C. The Apparel Industry
In reviewing the development of codes of conduct in the garment industry, it
is important to recognize the enormous changes that have occurred in the
industry in recent decades. Once concentrated in the United States and other
industrialized countries, the garment industry has gradually spread in
successive waves to countries with lower production costs, becoming a worldwide
industry whose geographical distribution is constantly changing.23
A number of factors have contributed to this globalization. Many developing
countries have based or are basing their industrialization on labor-intensive
export sectors, particularly the apparel sector. Developing countries have
almost doubled their share of world clothing exports since the early 1970s to
account for more than 60 percent of exports today.24 At the same time, companies
in the U.S. and other industrialized countries have adopted strategies to
relocate certain labor-intensive activities, such as clothing assembly, to
low-wage countries through direct investment or outsourcing. Thus, according to
the ILO, the industrialized countries have "promoted the expansion of the
clothing industry in the developing countries and participated actively in the
growing globalization of the sector." 25
1. Structure of the Industry
The garment industry is made up of a complex chain of actors whose roles
often overlap. In very general terms, the industry includes the following
entities:
- Apparel manufacturers are primarily engaged in the design, cutting
and sewing of garments from fabric. Some manufacturers are contractors or
subcontractors, which generally manufacture apparel from materials owned by
other firms. Larger manufacturers often contract production to many such
contractors or subcontractors in the U.S. and abroad. Some manufacturers are
vertically integrated, producing the textiles from which they make garments, or
even operating retail outlets.
- Apparel merchandisers generally design and market clothing, but
contract the actual production to manufacturers.
- Buying agents locate, qualify and inspect foreign
suppliers/producers of garments, negotiate with suppliers/producers, and often
monitor production for quality control and compliance with other standards.
They may be used by U.S. companies that do not have a large presence abroad, or
in addition to a U.S. company's own buying staff.
- Retailers are primarily engaged in the distribution, merchandising,
and sale of garments to consumers. Apparel retailers include department stores,
mass merchandisers, specialty stores, national chains, discount and off-price
stores, outlets, and mail-order companies. A relatively new development is the
rise of electronic forms of retailing such as interactive TV and on-line
shopping services. Some retailers who sell their own private labels go beyond
their traditional role as distributors and become directly involved in the
design and sourcing of garments from manufacturers and contractors.
Figure II-1 illustrates the relationships among
these various entities as they relate to the import of garments.
Click here
for a larger image
Intense competition in the U.S. retail sector has resulted in significant
restructuring of the industry in recent years. One factor contributing to this
trend has been the rise of mass marketing stores and discount retailers with low
overhead costs and low prices.26
These nontraditional retailers have displaced a significant share of the sales
of traditional apparel retailers such as department and specialty stores.27 There have been a growing
number of bankruptcies and consolidations in the retail sector, resulting in an
increased concentration of large firms at the retail level.28 In 1993, the five largest
retail companies accounted for 48 percent of total retail sales.29
Many experts point to changes in consumer attitudes as a driving force
behind the restructuring that is occurring in the retailing industry. Not only
have consumers become more cautious in their buying habits, but they have been
reducing the portion of their disposable income that they spend on apparel.30 In addition, consumers are
increasingly demanding quality goods at low prices.31 Retailers have often been
forced to sell merchandise permanently at "sale" prices, with
promotions occurring throughout the year.32
Economists and sociologists have attributed increasingly volatile consumer
demand to growing numbers of new products, the rise of fashion-consciousness for
even the lowest-cost apparel, and more selling seasons.33
In response, retailers are increasingly utilizing new technology to
facilitate communication with suppliers and speed the distribution of goods.34 Apparel manufacturers who
wish to remain competitive are having to reduce cycle times for apparel design,
manufacture and delivery. Many manufacturers have adopted "quick response"
manufacturing systems that allow retailers to trim inventory, respond more
quickly to changes in consumer preferences, replenish stock almost continually,
and offer a wider choice of clothing styles.
Ebbing consumer demand, combined with higher raw-material costs, have in
turn placed increased pressures on apparel manufacturers.35 Unable to pass higher costs
onto consumers in a market with excess supply, both apparel manufacturers and
retailers have been squeezed by lower margins.36
As retailers have gained growing bargaining power through consolidations,
apparel manufacturers have had to absorb higher costs and live with lower profit
margins in order to maintain production.37
Because of these competitive pressures, apparel manufacturers have also
undergone considerable restructuring and consolidation in recent years.38 It is usually the larger
manufacturers that can afford the capital investment necessary to successfully
adopt more flexible, "quick response" systems.39
In this increasingly competitive environment, the lines between apparel
retailers and manufacturers are being blurred as each takes on new roles and
enters new aspects of the garment industry. Many retailers, for example, have
entered product development and manufacturing as they develop their own private
labels. In some cases, department stores and other retailers are directly
contracting goods from the same factories used by the brand-name producers from
which they buy.40
At the same time, many of the most successful apparel manufacturers and
merchandisers have become vertically integrated through the retail level.41 Many apparel manufacturers,
in an effort to generate more sales, are opening factory outlets.42 These outlets are a rapidly
growing retail distribution channel in the U.S., and are used by manufacturers
to showcase their merchandise, test market new products and distribute excess
production.43 Having retail
outlets gives apparel manufacturers more control over their own distribution and
sales.44
2.United States Apparel Imports
More than half of the $178 billion worth of garments sold at the retail
level in the U.S. in 1995 was imported.45
By comparison, domestically produced apparel accounted for 70 percent of
apparel sold to U.S. consumers as recently as 1980.46 The U.S. apparel
manufacturing industry, which employed an all-time high of 1.45 million workers
in 1973, supported 853,000 U.S. jobs as of May 1996.47 In 1995, the industry included
24,570 establishments, averaging 40 employees each, and produced $87 billion of
garments at retail prices.48
United States apparel imports have been increasing steadily since the 1970s.
The U.S. imported nearly $34.7 billion worth of apparel in 1995. During the
period 1985-1995, the value of U.S. apparel imports in current dollars increased
by 171 percent (see Table II-1).
TABLE II - 1
U.S. Apparel Imports, 1985-1995 (In millions of current U.S.
dollars) |
|
1985 |
1986 |
1987 |
1988 |
1989 |
1990 |
1991 |
1992 |
1993 |
1994 |
1995 |
% Total Trade 1985 |
% Total Trade 1995 |
Total |
12,785 |
15,147 |
18,036 |
18,184 |
21,047 |
21,937 |
22,595 |
26,713 |
28,218 |
31,368 |
34,649 |
100.0 |
100.0 |
Asia |
9,318 |
10,907 |
13,943 |
13,505 |
15,763 |
16,232 |
16,430 |
18,879 |
19,006 |
20,382 |
20,995 |
72.9 |
60.6 |
Americas |
1,887 |
2,291 |
1,847 |
2,405 |
2,891 |
3,111 |
3,855 |
5,092 |
6,170 |
7,369 |
9,439 |
14.8 |
27.2 |
Europe |
1,424 |
1,725 |
1,954 |
1,907 |
1,932 |
1,969 |
1,681 |
1,811 |
1,889 |
2,269 |
2,670 |
11.1 |
7.7 |
Austraila
New Zealand |
11 |
19 |
28 |
24 |
26 |
37 |
56 |
42 |
42 |
49 |
55 |
0.1 |
0.2 |
Middle East Aferica |
141 |
192 |
251 |
336 |
431 |
584 |
570 |
884 |
1,081 |
1,313 |
1,485 |
1.1 |
4.3 |
Under domestic law and the rules of the international Multifiber Arrangement
(MFA) of the General Agreement on Tariffs and Trade (GATT), the United States
has limited the growth of apparel imports for more than three decades through
the negotiation of bilateral textile and apparel quota agreements. The
agreement establishing the World Trade Organization (WTO), however, provides for
a 10-year phase-out of the MFA beginning in January 1995. Resulting reductions
in tariffs and the eventual elimination of the MFA system of textile and apparel
quotas are likely to accelerate increases in garment imports.49
a. Imports by Source
The United States imports apparel from all regions of the world. In 1995,
Asian countries accounted for 61 percent of the value of total U.S. imports of
apparel, countries in the Americas accounted for 27 percent, European countries
for 8 percent, and other countries for 4 percent. (See Table II-1 and Figure
II-2).
In 1995, Hong Kong was the largest source of U.S. apparel imports,
accounting for $4.2 billion or 12.1 percent of total U.S. apparel imports. The
next four largest sources of U.S. apparel imports in 1995 were China ($3.5
billion or 10.2 percent), Mexico ($2.6 billion or 7.4 percent), Taiwan ($2.0
billion or 5.9 percent), and the Dominican Republic ($1.7 billion or 5.0
percent). Figure II-3 shows the top 25 sources of U.S. apparel imports in 1995.
In 1995, 168 countries exported apparel to the United States (See Appendix E).
b. Imports by Type of Importer
Garment manufacturers and retailers increasingly have resorted to imports
from lower cost producers to retain their competitive edge in the United States
market. Retailers are developing global alliances with suppliers and directly
sourcing brand-name and private-label merchandise domestically and
internationally.50 Many of
the largest retailers also have become the largest importers of apparel. In
1993, retailers accounted for 48 percent of the total value of imports of the
top 100 garment importers, according to the U.S. Customs Service.51
Click here for a larger
image
Apparel manufacturers and retailers are also increasingly turning to
low-cost suppliers abroad to supplement their U.S. production. In some cases,
manufacturers contract out apparel assembly operations to overseas contractors.
In other cases, U.S. apparel manufacturers have shifted production abroad to
take advantage of lower costs and, in some cases, preferential trade programs.
To maintain market share, many U.S. apparel manufacturers are expanding their
garment assembly activities in Mexico and the Caribbean Basin to take advantage
of preferential trade programs.52
The North American Free Trade Agreement (NAFTA) provides reduced or
duty-free entry and eliminates most quotas for apparel products from Mexico and
Canada that meet certain rules of origin. Under the Special Regime Program,
apparel assembled in Mexico from U.S.-formed and cut fabric is allowed
quota-free and duty-free entry into the United States market. Finally, under the
Special Access Program for the Caribbean, also known as the 807A Program,
certain apparel products assembled in participating countries from fabric wholly
formed and cut in the U.S. are afforded quota-free entry and preferential duties
upon re-entry into the United States.53
3. Globalization and Working Conditions in Exporting Countries
The cost of producing clothing is largely determined by two components - the
costs of labor and, to a lesser extent, materials. Clothing production is
therefore prone to relocation to countries where labor costs are lower, with the
exception of producers who escape cost competition through "up-market"
strategies.54
The ILO has commented on the effect that increasing competition has had on
working conditions in the mass segment of the market:
...the competition between an increasing number of developing countries to
win contracts has a downward effect on wages and working conditions in
enterprises specialized in providing low-range articles - for which the
production cost must be as low as possible. Only by filling a slot in the
market for higher-range goods can these enterprises break out of this vicious
circle in which production costs must be compressed for them to remain
competitive.55
Some of the newest entrants in the producer market, which are attracting
foreign investors, have mainly developed labor-intensive sewing and assembly
activities.56 While some of
these newest producer countries currently may be small suppliers to the U.S.
market, they may also be the location of troubling labor practices.57
|
|