372 Global Sourcing Exam 2

What countries are likely to have trade surplus?

*Developing countries likely to have trade surplus -Mexico -Brazil -usually export apparel -might import some high-end apparel *Newly developing countries almost always have trade surplus (export focused industry) usually do not import any apparel (besides second hand clothing)

GATT

-1947-1994 -General Agreement on Tariffs and Trade - was created to support the liberalization of trade. Legal agreement between many countries, whose overall purpose was to promote international trade by reducing or eliminating trade barriers such as tariffs or quotas. Created by United States 1-trade without discriminations (all countries treated equally) *exception textile and app trade 2-Protection through tariffs (to protect domestic industry, country could impose tariffs only) (no quantitative restrictions (no quotas) were allowed) *exception textile and app trade 3-Creating a stable basis for trade: tariffs must be published so trading partners know what to expect **Trade rules for all industries

why apparel is the most labor-intensive industry.

-Characteristics of fabrics (pliable, easily stretchable) -Each garment style typically produced in many different sizes. -Due to fast changing fashion trends, garments' style and fit change very frequently.

According to international laws, ______ and .... is NOT classified as unfair competition.

-Countervailing duties (import tax on certain goods to prevent dumping) -Embargoes (banning trade from specific country)

NAICS 313 Textile Mills

-Fiber and Yarn Mills (man made) -Fabric Mills -Finishing Mills and coating mills -Thread **man name fibers only. Natural fibers are classified as ag products

Which of the following statements about consumer demand are correct?

-Forecasting consumer demand presents a great challenge for the textile and apparel businesses -Consumer demand can be influenced by major shifts in consumer demographics, such as growth of the Hispanic population in the United States -The Internet and social media impacts consumer apparel demand and choices.

Harmonize System (HS)

-HS is used as a basis for collecting international trade statistics -HS is a universal economic language and code for goods -HS classifies products based on name, use, and material used in its construction, or a combination of these.

NAICS 315 Apparel Manufacturing

-Knitting Mills -Cut & Sew apparel -Other products

NAICS 313 Textile Mills PRODUCTS

-Manufactured fibers: acetate, rayon, nylon, acrylic, spandex, etc.. -Staple and filament yarns -Blended and pure yarns -Thread: a special form of yarn treated to make it stronger -Fabric: woven and knit -Dyeing, printing and fabric finishing

Why as US total expenditure increased and percent of income decreased?

-More goods and services compete for consumer income -Prices for other goods are increasing faster than prices for apparel

activities regarded as unfair form of consumption

-Production subsidies -Dumping -Price support program

NAICS 314 Textile Product Mills

-Textile Furnishing Mills: Carpets and Rugs, Curtains and linens -Other textile products

What statements about protectionist trade policies is true?

-Trade barriers are intended to protect domestic companies. -Limiting imports allows domestic companies to charge higher prices and increase the number of jobs offered. -Implementing trade policies involves customs services.

Intellectual property includes

-Trademarks -Patents -Copyright -Semiconductor chips

After the phase-out of the quota system in 2005, _____________.

-both the US and EU imposed new quantitative restrictions on Chinese imports, named safeguards. -apparel production in many small developing countries decreased because of competition from China

Select three environmental responsibility issues:

-climate change -protecting biodiversity -waste management

Country of origin (COO) labeling is needed to _____. (Select two true statements)

-establish correct tariff rates to pay import duty -collect data for trade statistics purposes

Sustainability issues in apparel and textile industry

-green house gases -manufacturing fibers/fabrics -dyes and finishings -transportation -fast fashion

NAICS 314 Textile Product Mills PRODUCTS

-home furnishing textiles -carpets, curtains, rugs, linens, bath, bed -produce finished goods

Developing countries export.. import...?

-import and export alot of textiles (can have deficit or surplus) -Import: high end, high tech man made fabrics -Export: mostly unfinished fabrics from natural fibers

Other strategies to reduce environmental impact of textile and apparel industry

1-Dont but it if you don't need it- conscious buying 2-Fashion is an investment (not disposable). Stay away from fabs, invest in timeless pieces 3-Swapping 4-Business Perspective (build a plan as a business) -design garments with longevity -create with materials with a lower impact on the environment -require manufacturing processes that minimize the use of resources, waste, and pollution -minimize packaging -require minimal care -garments easier to repair, reuse, recycle -avoid virgin fibers -avoid toxic chemicals -reduce water and energy in production -recover fibers for new products

How to measure apparel expenditure

1-Total apparel expenditure (in a year). In the total US market (billion of $) 2-Apparel expenditure per capita (total divided by the number of people in the country/market) 3-Proportion (%) of apparel expenditure in the total consumption expenditure (what % of income is spent on apparel)

Why T&A was an exception to GATT? Result of MFA-textile and apparel trade became an exception to GATT trade rules and regulations that all other industries followed

1-apparel satisfies basic human need and all countries have some of the industry- intense competition 2-first step to economic development (low entry barriers for apparel) 3-socially sensitive sector (employs lots of people and is labor intensive, most workers are women, developed countries wanted to protect the jobs

Place sustainable strategies from most preferred (1) to least preferred (4) in terms of impacts on the environment:

1-avoid (unnecessary use of products) and reduce (amount produced) 2-reuse 3-recycle and recover (sort out waste to be processed into new forms) 4-incineration

The quantity of trade between nations can be measured in:

1.number of units (volume) 2.monetary value (U.S. Dollars)

American Apparel and Footwear Association (AAFA)

A US-based coalition that represents interests of apparel, footwear, and related businesses.

Fair Labor Association (FLA)

A coalition that strives to improve labor conditions in the world

ATC

Agreement on Textiles and Clothing 1995-2005 -Phase out the MFA quota system and reintegrate the textiles and clothing sector into the overall WTO rules

How does economic development level relate to the apparel industry?

Because apparel industry is very labor intensive, garment production cost depends on wages (which are reflected in the GDP per capita)

How does Economic development level relate to the textile industry?

Because textile industry is capital/technology intensive, developed countries tend to have advanced textile production. Developing countries usually have basic textile production. Newly developing countries likely have NO significant textile production.

Trademark (fabrics)

Can trademark to protect brand ex. GoreTex

Purpose of tariffs

Cannot limit the amount imported directly, but rather attempt to limit consumer demand of imports by increasing te price of imported goods

What information does the HTSA provide? Select all that apply.

Categories for all merchandise imported into the country Tariff rates

Which of the following statements about consumer demand are NOT correct?

Consumer demand in the U.S. is relatively easy to predict in comparison to that in India or China.

What are the major factors in the decision of purchasing basic goods:

Consumer need and price

Copyright (fabrics)

Copyright actual creative design like Burberry's plaid or fendi's F or Coach's C

What countries are likely to have trade deficit?

Developed countries- have trade deficits (import more than export) -United States -EU Usually import alot of apparel and might export some high-end goods

International Trade

Exchange of goods and services among 2 or more countries

____ trade is a partnership of small producers in ______ countries with retailers and wholesalers in ____ countries.

Fair, developing, developed

"Value chain" is another term for "supply chain"; the two terms have the same meaning and can be used interchangeably

False

Harmonized System (HS) was phased out along with quotas.

False

Textile mills (NAICS 313) produce a wide variety of products, including fibers, yarns, fabrics, and home furnishings.

False

What type of apparel contractors is now in greater demand?

Full-package apparel contractors

GDP per capita

GDP divided by the number of all citizens in the country

The main indicator used to determine country's level of economic development is

GDP per capita

Although the terms international and global are sometimes used interchangeably, ____ goes beyond _____ and means a more broad and comprehensive perspective.

Global trade; international trade

GDP

Gross Domestic Product-which measures country's overall economic output a year -Market value of all goods and services produced by a country in a year

-The index is being developed, tested, and implemented by companies that are members of Sustainable Apparel Coalition.

Higg Index

The index is specifically developed to evaluate apparel and footwear products.

Higg Index

Discretionary income

Income left over after all necessities have been paid and other financial obligations are covered

Demand for these goods decreases with rising income

Inferior goods

Global Trade

Interactive participation of many businesses and countries in developing, manufacturing, and distributing products and services

Globalization

Interconnectedness of nations and cultures in all aspects of their lives

NAICS 315 Apparel Manufacturing PRODUCTS

Knitting mills: hosiery and socks mills/products, sweaters, underwear, sleepwear -Cut & Sew apparel: men's, women's and infant trimmings and notions; full garments (suits, coats, dresses, infant, etc..) Other: fur and leather apparel, accessories (hats, scarves, glovs)

Missclassification of goods

Label merchandise wrong

-Using World Average GDP per capita we can classify all countries in one of the three categories ($17,500). Other factors include:

Literacy rate Infant mortality rate Life expectancy Unemployment

Select a true statement about trade associations of the US textile complex (textile, apparel, and retail industries).

Members of trade associations are usually textile, apparel, and retail firms.

MFA

Multifiber Arrangements, 1974-2004 -System of bilateral agreements between a developed nation and developing countries in attempt to limit textiles and apparel imports using quotas -Created in an attempt to limit the growth of textile and apparel imports -Save domestic production and textile jobs in the country -make US textile and apparel industries more competitive on the global level **Trade rules for textile and apparel

Intellectual property rights for protecting apparel-creative designs

No rights, garment design is only thing that cannot be copyrighted. Apparel design is considered craft and not fine art like graphic design

Demand for these goods increases with rising income, but at a slower rate than income growth

Normal Goods

NAFTA

North American Free Trade Agreement; allows open trade with US, Mexico, and Canada.

NAICS

North American Industry Classification System; a detailed numbering system developed by the US, Canada, and Mexico to classify North American business establishments by their main production processes

Disposable income

Personal income minus taxes

Income elasticity

Relationship between change in income and the resulting change in expenditure

Price Elasticity

Relationship between change in price of a product and the related change in demand for this product. If price goes up, demand stays the same (gas for example)

is sale of merchandise and/or services to ultimate consumers, including store and non-store formats.

Retailing

Fast fashion phenomenon is associated with _____.

Shorter clothing life cycle

Intellectual property rights for protecting apparel- trademarks

Some design elements can be used as trademarks like jean pocket shape and stitching or adidas 3 stripe

What is substantial transformation?

Substantial transformation occurs when, as a result of manufacturing, product has a different name/use and its Harmonized Schedule tariff category changes.

Demand for these luxury goods increases with rising incomes

Superior Goods

Trade deficit

The balance of trade is negative -There are more imports sending money away from a nation than exports bringing money into the nation's economy.

Personal or total income

The gross amount of income from all sources such as wages, salaries, interests, and dividends

Higg Index

The index helps evaluate environmental impacts of materials, factories, and final products throughout product lifecycle.

Trade surplus

The trade balance is positive- There are more exports bringing money into a nation than imports sending money away from the nation's economy.

Intellectual property rights for protecting apparel-garment designs

They usually arent patentable except for technology based innovations or creative engineering. Ex. Brassiers

What statement about protectionist trade policies is NOT true?

Trade barriers result into a greater selection of products in the domestic market.

A decline in the level of consumption means an increase in the quantity or quality of goods and services consumed

True

Analysis of consumption expenditure data in 'current dollars' does not reflect real buying power of consumers because it does not account for inflation

True

Because textile industry is more capital-intensive, it has higher entry barriers in comparison with apparel industry.

True

Both taxes and inflation can have an effect on consumer expenditures.

True

Fashion influences the types of garments people choose to wear

True

Fashion is the style accepted by the majority of a group at a given time

True

Fashion makes the textile and apparel business much less predictable than businesses of most other consumer products

True

In NAICS, boys apparel is classified with men's, and girls apparel is classified with women's

True

Selling or buying goods through craigslist or ebay are examples of collaborative consumption.

True

The use of codes of conduct has solved the labor exploitation problem in the global apparel industry.

True

Yarn is made of fibers and then used to produce fabrics. T/F

True

Which agency is responsible for publishing the Harmonized Tariff Schedule of the United States Annotated? Select two.

US International Trade Commission Office of Tariffs Affairs and Trade Agreements

WTO

World Trade Organization-1995 Replaced GATT Concerned with the regulation of international trade between nations -Ensure trade flows as smoothly as possible

Sustainable Apparel Coalition (SAC)

a coalition that strives to reduce social and environmental impacts of apparel and related businesses

Developed country

a nation whose gross domestic product per capita and other measures of well-being fall well above the world average

non tariff based trade barrier

all other trade barriers -quotas -government subsidies -exchange rates (fake low value of national currency makes imported good overpriced and discourages imports but encourages exports) -import and customs procedures (some countries have certifications and requirements to keep imports out)

Import duty: calculation based on tariff rate

are paid by US importers at the U.S. Customs Therefore,Dutyadds to the total product cost: LDP= FOB + Duty + Freight + Insurance +Inland Transport LDP (Landed duty paid) is total cost of a product in DC (distribution center) FOB (Free on board) is cost of a product when it leaves a factory [what US importer pays to the factory per one unit (garment)] Freight cost from factory to US port

In the United States, the proportion (percent) of the "average annual expenditure" spent on clothing has _____ over the last thirty years.

been decreasing

Define the development of the U.S. textile industry by decade: 1950's-60;s

beginning of the industry concentration into larger firms

copyright law

can be used to protect creative textile designs but not apparel designs. Creative works protected such as books and art

Apparel expenditure

consumer demand for products at the end of the apparel supply chain over a certain period of time (usually one year) in a market

The biggest impact on the environment from textile and apparel products occurs during _____ stage of product life cycle.

consumption

Outsourcing

contracting out specific operations outside the company to a domestic or foreign vendor with the goal to perform these operations more efficiently and/or at lower cost; outsourced operations might include manufacturing, product development, logistics, IT, accounting, customer service, etc..

what activity is not regarded as unfair form of competition?

countervailing duties (import tax on certain goods to prevent dumping)

Proportion (percent) of income US consumers spend on apparel has been ....

decreasing - US consumers buy more apparel, but the share (proportion) of income spent on apparel is decreasing

corporate social responsibility

ethical obligation of businesses toward the communities as well as the ecological and social environments in which they operate

Trade

exchange of goods, services or both. can be domestic, international, or global

Developed countries export.. import...?

export: high end, hightech manmade /finished textiles Import: unfinished fabrics, mostly from natural fibers such as cotton (and some specialty fabrics like cashmere or silk), apparel

Newly developing countries export: Import:

export: not much (trade deficit) Import: textiles

Trade balance is calculated as ....

exports - imports

Companies that do business in several countries have to register their trademarks in only one country to protect them globally.

false

Counterfeit is the same as knock-off

false

Following WTO rules, it is a straightforward process to interpret substantial transformation and COO for apparel products.

false

t/f the higg index is required to use by all apparel businesses worldwide

false

basic goods

goods that are standardized and utilitarina, with infrequent demand for changes in styling

patent law

grants a monopoly on the use of an invention for a specific period of time

Knock-offs

imitation of original that does not carry the original brand, made with lower-cost materials and production methods and sold at lower price - LEGAL

Counterfeiting

imitation of what is genuine, with the intent to defraud the customer -ILLEGAL

US apparel expenditure has been steadily...

increasing

fashion goods

individualized, differentiated by style, color, and fit; characterized by frequent changes in styling

Define the development of the U.S. textile industry by decade: 1980's

industry focused on mass production and vertical integration

Define the development of the U.S. textile industry by decade: 1970's

industry was shifting northeast to south and southeast regions

What is Dumping?

is selling a product in another country at less than actual production cost.

owns intellectual property rights

licensor

receives a royalty from a licensing agreement

licensor

typically determines quality level, image of a product, and other nuances in a licensing agreement

licensor

What manufacturing subsector is more labor intensive?

manufacturing of cut & sew apparel

Developing Country

nation whose gross domestic product per capita and other measures of well-being fall near or slightly below the world average

Newly Developed Countries

nation whose gross domestic product per capita and other measures of wellbeing fall well below the world average; just beginning to be engaged in industrial development, likely to involve apparel production;

What is Illegal transshipment?

occurs when goods are shipped to another country and relabeled to identify that nation as country of origin.

Higher productivity indicates that __________.

on average, workers produce more goods per hour

Intellectual property rights for fabric: list 3

patent copyright design trademark

The major appeal of basic good is _________, while the major appeal of fashion goods is _______.

price; appearance

Sourcing

process of finding, evaluating, and partnering with a vendor to secure services, materials, production, or finished goods; or a combination of these; at a specified cost, quality, and service level, for delivery within an identified time frame

cut and sew factory

production facility that manufacturers apparel from fabric

apparel knitting mill

production facility that manufacturers garments (like sweaters or underwear) straight from yarn (without making fabric first)

converter

production facility that specializes in applying different finishing to yarn and fabrics

trademark law

protects the use of words and or symbols that represent a firm

Define the development of the U.S. textile industry by decade: 2000s

sharp decline in domestic employment

Illegal transshipment

shipping products to a no-quota or nontariff port or country, changing the country of origin and then re-exporting to the intended importing country

apparel is measured in..

square meter equivalent (sme) or units (number of pieces)

Woven FAbric is measured in..

square meter or yards

Code of conduct

statement of principles and standards by which business decisions are made

2 types of trade barriers

tariff based non-tariff based

tariff based trade barrier

tax on imported product which an importer must pay at the US customs

Define the development of the U.S. textile industry by decade: 1990's

the industry supported the yarn forward rule

Apparel expenditure: per capita

total apparel expenditure in a country divided by the country's population

Supply Chain

total sequence of business processes involving single or multiple companies and countries that enables demand for products or services to be satisfied; an apparel supply chain might include some or all of the following: design and product development agencies, material suppliers, manufacturers, transporters, warehouses, retailers, and consumers

. Consumers contribute to the counterfeiting problem.

true

2 basic categories of fibers are natural and manufactured

true

A code of conduct is an expression of corporate social responsibility.

true

Counterfeiting involves unauthorized use of trademarks.

true

Counterfeiting is illegal.

true

Country of origin of a product is necessary for an importing country to collect duties based on tariff schedule.

true

Dumping can result in an import surge.

true

Intellectual property rights can be legally transferred from the owner to another legal user through a licensing contract.

true

Merger refers to a business formed when firms merge together into one company.

true

Substantial transformation rule is used when more than one country is involved in making a product.

true

The concept of substantial transformation is used to determine what country should be used on "Made in ... " garment label.

true

Thread is a special form of yarn

true

Trade policy is developed by each country to achieve certain economic and/or political goals; typically consists of export policy and import policy.

true

woven fibers and knit fabrics are 2 most common types of fabrics used in apparel production

true

Embargoes and countervailing duties can be used by government to counteract dumping of products from other countries.

ture

Patent (fabrics)

used for technological invention. Ex. goretext patented special membrane for fabric so no other company can use that technology

Knit fabrics are measured in

weight (kg or pounds)

Apparel Trade Can be measured by weight (kg or pounds)?

• Yes, when exporting used clothing from US to newly developing countries (e.g. African countries) Mitumba clothing

Depending on type of product, number of units can be measured by:

• weight • size (e.g., square meter or yard) • number of pieces (e.g., dozens) • square meter equivalent • cartons