The U.S. Textile and Apparel Industries:
An Industrial Base Assessment
Report to Congress
October 2003
Executive Summary
The U.S. Department of Commerce’s Bureau of Industry and Security (BIS)
has conducted a "comprehensive study on the health, competitiveness,
and the contribution of the U.S. textile and apparel industry to the U.S.
economy and in particular to the U.S. armed forces," as requested by
the Joint Statement of Managers accompanying the Conference Report on the
Consolidated Appropriations Resolution, 2003 (H. Rept. 108-10). This report
reflects the conclusions of that study. As specifically requested by Congress,
the report includes:
(i) an assessment of the current health and competitiveness of the U.S.
textile and apparel industries;
(ii) an analysis of the contribution of the textile and apparel industries
to the U.S. economy;
(iii) an analysis of the contribution of the industries to the U.S. Armed
Forces;
(iv) a review of U.S. dependency on foreign sources for critical textile
materials and potential threats to internal security from increased foreign
sourcing and dependency; and
(v) an analysis of whether the Berry Amendment and other Buy American restrictions
are being effectively enforced by the Department of Defense.
The report is based on: data obtained from a detailed survey distributed
by BIS to more than 1,600 U.S. firms involved in the textile and apparel industries;
publicly available financial and industry data; site visits to companies in
the textile and apparel industries; and interviews with industry executives,
analysts, trade associations, private research firms, and federal, state,
and local government employees.
Current Health and Competitiveness of the U.S. Textile and Apparel Industries
- In general, U.S. textile and apparel production has declined substantially
over the past five years. However, there is significant variation between
and within the textile and apparel industries, with production decreasing
by 40 percent or more in certain subsectors (e.g., thread and knit fabrics)
but holding steady or even increasing in other subsectors (e.g., fabrics
used for home furnishings and industrial products).
- Analysis of industry financial data reinforces the conclusion that there
are substantial differences between and within the industries. Whether measured
by profitability, return-on-assets, or debt-to-equity ratios, the textile
industry is in relatively weak health, while the apparel industry is in
relatively good health, compared to other U.S. consumer cyclical industries,
comparable non-cyclical industries, and the textile and apparel industries
abroad. Data also suggest that industry health varies based on firm size,
with larger firms (those with more than $50 million in 2002 sales) reporting
higher profitability rates than smaller firms.
- Alternative – non-financial – metrics of industry health,
such as employment and plant closings, suggest overall weakness, with employment
declining from 1997-2001 and a reduction in the number of textile and apparel
establishments. These data are consistent with longer-term trends in the
textile and apparel industries. Declines in relative prices of textile and
apparel output and in capacity utilization are consistent with this development.
However, the period also shows substantial increases in labor productivity.
- Although in many subsectors U.S. textile and apparel production is shrinking
and relatively unhealthy, the industries as a whole appear to be increasingly
competitive in the global market vis-à-vis foreign competitors. Although
still small, the U.S. share of the global textile and apparel market (as
measured by export value) has grown substantially over the past decade.
A review of various competitiveness factors suggests that the United States
ranks high among all nations in various measures of competitiveness, such
as human capital, infrastructure, access to technology, and access to financial
markets. It lags behind only in productivity-adjusted labor costs and costs
associated with environmental regulation.
- The foregoing suggests – and interviews and site visit evidence
confirm – that U.S. textile and apparel firms are increasingly focusing
on “niche,” higher value-added product markets, which may be
less labor intensive, more profitable, and more competitive in the international
markets. This trend is being supplemented by new marketing and production
techniques (e.g., seeking to market to the end customer directly and producing
some or all items at off-shore affiliates).
Contribution of the U.S. Textile and Apparel Industries to the U.S. Economy
- The combined share of the U.S. textile and apparel industries to the
U.S. gross domestic product declined from 2.80 percent in 1950 to 0.45 percent
in 2001 – making it an increasingly small part of the overall U.S.
economy. However, these industries do have higher than average multiplier
effects.
- The contribution of the textile and apparel industries to U.S. employment
has decreased over time but remains significant, with the industries employing
over 800,000 workers. A large portion of that workforce today is made up
of women and minorities and is heavily concentrated in the Southeast region.
- The textile and apparel industries make contributions through expenditures
on research and development that may have ancillary benefits to the U.S.
economy, although it is difficult to quantify those benefits. Research and
development appears to be focused principally on the creation of new products
and manufacturing processes for commercial and defense applications. This
research supports several other fields, including information technology,
biotechnology, and nanotechnology.
Contribution of the U.S. Textile and Apparel Industries to the U.S. Armed
Forces
- As measured by Department of Defense (DoD) consumption, the U.S. textile
and apparel industries made relatively small contributions to the U.S. Armed
Forces. DoD direct and indirect procurement of textile and apparel items,
or items that consist significantly of textiles and apparel, constituted
less than three percent of total DoD procurement.
- The textile and apparel industries’ “contribution” to
the Armed Forces can also be measured by the industries’ ability to
meet “surge” production requirements in times of mobilization.
The data suggest that the textile and apparel industries have excellent
surge production capabilities, with 80 percent of firms responding to BIS’s
survey that currently supply to DoD reporting that they have the ability
to double production in six months.
Dependency on Foreign Sources for Critical Textile-Related Materials
- For the purposes of the study, the report defines “critical textile-related
materials” to be those textile-related items (including inputs) necessary
for the production of textiles and apparel that are critical to the ability
of the U.S. Armed Forces and the U.S. economy to function. This definition
is consistent with input received from industry and DoD.
- Of the surveyed firms which indicated that they rely on foreign sources
of textile and apparel inputs, 73 percent reported that they were “dependent”
on foreign sources for at least one good or service. However, a substantial
number of these firms acknowledged that there were, in fact, domestic producers
of the goods/services currently obtained from foreign sources, but that
the foreign source was “relied upon” because of lower costs.
- Those firms that indicated they rely on foreign sources of textile and
apparel inputs for which there is no adequate domestic alternative noted
primarily three categories of foreign-sourced inputs: (i) textile and apparel
manufacturing machinery and parts (principally obtained from Switzerland,
Germany, and Japan); (ii) production, labor, assembly, and services (principally
obtained from China, Taiwan, India, and South Korea); and (iii) raw inputs
such as fabric, fiber, yarn sourcing, chemicals, and dyes (principally obtained
from South Korea, India, and Mexico). Items in the second and third categories
can often be obtained from alternative sources abroad (e.g., labor can be
obtained in China or Taiwan or India), while items in the first category
(machinery and parts) are more often available only from a single source.
- By virtue of statutory restrictions (the Berry Amendment and the Buy American
Act), DoD directly purchases only very small amounts of foreign textiles
and apparel (approximately 0.23 percent of total DoD expenditures on textiles
and apparel). Further, DoD maintains a list of “critical” textile
and apparel items, all of which must – and, according to DoD, can
– be sourced domestically, consistent with the statutory restrictions.
Accordingly, there is strong evidence that DoD itself is not dependent on
foreign sources for its textile and apparel needs. However, the BIS survey
indicated that many of the textile and apparel firms selling to DoD believe
that they are dependent on a foreign source for some input to production.
The foreign-sourced inputs most commonly cited include machinery, equipment
and parts, dyes, and chemicals. This does not necessarily suggest non-compliance
with the Berry Amendment and the Buy American requirements because (i) those
requirements do not apply to machinery used to manufacture textile and apparel
products, and (ii) chemicals and dyes do not account for a large enough
percentage of the total value of the textile and apparel items purchased
to invoke such restrictions.
- The U.S. textile and apparel industries’ greatest foreign dependency
appears to be on foreign-manufactured textile- and apparel-related manufacturing
equipment. The “threat” posed by this dependency is mitigated
by the facts that (i) the countries producing this equipment are close U.S.
allies, and (ii) there is currently domestic over-capacity in the textile
and apparel industries, enabling U.S. firms to meet critical textile-related
needs even if access to foreign-manufactured machinery were cut off. U.S.
textile and apparel manufacturers also currently rely upon foreign sources
for other inputs, including labor and raw materials. While the countries
from which these inputs are obtained pose more complex security issues for
the United States, the threat posed by this reliance is mitigated by the
fact that these inputs can commonly be obtained from more than one source.
Department of Defense Enforcement of Berry Amendment and Buy American Restrictions
- Statistics provided by DoD suggest that it is granting very few waivers
of the Berry Amendment and Buy American restrictions. These statistics were
confirmed by interviews with industry.
- Based on BIS survey responses, more than two-thirds of firms supplying
DoD consider DoD enforcement of the Berry Amendment and other Buy American
Restrictions to be effective. Most of the remaining one-third disagree,
but cannot provide specific examples of ineffective enforcement.
- Both industry and DoD employees interviewed indicated that certain clarifications
to regulations implementing the Berry Amendment and the Buy American restrictions
might be beneficial to help enhance understanding of the restrictions, both
by service personnel and by industry.
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