UNIT C The Business of Fashion 3.04 Describe the fashion industry from a global perspective.

U.S. and world trade policy Imports: Goods that enter a country from foreign sources. Imports account for approximately 60% of the total U.S. textile and apparel market. Most U.S. imports come from Mexico and China. Sweaters and jackets/coats account for the largest number of imports.

U.S. and world trade policy Exports: Goods sent out of a country to other countries. Balance of trade: The relationship between the values of a country’s imports and exports; expressed as a deficit or a surplus.

U.S. and world trade policy Trade deficit: Occurs when imports exceed exports. The U.S. trade deficit is large. More products are imported into the U.S. market than are being exported. Textile/apparel products are a large part of the U.S. trade deficit.

U.S. and world trade policy Trade surplus: Occurs when exports exceed imports. Japan has a large trade surplus. A large trade surplus results in large amounts of money for the exporting country.

U.S. and world trade policy Free trade: Government’s policy for allowing goods to flow freely in and out of its economy without interference.

U.S. and world trade policy Protectionism: Opposite of free trade; includes many government-imposed trade restraints which form barriers to free trade. Tariffs (duties): Charges (taxes) paid on goods coming into a country; raise the prices of imported goods. Quotas: Limitations established by the government on quantities of certain goods that can enter a country during a specified time period. Standards: Certain levels of quality specified for imported goods to prevent sub-standard products from entering a country.

Advantages of U.S. protectionism Job protection for U.S. workers Helps strengthen U.S. industries and enables them to compete internationally Reduces the U.S. trade deficit Keeps inferior and unsafe products from entering our market Maintains a strong manufacturing base for national security, enabling manufacturers to convert to war-effort production if necessary Inhibits overseas competitors that pay low wages, provide no benefits, and take advantage of child labor

Disadvantages of U.S. protectionism Encourages trade retaliation, which lowers exports of all industries Loopholes and corruption enable merchandise to enter the market anyway. Penalizes consumers with fewer choices and higher prices Causes less competition Hard to retract after it is in force Does not encourage all industries to compete equally Less damage to national interests

World Trade Organization (WTO) An international trade agreement that reduces tariffs, quotas, and other trade barriers around the world. Agreement of more than 130 countries Negotiates and enforces global trade rules Exists to liberalize trade and serve as an international trade court to settle differences among member nations To be phased out by 2005, which will then allow countries to compete with very few trade barriers

Offshore production The use of foreign workers in one or more countries to complete the manufacturing steps for goods that carry the producer’s label. A garment may travel through four countries before the manufacturing process is complete. Offshore production allows U.S. companies and retailers to take advantage of lower labor costs. These wages generally do not include overtime pay or fringe benefits. Garments that bear the name of an American designer are not necessarily manufactured in the U.S.

Offshore production (cont.) Textile and apparel industries are usually the first industries to appear in developing nations. Much of the manufacturing of apparel is done by hand, offering employment opportunities to low-skilled workers. As countries develop, they begin to utilize more technology, workers become more skilled, and the quality and quantity of textiles/apparel production begins to increase.

World’s major trade regions Asia-Pacific plus India Europe plus North Africa The Americas

Asia-Pacific plus India Japan is an exporting leader because of effective marketing strategies. South Korea, Taiwan, Hong Kong, and Singapore Industrialized nations with outstanding technology Small land mass with limited natural resources Import raw materials and export quality goods

Asia-Pacific plus India (cont.) Sewing and handcrafting of apparel done in homes Exports apparel but accepts no imports China Exports low-wage goods Beginning to accept imports in order to become a member of WTO Largest exporter of manufactured textiles and apparel in the world Many manufacturing firms participate in unfair trade practices and violate human rights

The Americas Unified trade region as a result of NAFTA North American Free Trade Agreement (NAFTA): A trade agreement between the United States, Canada, and Mexico that formed the world’s largest free trade area. NAFTA eliminated trade barriers on textiles and apparel.

The Americas (cont.) Canada High wage rate Sends upscale garments into the U.S.

The Americas (cont.) Mexico Low manufacturing wages Large, young, eager workforce Caused the closure of some U.S. factories Developing market with increasing standard of living Large potential for American retailers Sears, JCPenney, Wal-Mart, and Price/Costco currently have stores in Mexico. Many U.S. apparel firms are entering into production in Mexico.

Labor industry abuse… Sweatshop: The Department of Labor defines a workplace as a sweatshop “if it violates two or more of the most basic labor laws including child labor, minimum wage, overtime, and fire safety laws.”

Labor industry abuse… (cont.) Over 2,000 illegally operating sweatshops exist in the U.S. Most sweatshop workers are immigrant workers. Most immigrant workers in sweatshops do not complain about working conditions for fear of losing their jobs or fear of retaliation from employers. Since the mid 1990s, many apparel companies and designers have come under strong criticism for supposedly unknowingly utilizing sweatshop producers in the manufacture of their apparel. Examples: Nike, Kathie Lee Gifford, Disney, Guess