What Makes an Apparel Producing Country ‘Competitive’?

The U.S. textile industry is facing a “crisis of historic proportions” due to rapidly deteriorating market conditions, rampant foreign predatory trade practices and weak customs enforcement, said Kimberley Glas, president and CEO of the National Council of Textile Organizations, a Washington, D.C and North Carolina-based trade group.

Speaking at a U.S. International Trade Commission (USTIC) hearing on the export competitiveness of five sourcing countries on Monday, Glas warned that this “perfect storm” is undermining not only America’s textile output but also its members’ ability to retain their workforce.

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“Ten U.S. textile plants have been shuttered in a matter of months,” Glas said. “Among those impacted are companies that survived the Great Depression, the Great Recession and Covid shutdowns, and yet are now being forced to close plants, with some companies going out of business altogether, due to today’s unprecedented levels of demand destruction.”

The “fallout,” she added, extends to nearshore partners under free-trade deals such as the United States-Mexico-Canada Agreement and the Dominican Republic-Central America Free Trade Agreement, which, along with U.S. textile producers form an integrated textile and apparel co-production chain that serves as a “counterweight” to the Asian production that makes up the bulk of global manufacturing.

The hearing is part of a fact-finding probe by the USTIC to, among other things, compare the shifting U.S. market shares held by Bangladesh, Cambodia, India, Indonesia and Pakistan over the past decade and suss out their export competitiveness in terms of industry structure, cost, product differentiation and reliability. The agency plans to submit its report to the U.S. Trade Representative, which requested the investigation by the end of August.

Most of the countries under scrutiny count the United States as its biggest exporter, their representatives said. For Bangladesh, dispatches to the American market, its largest single shipping destination, represent more than 45 percent of its apparel exports. For Pakistan, it’s 85 percent. Garment exports from India to East and West Coast ports have risen from 23 percent in 2013 to 35 percent in 2023. In 2022, more than 57 percent of Indonesia’s apparel output, amounting to $5.47 billion, headed to American shores. Roughly 40 percent of Cambodia’s total exports, primarily apparel, textiles, footwear and travel goods, were delivered to the United States in 2022.

Even so, all reported declines in export value and volumes due to depressed consumer sentiment weighing on brands and retailers’ balance sheets. It’s for this reason that witnesses from Bangladesh and India said their industries aim to diversify from predominantly cotton-containing textiles to manmade fibers (MMF) such as polyester, nylon, acrylic and viscose.

“We kept on prioritizing cotton but now we have realized that the trend in the industry belongs to MMF actually because of the affordability or versatility or durability of the fiber,” said Mithileshwar Thakur, secretary general of Apparel Export Promotion Council at India’s Ministry of Textiles. “So we have launched a scheme where we’re basically attracting investment for MMF fabrics and garments [so] we will be equally competitive in MMF.”

Bangladesh, India, Indonesia, Cambodia, and Pakistan are the third, fourth, fifth, sixth and eighth biggest suppliers, respectively, to the U.S. apparel market, said Beth Hughes, vice president of trade and customs policy at the American Apparel & Footwear Association (AAFA), a trade group that includes Adidas, Gap Inc., H&M Group and J.Crew Group as members. She noted that the countries are major clothing sources even though none receive duty-free access or duty preferences.

“In response to this investigation, we formally surveyed our members to ask them what made these countries competitive,” she said. “In their survey responses, members provided several factors, including, but not limited to, reliability, labor and social compliance, vertical integration, and production capability. They possess the necessary infrastructure, machinery and skilled workforce to meet the fast-paced demands of the industry with short lead times. Further, they invest in automation, digitization, and innovative and regenerative yarns and fabrics that you cannot find in other countries—even ones with duty-free access to the U.S. market.”

Hughes said that members the AAFA surveyed did not cite low labor costs as a primary factor. And while “signals from Washington” reinforce the notion that it’s necessary to pivot away from China, inaction to negotiate market access agreements with these countries and keep trade programs current, “ironically encourages a return to China.”

“Apparel companies are looking for ways to limit risk and foster stability, increase proximity to markets and suppliers, avoid supply chain disruptions, drive sustainability, foster responsible supply chains and more,” Hughes said. “The question apparel companies are asking is where to go and how to best develop capacity and capability to support that journey and destination?”

The countries being examined are competitive because they have created “responsible, reliable, and skilled industries,” she added.

‘Intense pressure’ and corner cutting

Eric Gottwald, a specialist in trade and economic globalization at the American Federation of Labor and Congress of Industrial Organizations, or AFL-CIO, looked at the five countries’ competitiveness through the lens of outsourced labor. He said that the predominant fast-fashion business model relies on the “production of cheap[ly] manufactured apparel that changes quickly according to the latest trends,” which places “intense pressure” on overseas suppliers who operate on razor-thin margins and are incentivized to cut corners.

“Unfortunately, many developing countries have responded to these market pressures by deliberately suppressing workers’ rights in their export garment sectors in a bid to stay competitive,” Gottwald said. “In our view, governments who actively suppress labor rights by their acts or omissions are guilty of not only violating internationally recognized workers’ rights, but also engaging in a form of unfair competition.”

He turned his focus on Bangladesh, the world’s second-largest exporter of clothing after China. The nation’s government, Gottwald said, has failed to effectively enforce its labor but instead “colluded” with employers to “frustrate legitimate trade union activity.”

“Bangladesh’s garment workers have long suffered severe violations of their internationally recognized workers’ rights,” he said. “The industry’s dismal working conditions include very low wages, excessive hours of work, and occupational safety and health violations. And when that country is a significant global producer, it drives down wages and standards for garment production across the globe.”

In his testimony, Faruque Hassan, president of the Bangladesh Garment Exporters and Manufacturers Association, which represents factory owners, said that the Bangladeshi government has increased garment worker wages by 316 percent over the past decade. The most recent wage hike, he said, afforded entry-level workers a 56 percent monthly boost, though campaigners have disputed that number once adjusted for inflation.

Still, the cost of everything has skyrocketed in Bangladesh, including the electricity, gas and diesel that power its factories, Hassan said. The high number of LEED-certified “green” factories that it boasts also cost money to set up. So do the investments the country has made in its workforce, he said.

“We strongly suggest that USITC takes a holistic view on the overall competitive scenario not only considering the cost and efficiency-based competitiveness, but also the investment the industry has made over the last decade in workplace safety, workers’ wellbeing and environment sustainability, which add significant intangible value to the global fashion value chain,” Hassan said.

While factories have made large investments in modern machinery, Bangladesh’s production efficiency remains behind China, Indonesia and Vietnam, he added.

Sophal Ear, associate professor at the Thunderbird School of Global Management at Arizona State University, also referenced Cambodia’s labor costs, which are among the lowest in Asia, as a leading motivation for manufacturers seeking to minimize production costs.

“The abundance of relatively cheap labor was a critical factor in the initial establishment and expansion of the garment industry,” he said. “Cambodia has attracted significant foreign investment due to its lower labor costs compared to neighboring countries, which has been a key driver of competitiveness.”

Ear said improving the Cambodian apparel industry’s edge means improving labor standards and practice, something that requires a comprehensive approach involving “policy reforms, industry collaboration, capacity building and monitoring,” along with partnerships between the government, private sector, labor unions and international organizations to “ensure that improvements are sustainable and aligned with international best practices.”

Several factors characterize competitiveness, said Julia Hughes, president of the U.S. Fashion Industry Association, which represents American brands, retailers, importers and wholesalers that conduct business globally. There’s speed to market, sourcing cost, risk of labor and social compliance, risk of environmental compliance and flexibility and agility. But one more element plays an important role in determining competitiveness today, Hughes said, and that is geopolitical risk.

“There are many ways to define this risk—geographically there are risks such as the Houthis attacking ships in the Red Sea and disrupting logistics; and politically there are risks such as the desperate situation we see today in Haiti,” she said. “With all this uncertainty, brands and retailers are responding with an emphasis on greater diversification as part of their successful sourcing strategies. And this diversification includes looking at the competitiveness of the countries you are reviewing today.”

Hughes also pointed out one thing to consider when making policy recommendations: most-favored-nation tariffs on clothing are higher than any other industrial good, and apparel is excluded from the Generalized System of Preferences, a.k.a. GSP, program.

“High tariffs represent an important impediment to sourcing from each of the
countries covered by the commission’s study,” she said. “If the U.S. government is serious about encouraging apparel brands and retailers to diversify their supply chains to these competitive suppliers, which we assume is part of the purpose for this report, then the government should lower tariffs on these suppliers. Lower tariffs and lower sourcing costs would be a clear benefit for American families and consumers.”

Glas, however, says she sees the U.S. textile sector’s “economic depression” as coinciding with the “ascent to the top supplier status” of Bangladesh, Cambodia, India, Indonesia and Pakistan, which she said is “no coincidence.”

“It is imperative to understand and document what makes them so competitive, as well as how this growth has impacted domestic production and the larger Western hemisphere production chain, to inform the necessary U.S. policy response and recalibration,” Glas said, adding that textiles from four of the five countries—Bangladesh, Cambodia, India and Pakistan—are named in the U.S. Department of Labor’s list of goods produced by child labor or forced labor.

“As is evidence, unethical cost reduction practices and predatory trade activities plague global textile and apparel production and markets,” Glas said. “The U.S. government must decide with much greater conviction what it will and will not tolerate in our supply chains.”