Textile and Apparel Trade Issues

Textile and Apparel Trade Issues

Order Code RS20436
Updated September 9, 2002
CRS Report for Congress
Received through the CRS Web
Textile and Apparel Trade Issues
Bernard A. Gelb
Specialist in Industry Economics
Resources, Science, and Industry Division
Summary
Because of their importance to the U.S. economy and to many U.S. trade partners,
textiles and apparel have been major issues in trade relations with a number of countries
and regions. In attempts to resolve conflicts between the interests of exporters and
importers, a number of agreements (multilateral and bilateral) have been signed over the
years generally restricting, the quantities of textiles and apparel traded. Developing
countries, whose exports have been limited, believe that developed countries have
unfairly delayed import liberalization, and continue to press for accelerated
implementation of the phase-out of quotas. Congress eased trade terms on textiles and
apparel from Andean, Caribbean, and sub-Saharan nations in its latest move to boost
economic growth in poorer regions. This report will be updated as events warrant.1
The Economics of Textile and Apparel Production and Trade
Textile and apparel manufacture, and international trade in those products, have been
important elements of economic activity and growth since the Industrial Revolution.
Major reasons are (1) textiles and apparel are basic items of consumption in all countries,
and (2) textile and apparel manufacture – particularly apparel – is labor-intensive,
requiring relatively little fixed capital for entrepreneurs to establish production facilities.
Thus, these industries are major generators of employment. Modest capital requirements
contributed to textiles and apparel being among the major industries at the start of the
Industrial Revolution and being important to developing countries now. The share of total
manufacturing value added accounted for by textile and apparel production among
developing countries was triple that for industrialized countries in 2000.2
Lower wage rates in developing countries together with the labor-intensiveness of
textile and apparel manufacture tend to give developing countries a comparative advan-
1 CRS analyses and references to CRS reports on a wide variety of trade issues can be found in
CRS’s electronic briefing book on trade [http://www.congress.gov/brbk/html/ebtra1.html.]
2 United Nations, Industrial Development Organization. International Yearbook of Industrial
Statistics 2002. Vienna: 2002. p. 55.
Congressional Research Service ˜ The Library of Congress

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Table 1. U.S. Trade in Textiles and Apparel
(millions of current dollars)
Textile Mill Products
Apparel & Fabricated Textile Products
Exports
Imports
Balance
Exports
Imports
Balance
Year
1973
926
1,423
-497
381
2,261
-1,880
1980
2,488
2,034
454
1,604
6,543
-4,939
1989
2,803
4,786
-1,983
2,380
25,509
-23,129
1994
5,269
6,534
-1,265
6,350
38,561
-32,211
1997
7,225
8,369
-1,144
9,654
50,190
-40,536
1999
7,697
9,029
-1,332
9,291
59,114
-49,823
2001
8,798
9,214
-416
8,331
67,161
-58,830
1 11 months data at an annual rate.
Sources: U.S. Department of Commerce, International Trade Administration. U.S. Industrial Outlook, various editions;
U.S. International Trade Commission Dataweb (compiled from U.S. Departments of Commerce and Treasury data).
tage in textile and apparel manufacture. Thus, textile and apparel manufacture is tending
to shift to developing countries, with textiles and apparel constituting large portions of
their exports. Textile and apparel manufacture (measured by constant-dollar value added)
in industrialized countries decreased between 1980 and 2000, whereas textile and apparel
manufacture in developing countries increased.3 Between 1980 and 1999, textile and
apparel exports of developing economies (in nominal dollars) sextupled while developed
economies’ textile and apparel exports rose 125%. Textiles and apparel comprised 13%
of developing economies’ exports in 1999, versus 4% for developed economies.4
U.S. Textile and Apparel Production and Trade
In contrast to industrialized countries as a whole, U.S. production of textiles and of
apparel rose between 1980 and 2000; total U.S. manufacturing output, however, doubled
between 1980 and 2000.5 U.S. output of both textiles and apparel fell in 2001, reflecting
the economic recession. More significant to many in the textile and apparel industries,
employment in those industries fell by 44% and 55%, respectively, between 1980 and
2001. Nevertheless, the two industries together employed over one million people in
2001, or 6% of total manufacturing employment.
Some of the decline in U.S. textile and apparel employment is linked to gains in
productivity, and some to increases in importation of textiles and apparel. Textile
manufacturing output per hour rose 3.8% per year on average between 1980 and 2000; the
corresponding figure for apparel was 3.9%. U.S. imports of textiles in 2001 (in current
dollars) were 4½ times their 1980 level; and 2001 apparel imports were more than ten
times their 1980 level. Imports of textiles and apparel exceeded exports by $59 billion in
3 United Nations. op. cit. p. 58-59.
4 United Nations. 1994 International Trade Statistics Yearbook, Vol. II. New York: 1995. p. S-20,
76, 92; 1999 International Trade Statistics Yearbook, Vol. II. New York: 2000. p. S-42, 98, 114.
5 These output changes are based upon industrial production indexes, which are designed to
reflect changes in production volumes, rather than in value added (used by the United Nations).

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2001. U.S. textiles have fared less badly with respect to trade than apparel because textile
production is less labor-intensive, more easily automated, and, as a major input to apparel,
can be exported to serve as inputs to apparel that then is exported to the United States.
The considerable extent of U.S. textile and apparel trade with developing countries
is indicated by the following: For U.S. exports, 5 of the top 15 textile destinations and 8
of the top 15 apparel destinations in 2001 were developing countries. For U.S. imports,
4 of the top 15 textile sources and 8 of the top 15 apparel sources were developing
countries in 2001. Mexico was among all four top-five groups; and China was fifth as a
textile exporter and first as an apparel exporter to the United States.6
Textile and Apparel Trade Agreements
Because of their importance to the U.S. economy and to many trade partners of the
United States, textiles and apparel have been major issues in U.S. trade relations with a
number of countries and regions. Attempts to resolve the conflicts between the interests
of exporters and importers have resulted in a number of agreements – bilateral and
multilateral – bearing on, and generally restricting textile and apparel trade.
Agreement on Textiles and Clothing. The current Agreement on Textiles and
Clothing (ATC) is a WTO adaptation of the Multifiber Arrangement (MFA), which came
into being in 1974. The MFA, extended several times, was a set of rules governing
bilaterally-negotiated agreements, mainly between developing and developed countries,
that applied quantitative restrictions when surges of imports of particular products caused,
or threatened to cause, damage to the industry of the importing country.7 The ATC, which
replaced the MFA on January 1, 1995, is a transitional instrument that phases out existing
quotas, improves access to the textile markets of developing countries, and places trade
in textiles and apparel under the rules governing other products. The ATC provides for
a 10-year transition period for producers in developed countries to plan for and adjust to
prospective intensified competition from developing countries. All quotas on textile and
apparel imports are to cease to exist January 1, 2005. A notable component of the ATC
is the provision that allows importing countries to impose transitional safeguard
mechanisms to protect against damaging surges of imports of products not under quota
and not yet integrated under WTO rules. In a four-step process of liberalization, importing
countries have the choice of how much of each (defined) product category to liberalize
at which step; and they can defer liberalization of the most "sensitive" products until the
last step.8 Thus, the nature of this procedure has not maximized the satisfaction of many
exporting countries, who see it as a constraint on their economic growth. They believe it
is unfair, and want a faster phase-out of quotas.
6 The trade information is based upon data from the Dataweb database compiled by the U.S.
International Trade Commission from U.S. Departments of Commerce and Treasury data.
7 The MFA departed from the basic rules of the General Agreement on Tariffs and Trade (as does
the ATC), particularly with respect to the principle of non-discrimination.
8 See CRS Report RS20889, Textile and Apparel Quota Phaseout: Some Economic Implications,
by Bernard A. Gelb. A description of the provisions of the ATC can be found on the WTO
Internet web site: [http://www.wto.org]. Click on “Documents” and then “Legal Texts.”

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Dispute Settlement. Despite the extensive body of WTO rules, disputes between
member countries arise. Disputes arising under WTO agreements may be resolved under
the WTO Dispute Settlement Understanding (DSU). Under the DSU, panels are
established to investigate complaints and make findings. The DSU strengthens earlier
dispute resolution procedures and practice (established under the General Agreement on
Tariffs and Trade). There have been about one dozen complaints concerning textiles
and/or apparel formally brought against or brought by the United States; nearly all cases
have been resolved through pre-adjudication agreement, compliance with the
recommendation of the Dispute Settlement Body (DSU), or settlement after the DSU
recommendation. A number of other disputes have been settled by bilateral negotiation.9
China. On November 15, 1999, the United States and China reached an agreement
covering a wide range of bilateral trade issues. Regarding textiles and apparel, the 1999
agreement incorporated the 1997 textile and apparel agreement between the two countries.
Major elements of that agreement were (a) China, upon accession to the WTO, will "catch
up" to the ATC schedule of quota phaseouts by 2005 for other WTO members, but the
United States retains the right to impose safeguard measures through the end of 2008,
allowing continuation of some quotas under some conditions (under ground rules in effect
before WTO establishment), and (b) China will significantly lower its tariffs on a wide
range of textile and apparel products, and not impose new nontariff barriers.10 P.L. 106-
286 granted permanent normal trade relations status to China upon its accession to the
WTO, but also created mechanisms to monitor China’s compliance with WTO and other
trade agreements. Negotiations on China’s accession terms were completed in September
2001; China officially joined the WTO on December 11, 2001.
U.S. textile and apparel importers praised the agreement, particularly regarding the
ending of quotas. U.S. textile manufacturers were disappointed that the agreement did
not provide for continuation of quotas on Chinese textiles and apparel for 10 years, a
phase-out duration faced by other WTO members; and the industry trade group expressed
concern over expectations of U.S. job and production losses. U.S. labor, as represented
by the AFL-CIO, criticized the agreement as failing to protect workers' and human rights.
Developing Countries: Issues and Initiatives
Push for Accelerated Phaseout. As indicated above, developing countries,
whose exports of textiles and apparel have been limited, believe that developed countries
have unfairly deferred substantial liberalization of imports, and are eager for acceleration
of the benefits of existing agreements. Before and during the WTO Seattle Ministerial
9 For details on and discussion of the DSU, see CRS Report RS20088, Dispute Settlement in the
World Trade Organization: An Overview, by Jeanne J. Grimmett, or the Dispute Settlement page
of CRS’ electronic briefing book on trade on CRS’ web site. In addition, the dispute settlement
page of the WTO web site has extensive information on the dispute settlement process and the
status and disposition of complaints. See [http://www.wto.org] and click on “disputes.”
10 This agreement served as a necessary step toward China’s accession to the WTO. On May 24,
2000, the House of Representatives approved permanent normal trade relations with China. For
more on U.S.-China trade relations in general and textile and apparel trade in particular, see CRS
Issue Brief IB91121, China-U.S. Trade Issues, by Wayne M. Morrison, and CRS Report 97-371,
China-U.S. Textile Trade: Growth and Confrontation, by Edward Rappaport.

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Meeting (November 30 to December 3, 1999), much of the negotiations related to textiles
and apparel pertained to this issue. The developing countries received some support from
the European Union and Japan for acceleration of implementation of existing agreements.
Notwithstanding the failure of the Seattle Ministerial and the slow movement toward a
new general round of trade talks, phase-out of the ATC textile and apparel import
restrictions is proceeding; and developing countries continue to press for accelerated
implementation of the ATC. Those countries won modest gains at the Doha Ministerial
(November 10-14, 2001). The Ministerial’s final declaration included agreement to
negotiations aimed at (a) reducing or eliminating tariffs, particularly regarding products
of export interest to developing countries, without any prior exclusions, and (b) reducing
or eliminating non-tariff barriers. In this provision and others, the special needs and
interests of developing and least developed countries are to be taken into account.
Congressional Initiatives. The U.S. Congress has made efforts to stimulate
economic growth in poorer regions of the world, mainly by providing textile and apparel
trade benefits. Among its latest efforts, Congress has eased trade terms on textiles and
apparel from Caribbean, sub-Saharan, and Andean region nations. Given the large role
usually played by textiles and apparel in early industrial development, it is reasonable to
expect that these industries would be among the first to grow rapidly in these regions.
The Caribbean and Central America. The Caribbean Basin Economic Recovery
Act (CBERA) established the Caribbean Basin Initiative (CBI), putting into law (effective
January 1, 1984) trade preferences (and some other benefits) in the form of unilateral
preferential treatment (duty-free, or at duty rates lower than those generally applicable) for
most articles imported from 24 beneficiary countries. The Caribbean Basin Economic
Recovery Expansion Act of 1990 made the program permanent. Eligible for duty-free
preference were all otherwise dutiable products except certain import-sensitive items,
which included textiles and apparel subject to textile agreements.11 However, the tariff and
quota treatment of imports from Mexico under the North American Free Trade Agreement
put imports from the countries intended to benefit from CBERA at a disadvantage vis à
vis imports from Mexico. Congress has considered and passed legislation to address this.

Andean Countries. The Andean Trade Preference Act (ATPA) (P.L. 102-182,
Title II) provided a 10-year period of duty free or reduced-rate treatment of selected
products from Bolivia, Colombia, Ecuador, and Peru that excluded textiles and apparel.
This limited program, enacted in part to counter illicit drug production and trade by
enhancing other economic opportunities, has produced limited results; and it expired
December 4, 2001. After a delay, Congress reinstated and extended the scope of the
benefits to include some textile and apparel products (see below).
Sub-Saharan Africa. Africa presently exports only small amounts of textile and
apparel products to the U.S. market. Important measures to improve U.S. economic
relations with sub-Saharan Africa began in the mid-1990s. In 1994, the Uruguay Round
11 There is a special program for apparel assembled in a CBERA country and imported under the
“production sharing” provision, provided it is assembled from fabric formed and cut in the United
States. Under this, regular duty rates are applied to a base that excludes the value of U.S.-origin
components. Such products may be imported from CBERA countries above the regular quotas
up to bilaterally agreed “guaranteed access levels” (GAL) at the regular duty rate.

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Agreements Act (P.L. 103-465) directed the Administration to develop an Africa trade and
development policy and report on this policy to Congress annually for five years. The
Administration's first report spurred Congressional interest in African economic growth
and in improving U.S.-sub-Saharan economic relations. The Partnership for Economic
Growth and Opportunity in Africa, announced by President Clinton in 1997, supported
economic reforms in Africa and encouraged closer economic ties between the United
States and Africa, and included ideas Congress already was considering.
106th and 107th Congresses. Together with several other measures, the Trade
and Development Act of 2000 (P.L. 106-200, enacted May 18, 2000) liberalized trade with
qualifying sub-Saharan and Caribbean Basin counties. Title I, the African Growth and
Opportunity Act (AGOA), gave preferential treatment to certain apparel articles from
countries meeting transhipment requirements and contained broad provisions aimed at
encouraging economic development and trade. Items admitted duty-free and quota-free
include apparel assembled from fabrics wholly formed and cut in the United States and
yarn wholly formed in the United States, apparel cut and assembled or knit-to-shape from
fabrics or yarns wholly formed in the United States, knit-to-shape sweaters made from
certain wools, and certified handmade and folklore articles. Certain other apparel items
are free of duties and quantitative restrictions up to a specified level of imports.
Title II (Caribbean Basin Trade Partnership Act) focused mainly on the preferential
treatment of textile and apparel products. It added several eligibility criteria and set the
transitional period of CBERA preferential treatment to run from October 1, 2000 through
September 30, 2008. Articles accorded duty-free and quota-free treatment include apparel
assembled in a beneficiary country from fabric wholly formed and cut in the United States
from U.S.-made yarn, or from a fabric made in the United States from U.S.- made yarn cut
in a beneficiary country, and sewn with U.S.-made yarn.
The Trade Act of 2002 (P.L. 107-210), in addition to providing trade promotion
authority to the President, liberalizing trade adjustment assistance to workers, effectively
reinstates and liberalizes the Andean Trade Preference Act and liberalizes benefits under
CBERA and AGOA under Title XXXI. The Andean provisions extend the ATPA to
December 31, 2006 and newly include certain textile and apparel items as eligible for
duty-free treatment. Caribbean Basin benefits are liberalized through a substantial
increase in the quota ceilings for knit-to-shape apparel and exclusion of the cost of
trimmings and findings from the cost of U.S. fabric components. Sub-Saharan benefits
are liberalized by a clarification that apparel assembled from knit-to-shape components
made in the United States and garments from components cut both in the United States
and beneficiary countries are eligible for preferential treatment, and it increases the import
cap on certain duty-free apparel items. However, P.L 107-210 also specifies that all dying,
printing, and finishing of U.S.-made fabric incorporated in imported apparel must occur
in the United States for that apparel to be eligible for CBERA or ATPA benefits.12
12 For more discussion of legislation regarding trade with sub-Saharan Africa, the Caribbean, and
the Andean regions, see CRS Report RS20063, U.S. Sub-Saharan Africa Trade and Investment:
Programs and Policy Direction, by Lenore Sek, CRS Issue Brief IB95050, Caribbean Basin
Interim Trade Program: CBI/NAFTA Parity, by Vladimir Pregelj, and CRS Report RL30790, The
Andean Trade Preference Act: Background and Issues for Reauthorization, by J. F. Hornbeck.