Where Industry and Security Intersect
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This chapter examines whether the United States is increasing its dependency on foreign sources for critical textile- and apparel-related materials. The chapter first defines the term “critical textile- and apparel-related material.” It then examines the dependency of U.S. private companies on foreign sources for such materials. Next, it considers the dependency of DoD on foreign sources for such materials. Finally, the chapter will present a discussion of potential threats to internal security from increased foreign sourcing and dependency. For the purposes of this chapter, foreign dependency is defined as a lack of an adequate domestic source of critical textile- and apparel-related materials.
The findings presented here rely on information from the BIS survey, DoD procurement data, and interviews with DoD, industry associations, and individual textile and apparel companies.
Neither the Omnibus Appropriations Act of 2003, nor the accompanying Conference Report that directed this study, defines the term “critical textile- and apparel-related materials.”
In the absence of such a definition, this study defines “critical textile- and apparel-related materials” to mean 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 generally consistent with the responses received from parties surveyed. Table IV-1 summarizes those responses.
Table IV-1. Feedback on Definition of Critical Textile- and Apparel-Related Materials |
||
| Respondent | Concept of Criticality | Examples |
|---|---|---|
| Defense Logistics Agency (DLA) | Maintains a list of “go to war” critical items. | Chemical suits (VF Suit), chemical gloves, bullet-proof “sapi” vests, and tents. |
| Industry Associations | ||
| American Apparel and Footwear Association | No explicit definition. | Products critical to the U.S. Armed Forces: many fabrics including cotton, synthetic, and Kevlar, as well as items such as leather (shoe soles), findings, and trimmings. |
| American Manufacturing Trade Action Coalition | No explicit definition. | Products critical to the U.S. economy: None, as all products
have close substitutes. Products critical to the U.S. Armed Forces: coated fabrics (used for woven textiles), ballistic materials, chemicals, and finishings. |
| American Textile Manufacturers Institute (ATMI) | No explicit definition. | Products critical to the U.S. economy: those used in air and
water filters, surgical and medical items, highway stabilization materials,
and many transportation products such as those used in fan belts, upholstery,
floor and head coverings, hood and trunk liners, and tire fabrics. Products critical to the U.S. Armed Forces: fabric used in advanced avionics, parachutes, gun belts, chemical warfare uniforms, tents, bed linens, blankets and anything worn by members of the Armed Forces. |
| Individual Companies (Representative Responses) | ||
| Company A | High performance/specialty fibers and the raw materials/technology needed for their manufacture. | Kevlar, Spectra, fiberglass fibers, some nylon fibers, composite materials. |
| Company B | Advanced or specialty fibers and materials. | Acetate fiber, dyes, linings, and specialty fibers such as Nomex (fire resistant fabric) and Kevlar (used in bullet proof vests). |
| Company C | No explicit definition. | Chemical suits (the lining of the suit is made by a German company), and nylon (no longer made in the United States). |
The BIS survey asked firms to identify the most important goods and/or services obtained from foreign sources for the manufacture of their products. Of the 380 firms reporting foreign sources of textile and apparel inputs (e.g., machinery, fabric, yarn, fiber, and services), 104 (or 27 percent) reported they were not dependent on any foreign sources for these inputs. That is, they believed that adequate supplies of these goods and services existed in the United States, but they purchased them offshore.
The remaining 276 (or 73 percent) reporting firms indicated they were dependent on foreign sources for at least one good or service. However, this number may be slightly overstated. Eighty-two firms provided additional comments in response to this question. Twenty-seven of these incorrectly interpreted the idea of dependency, indicating that U.S. suppliers were in fact available, but domestic materials were typically more expensive than foreign alternatives. This was often the case for suppliers of apparel and shoes. However, most of the remaining firms indicated only one foreign source could supply their needs. This was most often the case with textile and apparel machinery.
Table IV-2 lists the top ten foreign sources reported in the survey and the number of responses citing each source. The second column shows both the number and the percentage of firms that procure an important input to production from a given foreign source. Germany and China were the top two sources with Italy and Japan next on the list.
| Table IV-2. Foreign Sources and Dependencies for the U.S. Textile and Apparel Industries | |||
|---|---|---|---|
| Responses | |||
| Country | Number Indicating Foreign Sourcing (% of Responses) |
Of those, the Number Indicating Dependency |
Dependency (%) |
| Germany | 241 (13%) | 121 | 50% |
| China | 215 (11%) | 104 | 48% |
| Italy | 134 (7%) | 80 | 60% |
| Japan | 126 (7%) | 66 | 52% |
| Taiwan | 96 (5%) | 37 | 39% |
| Mexico |
90 (5%) |
31 | 34% |
| South Korea | 88 (5%) | 36 | 41% |
| India | 73 (4%) | 38 | 52% |
| Switzerland | 65 (3%) | 42 | 65% |
| France | 58 (3%) | 36 | 62% |
| Other | 699 (37%) | 309 | 44% |
| Total | 1885 | 900 | 48% |
| Source: U.S. DOC/BIS Industry Survey Data | |||
The last two columns show the number and the percentage of responses indicating a dependency on a given foreign source. Overall, actual dependency was reported for 48 percent of all foreign purchases of textile and related inputs, services, and goods. While this percentage was generally found to be representative across suppliers, the source countries on which U.S. producers were most dependent were Switzerland (65 percent), France (62 percent), and Italy (60 percent).
Looking only at the products and services for which firms claim they are dependent on foreign sources reveals important differences across countries (see Table IV-3). The numbers in the table indicate the foreign source of an item, by percentage. For example, 74 percent of respondents who depend on foreign sources of machinery listed Germany as a source. Again, companies could list more than one source country for a given item.
Switzerland, Germany, Japan, Mexico, France, and Italy were mentioned most often as sources that U.S. firms depend on for textile and apparel machinery and parts. The United States maintains solid trade relationships with these countries, so interruption of supply is only a small possibility.
Table IV-3. Materials and Services for Which the U.S. is Dependent on Foreign Sources |
||||
| Country | Machinery | Production, Labor, Assembly, and Services | Fiber, Fabric, and Yarn | Raw Materials and Dyes |
|---|---|---|---|---|
| Switzerland | 86% | 0% | 7% | 7% |
| Germany | 74% | 1% | 17% | 7% |
| Japan | 64% | 5% | 17% | 15% |
| Mexico | 61% | 0% | 35% | 3% |
| France | 61% | 3% | 28% | 8% |
| Italy | 55% | 19% | 20% | 6% |
| South Korea | 14% | 28% | 53% | 6% |
| Taiwan | 11% | 43% | 38% | 8% |
| China | 4% | 59% | 28% | 10% |
| India | 3% | 34% | 47% | 16% |
| Other | 24% | 37% | 31% | 8% |
| Total | 38% | 26% | 28% | 8% |
| Source: U.S. DOC/BIS Industry Survey Data | ||||
China, Taiwan, and India are the principal sources of dependency for production, labor, assembly, and services. South Korea, India, and Taiwan were mentioned most often as sources on which the United States depends for fabric, fiber, and yarn sourcing. Finally, India, Japan, and China achieved the highest dependency ranking for dye and raw materials sources. For some of these countries, the possibility exists for an interruption of supply. However, the items sourced from these countries are also fungible; that is, they can easily be replaced by similar items from other foreign sources.
By virtue of the legal restrictions to be discussed in Chapter V, DoD purchases a very small amount of textile and apparel products directly from other countries. In Fiscal Year 2002, DoD purchased slightly more than $4 million in textile and apparel items from foreign sources, out of a total of $1.8 billion budgeted for textile and apparel purchases. Thus, the percentage of these purchases from foreign sources by DoD was only 0.23 percent for Fiscal Year 2002. Considering the data for multiple years as shown in Table IV-4, no discernible trend or substantial increase in DoD purchases of textiles and apparel from foreign sources can be seen.
Table IV-4. DoD Purchases from Foreign Entities (Both Overseas and in the United States) |
|||||
| FY | All Foreign Purchases* (dollars) | Textiles and Clothing Foreign Purchases (dollars) | Percentage of Textile and Clothing Purchases from Foreign Sources | Total Textile and Clothing Purchases** (dollars) | Total DoD Procurement Actions*** (dollars) |
|---|---|---|---|---|---|
| 2002 | 7,011,394,000 | 4,252,000 | 0.23% | 1,827,128,000 | 170,800,000,000 |
| 2001 | 5,305,460,000 | 7,574,000 | 0.59% | 1,278,166,000 | 154,100,000,000 |
| 2000 | 5,813,401,000 | 3,236,000 | 0.29% | 1,089,056,000 | 143,000,000,000 |
| 1999 | 5,425,632,000 | 1,441,000 | 0.15% | 921,191,000 | 135,100,000,000 |
| 1998 | 4,226,980,000 | 759,000 | 0.08% | 883,519,000 | 128,800,000,000 |
| 1997 | 4,610,240,000 | 737,000 | 0.01% | 991,044,000 | 130,300,000,000 |
| 1996 | 4,304,727,000 | 8,652,000 | 0.20% | 883,255,000 | 128,200,000,000 |
| * Totals
include purchases with foreign concerns/entities for supplies, services,
fuel, and construction. ** FSC 83 (Textiles) & FSC 84 (Clothing) *** Includes Supplies and Equipment; Research, Development, Test & Evaluation; and Other Services and Construction. Source: U.S. Department of Defense |
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As discussed in Chapter III, DLA maintains a list of critical textile and apparel products needed for the operational readiness of U.S. Armed Forces; Table IV-5 lists these 25 product categories. According to information provided by DoD, virtually all of these critical items are manufactured in the United States. In a few isolated cases – anti-G garments, helmets, body armor, chemical warfare protective clothing, straps, slings, and harnesses, or textile components thereof – items are purchased from sources outside the United States. In these cases, an exception or a waiver under the Berry Amendment would apply. As such, DoD believes that it is not dependent on foreign sources for any of these critical items.
Table IV-5. Clothing and Textile Critical Products Categories |
|
| Anti-G Garments |
Helmets, Caps, Hats, & Berets |
| Bags & Packs | Identification Tags & Necklaces |
| Belts, Suspenders, & Vests | Insect Protective Items |
| Body Armor | Liners & Hoods |
| Boots, Socks, & Overshoes | Ponchos |
| Canteens & Cups | Shirts & Jerseys |
| Cases, Covers, & Carriers | Sleeping Bags & Mats |
| Chemical Protective Items | Straps, Slings, & Harnesses |
| Coats, Jackets, & Parkas | Tents |
| Coveralls & Overalls | Toxicological Protective Items |
| Gloves & Mittens | Trousers |
| Goggles | Underwear |
| Headbands, Scarves, & Masks | |
| Source: Defense Logistics Agency | |
The BIS survey results tend to confirm this assessment because the collected data did not indicate dependencies on foreign sources or an increase in dependencies on foreign sources for these or other items. However, the survey results also suggest that, more broadly, many of those companies supplying textile and apparel items to DoD believe that they are in fact dependent on foreign sources for one or more inputs into their various production lines (potentially not affecting DoD product supply). Out of 145 firms that reported sales to DoD in 2002, 106 or (73 percent) responded that they were dependent on foreign sources for at least one good or service. Thirty-nine firms (or 27 percent) responded that they were not dependent on any foreign sources for any input or services. These proportions are similar to the percentages for all textile and apparel firms (discussed above).
The responses of 17 firms that derive more than 50 percent of their sales from DoD were also examined. Half of these firms stated they were dependent on foreign inputs; these firms said they relied primarily on machinery, equipment, and parts from Germany and Japan. These results are consistent with results for all textile and apparel firms (discussed above). Moreover, some of the products deemed critical by DLA may depend on foreign inputs and foreign-made machinery for their manufacture. One example cited by respondents is that the materials used in the manufacture of chemical suits require key inputs of German and Japanese origin.
For certain textile and apparel inputs (including cotton and other natural fiber products, woven silk or woven silk blends, spun silk yarn for cartridge clothing, synthetic fabric or coated synthetic fabric canvas products, and wool), off-shore purchases require either an exemption or a waiver from the Berry Amendment (discussed in detail in Chapter V). An increase in the number of waivers from the Berry Amendment over time would be consistent with increased dependencies on foreign sources for such components.
However, some of the components that are foreign-sourced by textile and apparel manufacturers selling to DoD are not included on the list of items in the Berry Amendment. These include dyes and chemicals used in the production process. They do not constitute more than 50 percent of the item’s value and, therefore, do not fall under Buy American restrictions (also discussed in Chapter V). However, they are still vital to the production of the end item, and lack of access to foreign sources of these inputs could interfere with production for DoD.
Based on the information above, BIS has considered what potential threats to internal security exist because of increased foreign sourcing and dependency.
For the purposes of this study, a threat to internal security is defined as a vulnerability that has a significant and disruptive effect on the U.S. economy as a whole, a significant segment of the economy, or on military readiness. As described earlier, the study noted, according to DLA officials, that the United States is not dependent on any foreign source for any products considered to be critical. However, BIS survey data indicate that foreign-made machinery and foreign inputs are required for the manufacture of some of these critical items.
Certain items that are integral to the manufacture of textile products are not available from U.S. sources, according to respondents to the BIS survey. Most important among these is production machinery. Although some basic machinery such as warping, slashing, dyeing, and sewing machines are still in production in the United States, the machinery for large-volume, production line operations (looms, spinning frames, and carding equipment) are principally available from foreign manufacturers located in Germany, Japan, Switzerland, Belgium, and France.
Therefore, U.S. textile and apparel assembly line operations are somewhat dependent on machinery from manufacturers in these countries. However, because these countries have healthy and market-driven economies and maintain friendly bilateral relations with the United States, the United States is not likely to be at risk of losing access to machinery suppliers in these countries. Further, many of the foreign suppliers have set up assembly operations in the United States in order to be closer to their U.S. customers. Also noteworthy is the current domestic over-capacity in the textile and apparel industries, which would enable U.S. firms to meet critical textile-related needs even if access to foreign-manufactured machinery were cut off.
In addition to machinery dependency, many survey respondents that sell to DoD said they were dependent on foreign sources for a variety of inputs, such as certain fibers and yarns, specialty chemicals, and other basic inputs. Most of these items are considered “commodity-type” products because of their widespread global availability. Most of these non-machinery dependencies are either sourced in countries that maintain a friendly bilateral relationship with the United States or are available from multiple foreign sources.