Global Trade & Apparel Industry Essentials: Key Concepts

Posted on Aug 1, 2025 in Economy

Global Integration in Globalization

Three primary types of integration are observed in the context of globalization:

Financial Integration: Involves the movement of capital across borders, including foreign investments, stock market activities, and interconnected banking systems.
Trade and Investment Integration: Characterized by free trade agreements, import/export regulations, and the expansion of businesses across national borders.
Labor Integration: Refers to the migration of workers, the practice of outsourcing, and the increasing interdependence of global labor markets.

Key Economic Terminology Defined

GNP (Gross National Product): The total value of goods and services produced by a country’s residents, including production activities outside the country’s borders.
GDP (Gross Domestic Product): The total market value of goods and services produced within a country’s geographical borders.
PPP (Purchasing Power Parity): A measure of the relative buying power of a currency, adjusted to account for cost differences between countries.

GDP Per Capita Explained

GDP per capita is an economic indicator that often reflects a country’s average labor cost and living standards.

Essential International Trade Definitions

Sourcing: The strategic process of finding and acquiring goods or services from suppliers.
Exports: Goods and services sold by a country to other countries.
Imports: Goods and services purchased by a country from other countries.
Trade Balance: The difference in value between a country’s total exports and its total imports.
Trade Surplus: Occurs when a country’s total exports exceed its total imports.
Trade Deficit: Occurs when a country’s total imports exceed its total exports.

Key Trade Term Abbreviations

NAFTA/USMCA: The North American Free Trade Agreement (NAFTA) was replaced by the United States-Mexico-Canada Agreement (USMCA).
NAICS: North American Industry Classification System.
HTS: Harmonized Tariff Schedule.
SIC: Standard Industrial Classification.

Why SIC Was Replaced by NAICS in the U.S.

The United States replaced the Standard Industrial Classification (SIC) system with the North American Industry Classification System (NAICS) for several key reasons:

NAICS provides more detailed and granular industry classifications.
It comprehensively includes emerging service and technology industries.
NAICS standardizes data collection and reporting across the USMCA economies (United States, Mexico, and Canada).

NAICS Classifications for Textiles & Apparel

NAICS 313: Textile Mills
NAICS 314: Textile Product Mills
NAICS 315: Apparel Manufacturing

NAICS Classifications for Retail Sectors

NAICS 442: Furniture and Home Furnishings Stores
NAICS 448: Clothing and Clothing Accessories Stores
NAICS 452: General Merchandise Stores
NAICS 454: Nonstore Retailers

Harmonized Tariff Schedule (HTS)

The Harmonized Tariff Schedule (HTS) is a hierarchical system utilized to classify goods for the purpose of determining import/export duties, applying quotas, and collecting trade statistics.

HTS Chapters for Textiles & Apparel

Section XI of the HTS (Chapters 50-63) covers textiles and apparel, including:

Chapter 61: Knit Apparel
Chapter 62: Woven Apparel

Understanding Duty Rates

Ad Valorem Duty Rate: A tariff calculated as a percentage of the product’s customs value.
Specific Duty Rate: A fixed amount of duty applied per quantity (e.g., per kilogram or per unit).
Compound Duty Rate: A combination of both ad valorem and specific duty rates.

U.S. Government Trade Agency Functions

USITC (U.S. International Trade Commission): Responsible for maintaining and publishing the Harmonized Tariff Schedule (HTS).
OTEXA (Office of Textiles and Apparel): Conducts industry analysis, develops trade policy, and participates in trade negotiations related to textiles and apparel.
CBP (Customs and Border Protection): Enforces trade laws, collects duties, and ensures border security.

International Trade Agreement Acronyms

GATT: General Agreement on Tariffs and Trade.
MFA: Multi-Fiber Arrangement.
ATC: Agreement on Textiles and Clothing.
WTO: World Trade Organization.

GATT and WTO Relationship

The World Trade Organization (WTO) officially replaced the General Agreement on Tariffs and Trade (GATT) in 1995, significantly expanding its scope and strengthening its enforcement mechanisms for global trade rules.

MFA and ATC Relationship

The Multi-Fiber Arrangement (MFA), in effect from 1974 to 1994, imposed quotas on textile and apparel trade. The Agreement on Textiles and Clothing (ATC), which succeeded the MFA from 1995 to 2004, systematically phased out these quotas under the framework of WTO rules.

WTO Goals and Mission

The primary goals and mission of the World Trade Organization (WTO) include:

Improving global trade conditions by progressively lowering trade barriers.
Ensuring trade flows as smoothly, predictably, and freely as possible.

WTO’s Five Core Trade Principles

The WTO operates based on five primary principles for its trade policies:

Nondiscrimination: Treating all trading partners equally.
Reciprocity: Mutual reduction of trade barriers.
Binding and Enforceable Commitments: Trade agreements are legally binding.
Transparency: Clear and public trade policies.
Safety Valves: Allowing exceptions for emergencies or national security.

Understanding Trade Barriers

Trade Barrier: Any government policy or regulation that restricts international trade.
Tariff Barriers: Taxes or duties imposed on imported goods and services.
Non-Tariff Barriers: Restrictions on trade that do not involve tariffs, such as quotas, licensing requirements, and complex customs procedures.

Common Non-Tariff Barriers

Examples of common non-tariff barriers include:

Quotas (limits on import quantities)
Licensing requirements
Exchange rate manipulations
Complex or burdensome customs procedures

FOB vs. CIF Import Values

FOB (Free on Board): The price of goods at the point when they leave the exporting country, excluding international transportation and insurance costs.
CIF (Cost, Insurance, and Freight): The price of goods that includes the cost of the goods, insurance, and freight charges up to the port of destination.

Key WTO Membership Dates

China joined the WTO in 2001.
Vietnam joined the WTO in 2007.

China’s Role in U.S. Apparel Supply

China continues to be the largest apparel supplier to the United States market.

NAFTA Start Date

The North American Free Trade Agreement (NAFTA) officially began in 1995.

USMCA and the Yarn-Forward Rule

USMCA: The United States-Mexico-Canada Agreement, which replaced NAFTA.
Yarn-Forward Rule: A specific rule of origin under USMCA that requires yarn production to occur within a USMCA country for textile goods to qualify for duty-free treatment.

U.S. Apparel Industry Employment

Within the U.S. apparel industry, the majority of employment opportunities are found in the retail sector.

Major U.S. Textile & Apparel Trade Shows

Magic Show: Recognized as the largest fashion trade show in the United States.
Outdoor Retailer Show: A prominent event focusing on outdoor apparel, footwear, and gear.
International Textile Show: Showcases the latest fabric and textile innovations.

Why Buyers Attend Apparel Market Weeks

Buyers attend market weeks for several strategic reasons, including:

Identifying emerging fashion trends.
Viewing complete vendor merchandise lines.
Discovering and vetting new vendors.
Discussing and resolving issues with existing suppliers.
Negotiating favorable terms and deals.
Networking with industry peers and professionals.

Insourcing vs. Outsourcing in Apparel Production

Insourcing Pros: Enhanced quality control, faster turnaround times, and local job creation.
Insourcing Cons: Potentially higher labor costs and significant infrastructure investment requirements.
Outsourcing Pros: Lower production costs and access to specialized labor or manufacturing capabilities.
Outsourcing Cons: Potential for quality inconsistencies and longer lead times.

Hidden Costs of Insourcing

Beyond direct production expenses, insourcing can involve hidden costs such as:

Significant equipment and infrastructure expenses.
Ongoing training and labor-related costs.
Costs associated with compliance to local regulations and standards.

Hidden Costs of Outsourcing

Outsourcing can also incur hidden costs, including:

Complex logistics and shipping expenses.
Increased quality control risks due to distance and oversight challenges.
Potential for supply chain disruptions.

HTS Reading & Tariff Calculation

The Harmonized Tariff Schedule (HTS) provides specific classification numbers that are essential for determining applicable duty rates on imported goods.

Tariff Calculation Formulas:

Ad Valorem Duty: Calculated as (Value of Goods) × (Tariff Percentage).
Specific Duty: Calculated as (Quantity) × (Fixed Rate per Unit).
Compound Duty: A combination of both ad valorem and specific duty rates.