Asian Apparel Industry Scrutinized; NCTO Argues Trade Barriers Needed

Bangladesh is the third-largest supplier of exported garments to the U.S., after China and Vietnam; India, Indonesia and Cambodia are fourth, fifth and sixth. Pakistan is eighth, after Mexico and Honduras. The five countries combined produce roughly 25% of U.S. apparel.

The commissioners -- three Democrats and Republican David Johanson, the commission's chairman -- asked for-clarification questions of the foreign countries' government and private sector witnesses, but pressed the U.S. witnesses on bigger picture questions.

Johanson repeatedly asked if the fact that these countries are growing their market share without any reduction or elimination of tariffs on their apparel exports is proof that their sectors are better at producing at the price, quality and volume that American buyers seek?

Beth Hughes, vice president for trade and customs policy at the American Apparel and Footwear Association, said yes. "They have the ability, the workforce to make the products at the speed and the quality that my members want and need." She said clothing buyers would love to source more in Central America, since it's closer to the U.S. market and therefore takes less time to ship, but that the variety available there is lacking.

U.S. Fashion Industry Association President Julia Hughes said it's ironic, but the strength of the rules for CAFTA-DR can make importing from the Dominican Republic or Central American countries riskier. If you have a binding, a trimming or other input that exceeds the 10% by weight exception to yarn-forward rules, and you are denied the free trade preference when you expected to receive it, you end up with a higher cost for the import than you expected.

"I’m not saying the Western Hemisphere is at a total disadvantage," she added. In fact, earlier in her testimony, she questioned why Mexico or Honduras weren't in the scope of the investigation, given they have higher market share than Pakistan.

She also said that if we want to encourage developing countries to improve their treatment of workers or improve their environmental practices, offering them duty-free benefits for some apparel could help.

National Council of Textile Organizations CEO Kimberly Glas told the commission that the closure of 10 U.S. textile plants in the last five months, and the closure of some companies is "a crisis of historic proportions," caused by "unchecked foreign predatory trade practices."

She said NCTO members should be able to file trade remedy cases (they are not direct competitors, since they make fabric or yarn, not clothing). The ITC will not make policy recommendations as part of this report.

Glas argued that the countries covered by the investigation, which had a combined 28% market share last year, and whose exports to the U.S. increased 30% in value and 58% by volume from 2013 to 2023, combine domestic cut and sew operations at some of the lowest wage rates in the world with subsidized textile inputs.

She called their rise "unstoppable, though ethically fraught."

Representatives from India said nearly all of their textile production is with domestically produced yarns and fabrics, and that India has increased its man-made fabric capabilities as it sees importers prefer blends and man-made fabric to cotton. India is one of the world's largest cotton growing nations.

Glas also pointed to the Labor Department's assessment that Bangladesh's, India's, Cambodia's and Pakistan's garment industries either use child or forced labor. That report doesn't give details in that sector for any country except India, where it said children, mostly between the ages of 8 and 17, are forced to sew garments, but it's mostly home-based production.

Glas said textiles and apparel shouldn't be covered under a renewed Generalized System of Preferences benefits program, and Bangladesh and India shouldn't be restored to GSP. Doing so "would only supercharge already dominant Asian supply chains, reward China," she asserted.

Commissioner Jason Kearns asked Glas what NCTO's interest is in the investigation. He asked if Haiti, Mexico and CAFTA countries are having a hard time competing with these five countries?

Glas said that 70% of what U.S. textile mills manufacture is sold to Western Hemisphere FTA partners, and that supply chain directly competes against the Asian supply chain.

"The five countries you are examining today are not playing by the same set of rules," she said.

Kearns asked if labor standards in Bangladesh are that different from those in Honduras or Mexico?

"Absolutely," she replied, and said U.S. government officials have the right to inspect factories that export under USMCA or CAFTA-DR benefits.

She said that beyond labor, and her assertion that these countries use Xinjiang-grown cotton in their garments, when companies are buying fabric or yarn from China, that means they benefit from Chinese subsidies. She also dismissed the tariff disadvantage that Asian exporters face, calling it "a couple of pennies" per garment.

Bangladesh Garment Manufacturers & Exporters Association President Faruque Hassan sees it differently. He noted that, as a least developed country, Bangladesh has enjoyed duty-free access to the EU under its GSP, and said the U.S. should reconsider its tariff protection of apparel, including by allowing GSP to cover the sector.

He said the average apparel tariff in the U.S. is 15.5% -- and that even India, known for its high tariff protections of domestic producers, has less than 10% tariffs in apparel. He said the rest of the Western world has an average 1% tariff on imported apparel.

The commissioners questioned Glas' argument that CBP's enforcement is diminishing, saying when they met with CBP officials in Baltimore, they learned about how CBP is stopping unsafe goods, counterfeits and enforcing the Uyghur Forced Labor Prevention Act.

Glas said that if CBP were enforcing UFLPA fully, "We should be seeing stopped [textile] shipments at the Port of LA every day."

Glas said there needs to be more penalties, civil and criminal, for customs violations, whether transhipment, undervaluation, misclassification or bringing in goods made with forced labor.

USFIA's Hughes said that back when there were garment quotas for all exporting countries, trade policy determined who was competitive, but now buyers can source products where they think is best.

"No single factor makes a country competitive," she said, but large companies weigh cost, the risk that factories are not labor, environmentally or socially compliant, geopolitical risk, flexibility and agility and speed to market.

Hughes said the geopolitical risk's salience is rising, and pointed to disruptions in the Red Sea and the "desperate situation today in Haiti."

She noted that each of the countries in the investigation has different strengths and weaknesses -- India is really strong in flexibility and agility, and is strong on social compliance, but is a bit more expensive. Pakistan is especially competitive in cotton apparel, and is good on costs, flexibility and agility. Bangladesh is improving in flexibility and agility, but there are labor and social compliance risks.

Cambodia is not as agile because it imports fabrics, and also is getting more expensive, and has compliance risks. Indonesia has longer lead times, but is good at making technical fabrics and garments.

AAFA's Hughes said these countries have decades of apparel manufacturing, and the size and kind of skilled workforce needed for the labor-intensive cut and sew operations.

"These countries are competitive because they have created responsible, reliable and skilled industries," she said.

She said she just talked with member companies when they were in Washington last week lobbying, and they said that it's no longer the case that the No. 1 reason to select a country is because it's the cheapest country to produce in.

Cornell University's Global Labor Institute Executive Director Jason Judd scoffed at that testimony. He said not much has changed in sourcing decisions in the last 10 years. "If there are ten factors in this complex calculus, price is the first six," he said. Judd said he had just returned from the capital of Bangladesh and the capital of Cambodia, where he talked to both producers and buyers. Of Bangladesh's garment prices, he said, saying it was a quote from a sourcing director he met during his trip, "It's crazy low."

Eric Gottwald, policy specialist for trade and economic globalization at the AFL-CIO, said Bangladesh's wage suppression influences the industry worldwide. "The labor abuses in this sector, they are largely a result of a failure of governance … but they are also the result of the … commercial terms of the modern apparel industry," he said.

Whoever is to blame for low wages, Kearns said, the commission needs to have the dots connected between what he termed unfair labor conditions and competitiveness. He noted that Cambodia is another one of the countries that has had success in building a large export sector, and its minimum wage is almost twice that of Bangladesh. According to testimony, more than a third of Cambodia's economy and 750,000 jobs are in apparel manufacturing.

AAFA's Hughes said the shutdowns during COVID-19 in China and the UFLPA both "make China a less attractive place to do business," and the Asian countries benefited, especially if they don't buy cotton yarn or fabric from China.

The commission asked why Bangladesh gained the most market share during this period, and USFIA's Hughes said that ironically, the tragedy of the building collapse at Rana Plaza, where poor government oversight allowed a garment factory in the building to operate when it was clear the building was structurally unsound, played a role. After the death of 1,100 workers, Hughes said, brands committed to staying in the country and working to improve worker safety.

Given the decline in consumer demand for apparel and the inventory overhang in 2022, "We all cut back; imports were down substantially last year from every place," she said. "They were going to cut back less from Bangladesh."

The commissioners noted that with supply chains shifting away from China, there was almost no movement to the Caribbean or Central America, though they have a speed to market advantage and tariff advantages.

AAFA's Hughes said CAFTA-DR's strict rules of origin make it very difficult to make a wide variety of clothes there. "We need more spandex in this hemisphere," she said, as there's only one supplier.

"That’s just one example," she said. She said importers also would like to be allowed to cumulate from other free trade partners, buying Pima cotton in Peru, and using it to make a garment in Central America.

Kearns said the rules of origin exist so that there's demand for yarns, fabric and fiber from the U.S., and asked if Glas is right, that the competitive disadvantages in the Western Hemisphere are caused by lower labor standards in Bangladesh or the effect of Chinese subsidies in Asia.

AAFA's Hughes replied, "From what I hear from my members, they can’t get the inputs they need in this hemisphere; they’re not being made, and therefore they’re not eligible for the rules of origin."

She said companies try to work within the short supply system, but the lack of variety of fabrics is a chicken-and-egg problem -- investors won't build a mill unless they know the demand is there, but retailers can't commit to orders unless they know they can get the materials they want and qualify for the duty-free benefit.

Kearns noted that Glas says apparel shipments coming in under de minimis undermine the FTAs, and that the government needs to curtail it.

AAFA's Hughes replied, "Anyone can say anything, it doesn’t mean it’s the right answer."

Kearns asked if anyone disagrees that de minimis makes FTA benefits less valuable, but the commissioners also did seem to express some skepticism about the de minimis argument, asking witnesses if these five countries are known to be particularly heavy users of de minimis.

Commissioner Rhonda Schmidtlein pointed out that apparel imports fell about 20% in 2020, increased 44% from 2020 to 2022, then dropped 20% in 2023.

AAFA's Hughes said the pandemic, the shipping crisis, the surge in purchases, and then retailers' overstocking in response to that demand and inventory overhang explains a lot of the bullwhip effect, as well as consumers' hesitancy after prices rose during inflation.

USFIA's Hughes said that if Kim Glas had still been at the hearing -- she left before the rest of the U.S. panel testified -- she would tell her that the mill closures aren't due to de minimis or predatory pricing from Bangladesh, but because the apparel sector is retrenching, with retail stores closing and thousands of layoffs. If buyers aren't placing orders, then Central American and Mexican factories won't place orders with the U.S. mills.