Adopting meaningful trade agreements, planning smart and careful supply-chain are keys to success.
The fashion industry is a large and growing sector of the global economy. According to the World Economic Forum, the industry generates $2.5 trillion in annual revenue, a huge number that is actually projected to double in the next 10 years.  Fashion and apparel have a long history of being global businesses and that trend will continue into the future. With fast-moving inventory, and dynamic consumer tastes to contend with, the fashion and apparel industries, perhaps like none other, requires the seamless crossborder movements of goods and smooth logistics systems to keep the merchandise, and the cash, flowing. Despite progress, the U.S. apparel industry still faces numerous trade barriers in many countries around the world. The industry also faces supply-chain and logistics challenges as it seeks to satisfy the needs of a rapidly changing retail and consumer landscape. “Eliminating trade barriers, both at home and abroad, is vital for the wellbeing of our industry,” said Stephen Lamar, executive vice president of the American Apparel and Footwear Association (AAFA), a Washington-based industry group. “Approximately 98% of all the clothes and shoes purchased in the United States is imported. Approximately 95% of consumers who buy clothes and shoes live outside our borders. Our products, and the inputs we use to make them, must cross borders.” “With such incredibly rapid growth expected for the industry,” said Bill Heaney, head of the retail sector for DHL Global Forwarding, Americas, “it is important its main players keep logistics considerations in mind to stay competitive in this market. The fashion industry can be fast and unexpected, so staying on top of the supply chain is crucial for the ultimate success of any fashion house.” Barriers U.S. apparel makers serve many markets from a variety of different production locations around the world. While they still export from the United States, the vast majority of exports of U.S.-branded product are made in countries other than the United States. The nature of these global supply chains means that the success of U.S. fashion companies, and the fate of many U.S. apparel jobs, depend on the ability of foreign-made, U.S.-branded products to penetrate foreign markets.  “Any barrier, whether it comes in the form of border measures, such as tariffs or quotas, or market restrictions, such as standards or local requirements, results in higher costs, lost sales, burdensome delays, and lost jobs,” said Lamar. “Ensuring predictable, fair, and transparent enforcement of trade laws is equally important.” Despite the existence of a rules-based system for international trade in the form of the World Trade Organization for the last 20 years, and longer than that under the WTO’s predecessors, the U.S. apparel industry still faces costly barriers in many markets. There has been a proliferation of inconsistent chemical management, product safety, and labeling requirements for apparel, footwear, and textiles in many countries.  “In today’s global supply chain, goods are often manufactured in bulk for a variety of markets all over the world,” Lamar explained. “Each market having its own specific requirements make it very difficult to deliver products efficiently and adds unnecessary delays and costs on manufacturers that eventually trickle down to the consumer level.” Among the trade barriers that concern Lamar, one is the tariff rate quota imposed by the Japanese government on leather footwear. “That quota has stymied the development of Japan as a market for U.S. footwear exports,” he said. “We understand this longtime trade barrier was resolved favorably in the Trans-Pacific Partnership.” Many of the challenges the U.S. apparel industry sees in China relate to the lack of information, transparency, and consistency in rule making. “Regulations within China are often controlled by state agencies and differ by province leading to inconsistent treatment and enforcement across jurisdictions,” said Lamar. “Transparency in all transactions and across multiple agencies is limited, and thus a barrier to trade.” When it comes to standards, China’s General Administration of Quality Supervision, Inspection, and Quarantine (AQSIQ), is in charge of import and export commodity inspection, certification, testing, and standardization, and also of law enforcement as well. “This is an entity that can easily and quickly change its standards and policies without needing to provide enough time or information to allow companies to comply,” said Lamar. “AQSIQ often imposes differing regulations at the province level, providing no consistency.” Issues related to this lack of transparency can cause shipments to be delayed by up to four weeks in some cases for inspection, according to Lamar. Import tariffs in China sometimes differ depending on the port of entry and the importing agents involved. “The actual tariffs are often negotiated with local customs agents,” said Lamar. “China has a pattern of enforcing various compliance regulations on imports more strenuously than on domestically-made goods.” Compliance Complexities Similar problems exist in several Latin American countries, including Mexico, as well as in Indonesia, India, and Canada, according to Lamar. “Argentina remains one of the worst offenders in terms of implementing protectionist trade barriers,” said Lamar. “A recent WTO ruling against Argentina’s import restrictions brought an end to the use of non-automatic import licenses, but our members have seen little overall improvement in Argentina. The country’s trade policies, ranging from import quotas to slow the processing of imports, not only make the Argentine market nearly impossible to penetrate, but harm those who are manufacturing within Argentina as well.” Most of Argentina’s restrictions stem from its import-balancing policy, which requires companies to export the same dollar amount as they import. The intent behind this policy is to encourage manufacturing within Argentina. Some U.S. apparel and footwear makers have begun manufacturing in Argentina as a result, a practice which increases their production costs and supply chain complexity.  “Ironically, many are unable to sustain production in the country because the policy also prevents them from being able to import the raw materials and machinery they need in order to manufacture their products,” said Lamar. Among Lamar’s other complaints about Argentina: duties on apparel and footwear imported into Argentina must be paid on reference prices rather than actual prices; only specific ports of entry can be used for specific types of goods; and, requirements are routinely changed without prior warning or written notice. “Companies that complain often face retaliation through tougher restrictions or tighter enforcement,” he added. On the logistics side, DHL’s Heaney advises fashion houses to keep their supply chains speedy by shortening production lead times. “Sourcing from new and lower-cost countries and balancing transportation modes is one way to do it,” he said. “By keeping supply chains more dynamic, fashion houses and designers can maintain a high tolerance for sudden changes to ensure they get their product to the consumer on schedule regardless of any challenges.” Localizing production and leveraging faster modes of transportation enables “fast fashion,” a term used to describe designers quickly moving fashion into stores after its debut on the catwalk at designer shows to better capture current fashion trends. “With fast fashion,” Heaney explained, “designers are only producing what is in demand and stop when demand ends. Using this model, there is less waste product, meaning less of a need for warehousing and fewer items being sold at discounted rates.”  Staying on the cutting edge of technology is also key for players in fashion and apparel to cater to their tech-savvy consumers. “Fashion brands need to partner with reliable logistics companies that offer software solutions to help manage flexibility and tackle the increasingly complex fashion environment by avoiding delays and providing precise tracking,” said Heaney. “With the industry growing, the sector will only become more competitive than ever, so the need to deliver trending products quickly and efficiently will be a game changer going forward.” The continued adoption of trade agreements that harmonize standards and remove trade barriers is the fix that the U.S. apparel industry needs to manage crossborder movements of goods and streamline their production costs, according to Lamar. “The U.S. should work with other nations toward an alignment on standards compliance in chemical management, product safety, labeling, and other similar regulatory areas,” he said. “The Trans-Atlantic Trade and Investment Partnership provides an excellent opportunity to unite the two largest markets,” the U.S. and the European Union, “in a common set of regulatory standards.” Trade Facilitation Agreement Lamar also favors promoting the Trade Facilitation Agreement (TFA), a WTO instrument which contains provisions for expediting the movement, release, and clearance of goods. It also sets out measures for cooperation between customs and other authorities on trade facilitation and customs compliance issues and contains provisions for technical assistance and capacity building in this area. The TFA will enter into force once two-thirds, or 108, of the World Trade Organization members has accepted the agreement. At the end of November, Guyana became the 53rd WTO member out of a total of 161 to have ratified the Trade Facilitation Agreement. Several of the barriers faced by U.S. apparel makers could be resolved by the TFA, according to Lamar. “We hope we can quickly reach the threshold of 108 countries for entry into force, and that more countries will join beyond that,” he said. “Lack of TFA ratification is a trade barrier.”