ASEAN: Regional Trends in Economic Integration, Export ... - USITC

includes the production of cotton yarns, the weaving of the yarns into cotton fabrics, and
the cutting and sewing of the cotton fabrics into cotton woven apparel. In addition, before
shipping, the finished apparel must be packaged according to the buyer’s instructions.
This analysis will focus primarily on the production of cotton woven fabric and cotton
woven apparel.
The role that this part of the supply chain plays in ASEAN countries’ economies varies
greatly. Some ASEAN countries, such as Vietnam and Cambodia, have a competitive
advantage in apparel production, but need to import most of their cotton woven fabrics.
Other countries, such as Thailand and Indonesia, produce both cotton woven fabrics and
apparel. Even though they consume a large share of their fabric production domestically,
they also have an incentive to trade in cotton woven fabrics. The production of cotton
woven fabrics is capital-intensive, necessitating high capacity utilization rates in order to
cover fixed costs. Further, factories tend to specialize in specific types of cotton woven
fabrics (such as denim or twill fabrics for pants, or oxford cloth for men’s shirts). Apparel
manufacturers, on the other hand, require a large variety of different fabric styles to meet
the needs of their customers. Thus, apparel-producing countries import fabric inputs from
many different countries.
Regional Integration, Export Competitiveness, and Inbound
Investment
Leading Competitive Factors
The expiration of global quotas under the ATC on January 1, 2005, resulted in
significantly increased competition among the individual ASEAN countries, as well as
among global competitors who supplied the U.S. and EU markets. Large U.S. and EU
retailers consolidated their supply bases because the availability of quota was no longer a
significant factor in deciding where to have their goods produced. 18 Competition among
the ASEAN countries also increased as Vietnam, an efficient and low-cost apparel
producer, gained full access to the U.S. market. In December 2006, the United States
granted Vietnam normal trade relations (NTR) status, which significantly reduced the
duties on U.S. imports from Vietnam. 19 On January 11, 2007, Vietnam became a member
of the WTO. 20
Without the global quotas, the repercussions of increased competition among retailers
emerged as a major factor in the global production of cotton woven apparel, influencing
both export competitiveness and inbound investment. Because of this intense retail
competition, retail buyers were and still are demanding lower costs and quick turnaround
and delivery times. Retailers do not want to be left with inventory and take markdowns at
the end of a season. As a result, ASEAN industry sources report that short lead times
have become a major factor in choosing suppliers. 21 Increasingly, retailers are demanding
18 The United States and the EU established quotas on imports of woven cotton apparel (and other textile
and apparel articles) from China after the quotas under the ATC expired, as permitted under the China WTO
accession agreement. However, these safeguards were not as comprehensive as the quotas that were in place
under the ATC. The safeguard quotas expired for the EU at the end of 2007 and for the United States at the
end of 2008.
19 For example, the duty rate for men’s and boys’ cotton trouser and shorts imported under U.S.
Harmonized Schedule subheading 6203.42.40 dropped from 90 percent ad valorem to 16.6 percent ad
valorem.
20 U.S. Department of State, “Background Note on Vietnam,” October 2009.
21 Industry representative, interview by USITC staff, Bangkok, Thailand, March 15, 2010.
4-6