up from 83% in 2008 (see Appendix A ). The U.S. trade deficit in apparel products was $77 billion in 2013. Nearly 40% of imported apparel came from China. Vietnam, a fast-growing source of apparel for the U.S. market, furnished 10% of imports, and Mexico accounted for 5%, but the other TPP participants shipped only small quantities of apparel to the United States. Almost all U.S. apparel imports from Central America, the Caribbean, Mexico, and Canada are made with textiles produced in the United States. Collectively, they accounted for 16% of U.S. apparel imports in 2013, down from a third in 2000.

Sourcing in the Western Hemisphere

Central America, Mexico, and the Caribbean have limited textile production, but ample cut, make, and trim apparel assembly capacity, or CMT production as it is known in the industry. CMT is a low-value-added production system, whereby a manufacturer produces garments for a customer by cutting fabric provided by the customer, sewing the cut fabric, trimming the thread, and packaging the garments according to the customer's specifications. Canada's higher-value-added textile sector differs substantially from the CMT operations in Latin America. U.S. textile exports to Canada, mainly specialty and industrial fabrics, totaled $1.8 billion in 2013.

In Central America, virtually all fibers are imported. The Central America-Dominican Republic Apparel and Textile Council reports that the CAFTA-DR region has more than 600 apparel companies. About 90 textile mills produce knit and woven fabrics, man-made fibers, and mixtures. Several U.S. textile manufacturers have manufacturing capabilities in Central America, as have companies from South Korea, Taiwan, and China.

Mexico is home to approximately 30 mills producing yarns and knitted and woven fabrics. U.S.-based firms produce significant amounts of denim there. Among the regional apparel suppliers that have free-trade agreements with the United States, Mexico is the only significant producer of fabric and the only significant source of yarn.

Mexico's apparel industry relies almost entirely on the U.S. market for exports. Its cut and assembly operations often use U.S.-made fabrics to produce basic garments such as denim jeans and T-shirts, which are then exported to the United States. Mexico ranked as the largest yarn and fabric market for the United States in 2013 at $4.2 billion, with significant purchases of impregnated fabrics, felt and specialty yarns, and man-made fibers and filaments (see Figure 4 ). Competition from countries with lower wages appears to be reducing the competitiveness of Mexican apparel. U.S. clothing imports from Mexico dropped to $3.8 billion in 2013, from $6.3 billion in 2005.

For U.S. textile exporters, Honduras, the Dominican Republic, El Salvador, and Guatemala represent the biggest yarn and fabric markets in the CAFTA-DR region. At $1.3 billion, Honduras was the largest of the four in 2013, absorbing 9% of total U.S. yarn and fabric exports. Cotton (yarn/woven fabric), man-made fibers, and man-made filaments, which are used to make basic apparel such as T-shirts, socks, and underwear, are among the top export categories from the United States to Honduras. The Dominican Republic, El Salvador, and Guatemala are also major assemblers of basic apparel for the U.S. market.

Nicaragua benefits from a unique feature of the CAFTA-DR agreement: the inclusion of a tariff preference level (TPL) provision. The TPL allows U.S. trade preferences for Nicaraguan apparel that uses non-U.S. or non-CAFTA yarns and fabrics in limited amounts. Even with the TPL, which is scheduled to expire at the end of 2014, U.S. exports of yarns and fabrics to Nicaragua remain relatively tiny at less than $100 million in 2013. Costa Rica also has a TPL provision applicable to wool and certain women's swimwear.

Apparel manufacturers in the Caribbean region also have preferential access to the U.S. market under the Caribbean Basin Initiative (CBI), now called the Caribbean Basin Trade Preference Act (CBTPA) program. Because production of yarn and fabric in the Caribbean is extremely limited, the region's cut and assembly factories mostly rely on U.S.-made fabrics and yarns, with U.S. exports totaling $75 million in 2013. Most textile production in the Caribbean is located in the Dominican Republic (also a CAFTA member). Other Caribbean countries such as Haiti have no domestic textile industries, but use U.S.-made textiles to produce apparel for the U.S. market.

U.S. retailers buy most of their garments from Asia and tend to use Western Hemisphere producers for quick replenishment, especially if time is a critical factor. The major products sourced within the region are basic, low-value knitwear garments, such as shirts, pants, underwear, and nightwear, with a focus on men's and boys' wear. U.S. imports of industrial fabrics from the CAFTA-DR region are relatively minimal at $1.5 million in 2013.

Apparel producers in the Western Hemisphere have two main comparative advantages in serving the U.S. market. One is geographic proximity, which confers lower transportation costs and faster delivery; transit times from the CAFTA-DR region to a U.S. port range from two to seven days, rather than about two weeks to a month from Asia. The other advantage is duty-free access for apparel manufactured from U.S. textiles. For example, manufacturers of cotton T-shirts or cotton twill trousers can avoid a 16.5% import duty if U.S. inputs are used.

On the other side of the ledger, Mexico, Central America, and the Caribbean Basin have much higher wage rates than some Asian apparel suppliers, such as Vietnam, Cambodia, and Bangladesh. A 2010 study, for example, found the apparel industry's average hourly cost of labor to be $2.06 in Mexico, but only $0.51 in Vietnam.

Tariff preferences appear to be important in keeping apparel producers in the Western Hemisphere competitive in the U.S. market, and thereby preserving export markets for U.S.-made textiles. A TPP agreement, if one is reached, has the potential to upset this situation. If apparel produced in Asian TPP countries gains duty-free access to the U.S. market, it could displace apparel manufactured with U.S. fabric in the Western Hemisphere, adversely affecting U.S. textile exports. Also, should Vietnam develop a larger textile industry, U.S. textile exports could be hurt if the TPP were to allow Western Hemisphere apparel producers to use textiles made in any TPP member country and still enjoy duty-free access to the U.S. market.

TPP and Sourcing from Vietnam

Vietnam, which had a negligible garment manufacturing sector a decade ago, is now the second-largest exporter of garments to the United States, behind China. As shown in Figure 5 , apparel imports to the United States from China, which is not involved in the TPP negotiations and is unlikely to enter the TPP in the near future, reached more than $31 billion in 2013. U.S. apparel imports from Vietnam, although far smaller, have grown even faster, rising from near zero in 2000 to $8.2 billion in 2013. U.S. imports of clothing from Vietnam in 2013 were more than twice the value of apparel imports from Mexico. U.S. imports of technical fabrics from Vietnam have also expanded in recent years, totaling $186 million in 2013, but are still far smaller than apparel imports. Among the Asian and Pacific countries in the TPP, Vietnam is the only one with significant textile and apparel trade with the United States.

Generally, the main competitors to Vietnam in the U.S. clothing market are not Mexico and the CAFTA-DR nations, but China and other Asian nations. Vietnam tends to sell fewer basic apparel products (e.g., T-shirts and trousers) and more shirts, suits, and overcoats in the United States than do Western Hemisphere trading partners. For example, in 2013, Vietnam provided 18% of total U.S. imports of women's or girls' blouses, shirts, and suits, both knitted and woven.

Vietnam's apparel sector buys the majority of its yarns and fabrics regionally, from China and other Asian suppliers such as South Korea and Taiwan, and purchases only a limited amount from the United States. The country does have a growing textile industry, comprising 145 spinning mills, 401 weaving mills, 105 knitting mills, 94 dyeing and finishing mills, and 7 non-woven mills. However, Vietnam has yet to develop a broad textile supply base and imports are estimated to account for the overwhelming majority of the fibers, fabrics, and yarns required by its apparel industry. One press report mentions that Vietnamese garment producers obtain only about 12%-13% of fabrics and other input materials, including raw materials such as cotton, from local textile manufacturers.

The Vietnam National Textile and Garment Group, or Vinatex, is Vietnam's largest textile and garment producer. Vinatex, partially state owned, is one of several groups that are investing to increase fiber and fabric production in Vietnam. In 2013, Vinatex's exports were valued at $2.95 billion, with the aim of reaching $5 billion by 2016. Nationally, Vietnam's Ministry of Trade and Industry has set a development strategy for the textile and garment sector, aiming to increase fabric production to 2 million metric tons by 2020. Fiber production is targeted to increase to 500,000 metric tons in 2015 and 650,000 metric tons by 2020. Fiber factories to help reduce Vietnam's dependence on imported materials include a joint venture between Vinatex and PetroVietnam Petrochemical & Textile Fiber Joint Stock Company to build a polyester fiber plant at Dinh Vu. Additional Vinatex projects include a new textile complex for spinning, weaving, sewing, dyeing, and finishing, and a partnership with two Chinese companies to build a large garment and textile industrial park in Vietnam. Investments in chemical plants to generate the basic feedstocks required for the production of synthetic fabrics may follow.

According to Vietnam Investment Review , "a new wave of foreign investments in the spinning, weaving, and dyeing sectors has been kicked off, since investors can see the profits they can gain from the TPP." According to one estimate, foreign manufacturers have invested more than $1 billion in Vietnam's textile and apparel sector in anticipation of a TPP agreement. For example, major Chinese companies, such as Texhong and Pacific Textile, are opening new textile plants in Vietnam, partly attracted by lower labor costs and lower tariffs under a potential TPP. Textile and garment manufacturers based in Japan, Hong Kong, South Korea, Taiwan, Austria, and Australia are also setting up new production or have expanded current production in Vietnam.

Arguably, preferential access to the Vietnamese market under a TPP agreement could result in new business opportunities for U.S. fiber, yarn, and fabric producers. To date, however, Vietnam is not a significant market for U.S. yarn and fabric exporters, importing $59 million of such products in 2013. The United States' main textile-related export to Vietnam is raw cotton: U.S. exports supply about 60% of the cotton used in Vietnamese textile mills.

Textiles and the TPP Negotiations

Textile and apparel trade is governed by very specific rules. Extensive stipulations for textiles and apparel are included in most of the bilateral and regional FTAs and trade preference programs negotiated by the United States over the past two decades. The key issue is typically rules of origin (ROOs), which specify how much of the content of textile and apparel products must come from the region in order for the products to qualify for duty-free access. ROO requirements for textile and apparel products are usually based on the production process as shown in Figure 6 .

Possible rules of origin generally stipulate how much processing must occur within the region if a product is to obtain trade benefits. The major distinctions are:

Fiber Forward : Fiber must be formed in the FTA member territory. Natural fibers such as wool or cotton must be grown in the territory. Man-made fibers must be extruded in the trading area. Yarn Forward : Fibers may be produced in any country, but each component starting with the yarn used to make the textiles or apparel must be formed within the free trade area. This rule is sometimes called "triple transformation," as it requires that spinning of the yarn or thread, weaving or knitting of the fabric, and assembly of the final product all occur within the region. Fabric Forward : Producers may use fibers and yarns from any country, but fabric must be knitted or woven in FTA member countries. Cut and S ew : Only the cutting and sewing of the finished article must occur in FTA member countries, providing maximum flexibility for sourcing.

The United States, most often, has applied the "yarn forward" standard for textiles and apparel, with the notable exceptions of agreements with Jordan and Israel. Most U.S. FTAs also include exceptions allowing limited quantities of fibers, yarns, and fabrics to be sourced from outside the FTA partner countries under certain conditions.

Appendix D lists textile and apparel tariff rates of various countries. In general, U.S. tariffs increase with each stage of manufacturing, such that duty rates are usually higher on apparel than on its yarn or fabric inputs. The United States' TPP negotiating partners also tend to maintain steep tariffs. Vietnam's apparel tariffs range from 5% to 20%.

U.S. negotiators have proposed that the TPP agreement incorporate a unified yarn-forward ROO, with perhaps some exemptions for inputs considered to be in short supply, or "not commercially available," in the region to assure that duty-free preferences only benefit countries that are part of the agreement. Press reports indicate that several TPP negotiating countries, including Vietnam, oppose U.S. demands for a "yarn forward" rule. Vietnam publicly supports a "cut and sew" rule that would allow it, and other TPP participants, to enjoy preferential access for apparel that has been cut and sewn from fabric made in China or other countries not included in the TPP.

U.S. domestic interests disagree over what ROOs should be included in any TPP agreement. On one side are fiber, yarn, and fabric manufacturers who want rules that would require more U.S. or TPP content. Organized as the Textile and Apparel Alliance for TPP (TAAT), they have endorsed a basic "yarn forward" rule applicable to all TPP countries. They warn that without such a rule Vietnamese apparel manufacturers could use Chinese textiles, thereby giving Chinese textile manufacturers duty-free access to the U.S. market and undermining U.S. textile production. More than 165 Members of Congress have endorsed TAAT's position, sending a letter in support to the U.S. Trade Representative recommending a yarn-forward rule.

On the other side are U.S. retailers and importers of apparel, many with no domestic manufacturing, along with the National Retail Federation (NRF) and the U.S. Chamber of Commerce. These interests formed the Trans-Pacific Partnership Apparel Coalition, which opposes the "yarn forward" ROO and calls for a "flexible, liberal, 21 st century ROO standard" for textiles and apparel. Their preferred rule would require only that the sewing of a garment be done in a TPP country to get duty-free status. This would permit use of yarns and fabrics from China and other countries in garments qualifying for duty-free access to all TPP countries. The TPP Apparel Coalition recommends that apparel qualify for preferential treatment if it meets a regional value content threshold, making it easier to switch sources of supply as fashions and relative costs change. Some Members of Congress support this position, and they asked President Obama in May 2012 to pursue "a flexible general rule of origin for apparel that maximizes the incentive to grow U.S. exports, value, and jobs in the TPP."

Conclusion

Concerns about the health of domestic textile manufacturing have influenced many past trade negotiations, and they 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 could 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. However, a "yarn forward" rule would also affect U.S. apparel consumers and the household textiles and specialty textiles markets, 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, but Vietnam will probably not be a significant global competitor in the near future.

Appendix A. Textile Industry Overview

Appendix B. Selected U.S. Textile Manufacturers

Appendix C. Top 10 States in Textile Employment

Appendix D. Selected Apparel and Textile Duties