TXMI 4260 Quiz 1

Trade Rules

- 807 started a migration to the south of the border - 1994 NAFTA accelerated the process - NAFTA was an agreement between Mexico, Canada, and USA - Mexico's exports of apparel to the US went from less than $1B to $8B in less than 5 years - US lost 128k jobs in apparel but gained 2.2 million in other areas

807 / 9802

- 9802 is a HTSUS provision that allows for materials that are formed or shaped in the US to be shipped for assembly in a foreign country and be returned to the US with duties charged only on the value added outside the US - In 1963 apparel companies first utilized the 807 provision

Comparative Advantage

- An economic law referring to the ability of any given economic actor to produce goods and services at a lower opportunity cost than other economic actors - A founding principle of international trade

Cambodia

- Cambodia established a significant garment industry during the 1990s; and saw this avenue to industrialization as a method of putting its nation on sounder economic footing after decades of political unrest - Negotiated a trade agreement with the US, based on Cambodia's commitment to improving labor conditions - Growth in Cambodia's apparel business over the last few years has been significant

Australia

- Developed nation with the third-highest per capita GDP in Asia, after Singapore and Hong Kong - Australia remains the world's top producer and exporter of wool fiber and fabric - The Wool Carbon Alliance to work with the Australian government to research the role wool can play in the future - Australia's apparel industry is relatively small and focused on fashion goods

Indonesia

- Group of dozens of islands between the Indian and Pacific Oceans, and is the world's third-largest democracy, after the US and India - Suffers from significant political and social instability & counterfeit - WTO data ranks Indonesia number 12 globally in textile exports and number 8 in apparel exports by dollar value (WTO, 2009) - Cotton - Largest producer of textiles and apparel in the ASEAN region

Japan

- High Technology: - Specialized textiles and apparel - During economic downturn, Japanese consumers tended to move toward inexpensive fast-fashion purchases

Apparel-Producing Countries in East Asia

- Hong Kong and Macau are both tiny nations located along China's shore - Free market economies that are heavily dependent on international trade - Both nations developed under European occupation, and both nations became a special administrative region (SAR) of China during the last 15 years

Sri Lanka

- Island nation located off the southeast tip of India that has suffered a prolonged civil war - Longer lead time - Nonetheless, the garment industry became an engine for Sri Lanka's economy - Impressive accessory industry - Sri Lanka suffered greatly from the tsunami that affected much of southern Asia in 2004

Asian Sourcing

- Lower fabric costs and ease of doing business in Asia soon influenced US, companies to source full package apparel products with them - They took full responsibility for fabric, trim and on-time delivery - Full package provider provides labor, fabric, and trim - Prior to this most companies dealt with contractors who only provided the labor and possibly trim (CMT)

Malaysia

- Malaysia shares with Thailand a peninsula off the western edge of the South China Sea - The nation has transformed itself since the 1970s from a producer of raw materials into an emerging multisector economy - Industry is focusing on producing for the higher, value-added upscale market and on licensing branded goods - Malaysia also exports quantities of synthetic fibers and yarns

Southeast Asia (ASEAN Countries)

- Members of the Association of Southeast Asian Nations (ASEAN) are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar (formerly Burma), the Philippines, Singapore, Thailand, and Vietnam - Major function of ASEAN is to enhance trade options for its 10 member countries - The International Labor Organization (ILO) estimated that one million people lost their jobs in Indonesia and Sri Lanka because of the tsunami of December 26, 2004

Hong Kong

- One of the leading global exporters of textiles and clothing, behind the EU and China - Hong Kong has had to make numerous adjustments owing WTO quota issues and its return to Chinese jurisdiction - Hong Kong initiated considerable direct foreign investment (DFI) into other countries, including ASEAN nations and China - Two firms with headquarters in Hong Kong are Fountain Set Limited and TAL Group - Hong Kong's attention in textiles and apparel is not being redirected to broker activities: Li & Fung

DR-CAFTA

- Passed in 2006 and was finally adopted by all parties in Oct. 2007 - Agreement between Dominican Republic, Honduras, El Salvador, Guatemala, Nicaragua, Costa Rica and the US - Costa Rica was the last to ratify Oct. 2007, actually the last of the agreement was finalized in Dec. 2008 - The fact that some had accepted and not others caused problems with cumulation and how to apply duties - Cumulation in woven apparel allowed limited volume of inputs from Canada and Mexico to be used in duty-free items imported to US - Garments manufactured of components from any of these countries starting with a yarn (yarn forward) can be moved to any other of these countries duty-free

South Korea

- Syncretic capitalism - Attention given to the marketing of fashion and the retail sector - Textile firms in South Korea are still a major supplier of fabrics - Innovations in the use of natural fibers are also in progress

Taiwan (Taipei)

- Taiwan is a major supplier of man-made fiber and fabrics and yarns for the knit-to-shape garments it produces - Taiwan's textile industry has developed into a major seat of manufacturing in the region - The Taiwan Textile Federation (TTF) held its Taipei Innovative Textile Application Show (TITAS)

Thailand

- Thailand has a free enterprise economy and welcomes foreign investment - Well-developed textile industry, but high costs and lower quality has diminished industry's importance - Larger export market in greige product than in finished goods - Bangkok International Fashion Fair (BIFF) and Bangkok International Leather Fair (BIL) showcase the ASEAN fashion industry

Bangladesh

- The garment industry was performing at efficiency levels below competitors - Wasteful methods - Lack of modernized machinery - Substandard roads - Power outages - Low literacy levels and frequent labor unrest - Despite all these issues, figures from the WTO indicate that Bangladesh imports large quantities of fabrics and uses them to produce the garments that it exports - In 2008, Bangladesh was ranked fifth in the world in apparel exports (WTO, 2009)

South Asia

- The textile and apparel sector is believed to be the largest source of manufacturing jobs in South Asia, and its labor costs for textile and apparel production are among the lowest in the world - One of the most difficult issues in securing products from South Asia is the distance from major markets - About 45 to 60 days from India to the east coast of the United States - The EU is considerably closer and provides India with its bigger market for products

Border Adjustability Tax (BAT)

- This is a new proposal (summer 2016) in House of Representatives (HR) to create tax on the value of imported goods treated as profit, (may or may not replace tariffs) under auspices of tax reform, e.g. if the company has revenue of $1 billion - with $400 million from import and $600 million from export - and a total profit of $1 million there would be a tax on the total $400 million import but there would be no tax on profits from the $600 million export - Tax on offshore profits (historically kept offshore) could also be imposed

India

- To compete with China, government allows import of raw materials at zero customs duty or tariff - Issues - Legal requirements and paperwork and paperwork often increase costs and necessitates use of brokers - Rigid labor laws - Garment exporter community focusing on higher-value products, including fashionable items and accessories, and embellishments such as hand embroidery and beading

Vietnam

- Vietnam established garment industry during 1990s - Producers have significantly upgraded production capabilities, becoming attractive source of exports to the EU and the US - Vietnam ranked seventh globally in apparel exports in 2008 - The fastest growing exporter of apparel products to the US

South China Peninsula Countries

- Vietnam was seriously disrupted by both the Vietnam War, in the conservative government that followed - Thailand is the only Southeast Asian nation never to be taken over by a European power - Cambodia still struggles with political disruption

807A

-A presidential declaration in 1986 giving Caribbean Basin countries certain advantages in tariff and quotas for apparel -Stated that US fabric cut in the US could be assembled in Caribbean countries and duty would be applied on the value added when reentering the US

The European Economic Community (EEC) was founded in ____

1957

Today, Mexico supplies only ____ percent of US textile and apparel imports but Mexican textile and apparel exporters are now almost entirely dependent on US retail market demand.

4.5%

Code of Conduct or Code of Ethics

A company's statement of principles and standards used to guide business decisions. Typically shared with contractor as a requirement for doing business.

Export Processing Zone

A customs area where one is allowed to import plant, machinery, equipment and material for the manufacture of export goods under security, without payment of duty

Letter of Credit (L/C)

A financial instrument from a bank to guarantee to a seller that the buyer has funds to complete a purchase on satisfaction of documentary requirements.

Cash Against Documents (CAD)

A financial instrument from a bank to serve as intermediary between seller and buyer to complete a purchase upon presentation of documents to the bank

Trade Blocs

A group of countries that have unified to create regional trade incentives

Copyright

A legal right created by the law of a country that grants the creator of an original work exclusive rights for its use and distribution. It has both time territorial limits.

Consumer Price Index (CPI)

A measure created by the US government that examines the weighted average of prices of a basket of consumer goods and services. A prime consideration in determining inflation/deflation.

Substantial Transformation

A method US Customs uses to determine C/O based on determining which country involved in the assembly of a product created the essential character of the product resulting in a change in the HS classification number

Value Added

A method US Customs uses to determine C/O based on the amount of value (price paid) in each country involved in the assembly of a product

Least Developed Country (LDC)

A nation who's GDP per capita and other measures of well-being fall well below the world average. Also known as Third World Countries.

Subsidy

A payment from a government (usually in the form of a tax break) to a company to promote increase in production (typically for export)

Adversarial Relations

A practice between buyers and sellers that if one party wins, the other party loses (e.g. the customer is the enemy)

Fabric-Forward Rule

A term used in FTA's to define qualification of a textile or apparel product for preferential treatment, i.e. fabric must originate in a participating FTA country.

Fiber-Forward Rule

A term used in FTA's to define qualification of a textile or apparel product for preferential treatment, i.e. fiber must originate in a participating FTA country. See also Fabric-Forward and Yarn-Forward.

Yarn-Forward Rule

A term used in FTAs to define qualification of a textile or apparel product for preferential treatment, i.e. yarn must originate in a participating FTA country. (See also Fabric-Forward and Fiber-Forward.)

Embargo

Action by US Customs that does not allow entry of import product in excess of a predetermined amount (see Quota)

Law of Unintended Consequences

Actions of people--and especially of government--always have effects that are unanticipated or unintended. Adam Smith's Invisible Hand.

Maastricht Treaty

Agreement in 1991 among 12 European countries to form the European Union

Free-Trade Zone

Airport, seaport, or any other designated area for duty-free import of raw materials, components, sub-assemblies, semi-finished or finished good.

Discretionary Income

Amount of money left after all current obligations are covered

Voluntary Export Restraint

An informal agreement between countries to limit trade without entering a formal agreement

Multifiber Arrangement (MFA)

An international trade agreement on textile and clothing that was active from 1974 till 2004. The agreement imposed quotas on the amount that developing countries could export in the form of yarn, fabric and clothing to developed countries. (See Agreement on Textiles and Clothing (ATC)).

Countervailing Duty (CVD)

CVD cases are established when a foreign government provides assistance and subsidies, such as tax breaks to manufacturers to sell the goods cheaper than domestic manufacturers. CVD cases are country-specific, and the duties are calculated to duplicate the value of the subsidy. See also Antidumping Duty.

Who is the largest producer of textile and apparel products in the world?

China

Brand Manager

Company that owns or licenses brand and designer labels, generally they control design and product development internally and outsource manufacturing

Buying Office

Company that provides various sourcing services based on customer needs. Usually located in source country and beneficial to small companies

Country of Origin (C/O)

Country where a product is manufactured. It is determined by the importing country's legal interpretation and any trade agreements it has with other countries. See Value Added and Substantial Transformation.

CMT

Cut/Make/Trim - Reference to apparel manufacturers that only provide assembly and finishing of your product

Antidumping Duty (AD)

Dumping occurs when foreign manufacturers sell goods in the United States less than fair value, causing injury to the US industry. AD cases are company specific; their duties are calculated to bridge the gap back to a fair market value. See also Countervailing Duty.

Effective Tariff

Economic impact of a nominal tariff

Apparent Consumption

Economic term for domestic consumption based on (production + imports - exports)

eCommerce

Electronic business transactions typically conducted over the internet or the cloud

European Union

Evolved from the EEC and formed in 1993 to ease restrictions regarding trade and economic relations within the trade area and to promote foreign policy, security, defense, and judicial issues

Andean Trade Promotion & Drug Eradication Act (ATPDEA)

Expanded ATPA to allow duty-free treatment of qualifying goods in 2002

Customs and Border Protection (CBP)

Formally known as the US Customs Service, bureaucracy responsible for monitoring imported goods, assessing and collecting duties and enforcing international trade agreements on US soil

Association of Southeast Asian Nations (ASEAN)

Founded in 1967 "to strengthen the existing bonds of regional solidarity and cooperation." Compete with other regional economic unions.

African Growth & Opportunity Act (AGOA)

Free Trade Agreement between US and select sub-Saharan African Countries

Exports

Generally refers to goods shipped out of source country for import into another country

Radio Frequency Identification (RFID)

Generic term for technologies that use radio waves to automatically identify people or objects. There are several methods of identification, but the most common is to store a serial number that identifies a person or object, and perhaps other information, on a microchip that is attached to an antenna.

World Customs Organization (WCO)

Global organization to coordinate and improve customs activities among member countries

World Trade Organizations (WTO)

Global organization to establish, monitor and maintain international trade rules and regulations

Quota

Government-imposed trade restriction that limits the number, or monetary value, of goods that can be imported or exported during a particular time period. Quotas are used in international trade to help regulate the volume of trade between countries. (See Embargo.)

Price Elasticity

If a small change in price is accompanied by a large change in quantity demanded, the product is said to be elastic (or responsive to price changes). Conversely, a product is inelastic if a large change in price is accompanied by a small amount of change in quantity demanded. If price elasticity is 0 then the demand does not change regardless of price

Zona Franca

International terminology for an economic area within a country that allows preferential treatment of products for export

Uruguay Round

Last negotiations under GATT which formed the WTO and ATC

Intellectual Property Rights (IPR)

Legal protection for exclusive use by owners of copyrights, trademarks, patents, trade secrets, and semi-conductor chips. China has been perennially accused of IPR violations.

Universal Bar Code (UPC)

Marking system (usually with labels) for identifying and tracking products or containers at a specified stock-keeping unit (SKU) level. (See also RFID.)

Distressed Goods

Merchandise not salable at the intended price, typically first quality goods that were over-produced or delivered late, also known as Long Position Inventory

Labor Exploitation

Mistreatment of employees because of poverty, gender, age, and/or opportunity

Electronic Data Interchange (EDI)

Paperless transfer of documents between businesses through internet

807

Reference to pre-HTS tariff item that allowed for tariff (duties) to be discounted for the value of US components assembled abroad, i.e. value added tariffs. Later became HTS 9802.

Qualified Industrial Zone (QIZ)

Region within Jordan & Egypt included under the US-Israel FTA that allows preferential duty & quota treatment with the US upon meeting certain Israel value-added criteria

Andean Trade Preference Act (ATPA)

Regional trade agreement between US & select countries in the northern regions of South America established in 1991 and precursor to ATPDEA

Disposable Income

Take-home pay, the total amount of money available to an individual of family to support the needs at a specific time and level

Assists

Term used by US customs that refers to contributions made by an importer of foreign merchandise who provides something of tangible value to the producer or supplier of that merchandise. The effect of providing this something makes the cost of production less than what it would have been had the producer obtained the something from third-party sources. See customs valuation.

Stakeholder

Term used to identify those people who are impacted by a company regardless of being a stockholder, e.g. employees, neighbors, vendors

Agreement on Textiles & Clothing (ATC)

The 10 year phase out of quotas under GATT/MFA expired in 2005 (see Multifiber Arrangement (MFA))

Harmonized Tariff Schedule of the United States (HTSUS)

The US version of the Harmonized Commodity Description & Classification System developed by the World Customs Organization to establish a common framework for identifying products with a numeric code in International Commerce for purposes of tariffs and quotas

Counterfeiting

The act of making an imitation of an original with the intent to defraud

General Agreement on Tariffs & Trade (GATT)

The first global multi-lateral free trade agreement. It was effective from June 30, 1948, until January 1, 1995, when it was absorbed by the World Trade Organization (WTO). Its purpose was to reduce and eliminate harmful trade protectionism. Replaced by WTO.

Gross Domestic Product (GDP)

The monetary value of all the finished goods and services produced within a country's borders in a specific time period, usually quarterly and annually. Primarily used to compare size and health of economies among countries.

International Labor Organization (ILO)

The only tripartite UN agency, since 1919 the ILO brings together governments, employers and workers representatives of 187 member states, to set labor standards, develop policies and devise programs promoting decent work for all women and men

Ad Valorem Duties

The percentage of the value of an imported product that is payable to the US, government upon entry into US Commerce. See specific and compound duties as well.

Asia-Pacific Economic Cooperation (APEC)

The primary economic forum supporting sustainable economic growth and prosperity in the Asia-Pacific Region, which stretches from East Asia and Australasia founded in 1989

Exchange Rates

The value of one currency for the purpose of conversion to another

American Apparel & Footwear Association (AAFA)

Trade organization of apparel & footwear companies to represent communal interests & influence government legislation & regulations

Findings

Trim items other than outer shell fabric used in the assembly of garments

International Monetary Fund (IMF)

UN organization of 189 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world

Caribbean Basin Economic Recovery Act (CBERA)

US trade preference program enacted in 1983 to expand the use of 807 by eliminating quota restraints. (Also known as the Caribbean Basin Initiative (CBI))

China's comparative advantage with the United States is in the form of __________

cheap labor

Textile and apparel manufacturing moved from at home by hand into

domestic factories

Apparel is very _____ intensive

labor

US comparative advantage is in specialized, capital-intensive _____

labor

The expiry of the 10-year transition period of ATC implementation means that trade in textile and clothing products is...

no longer subject to quotes under a special regime outside normal WTO/GATT rules but is now governed by the general rules and disciplines embodied in the multilateral trading system