II. Codes of Conduct in the U.S. Apparel Industry
C. The Apparel Industry
In reviewing the development of codes of conduct in the garment industry, it is important to recognize the enormous changes that have occurred in the industry in recent decades. Once concentrated in the United States and other industrialized countries, the garment industry has gradually spread in successive waves to countries with lower production costs, becoming a worldwide industry whose geographical distribution is constantly changing.23
A number of factors have contributed to this globalization. Many developing countries have based or are basing their industrialization on labor-intensive export sectors, particularly the apparel sector. Developing countries have almost doubled their share of world clothing exports since the early 1970s to account for more than 60 percent of exports today.24 At the same time, companies in the U.S. and other industrialized countries have adopted strategies to relocate certain labor-intensive activities, such as clothing assembly, to low-wage countries through direct investment or outsourcing. Thus, according to the ILO, the industrialized countries have "promoted the expansion of the clothing industry in the developing countries and participated actively in the growing globalization of the sector." 25
1. Structure of the Industry
The garment industry is made up of a complex chain of actors whose roles often overlap. In very general terms, the industry includes the following entities:
Figure II-1 illustrates the relationships among these various entities as they relate to the import of garments.
Intense competition in the U.S. retail sector has resulted in significant restructuring of the industry in recent years. One factor contributing to this trend has been the rise of mass marketing stores and discount retailers with low overhead costs and low prices.26 These nontraditional retailers have displaced a significant share of the sales of traditional apparel retailers such as department and specialty stores.27 There have been a growing number of bankruptcies and consolidations in the retail sector, resulting in an increased concentration of large firms at the retail level.28 In 1993, the five largest retail companies accounted for 48 percent of total retail sales.29
Many experts point to changes in consumer attitudes as a driving force behind the restructuring that is occurring in the retailing industry. Not only have consumers become more cautious in their buying habits, but they have been reducing the portion of their disposable income that they spend on apparel.30 In addition, consumers are increasingly demanding quality goods at low prices.31 Retailers have often been forced to sell merchandise permanently at "sale" prices, with promotions occurring throughout the year.32 Economists and sociologists have attributed increasingly volatile consumer demand to growing numbers of new products, the rise of fashion-consciousness for even the lowest-cost apparel, and more selling seasons.33
In response, retailers are increasingly utilizing new technology to facilitate communication with suppliers and speed the distribution of goods.34 Apparel manufacturers who wish to remain competitive are having to reduce cycle times for apparel design, manufacture and delivery. Many manufacturers have adopted "quick response" manufacturing systems that allow retailers to trim inventory, respond more quickly to changes in consumer preferences, replenish stock almost continually, and offer a wider choice of clothing styles.
Ebbing consumer demand, combined with higher raw-material costs, have in turn placed increased pressures on apparel manufacturers.35 Unable to pass higher costs onto consumers in a market with excess supply, both apparel manufacturers and retailers have been squeezed by lower margins.36 As retailers have gained growing bargaining power through consolidations, apparel manufacturers have had to absorb higher costs and live with lower profit margins in order to maintain production.37 Because of these competitive pressures, apparel manufacturers have also undergone considerable restructuring and consolidation in recent years.38 It is usually the larger manufacturers that can afford the capital investment necessary to successfully adopt more flexible, "quick response" systems.39
In this increasingly competitive environment, the lines between apparel retailers and manufacturers are being blurred as each takes on new roles and enters new aspects of the garment industry. Many retailers, for example, have entered product development and manufacturing as they develop their own private labels. In some cases, department stores and other retailers are directly contracting goods from the same factories used by the brand-name producers from which they buy.40
At the same time, many of the most successful apparel manufacturers and merchandisers have become vertically integrated through the retail level.41 Many apparel manufacturers, in an effort to generate more sales, are opening factory outlets.42 These outlets are a rapidly growing retail distribution channel in the U.S., and are used by manufacturers to showcase their merchandise, test market new products and distribute excess production.43 Having retail outlets gives apparel manufacturers more control over their own distribution and sales.44
2.United States Apparel Imports
More than half of the $178 billion worth of garments sold at the retail level in the U.S. in 1995 was imported.45 By comparison, domestically produced apparel accounted for 70 percent of apparel sold to U.S. consumers as recently as 1980.46 The U.S. apparel manufacturing industry, which employed an all-time high of 1.45 million workers in 1973, supported 853,000 U.S. jobs as of May 1996.47 In 1995, the industry included 24,570 establishments, averaging 40 employees each, and produced $87 billion of garments at retail prices.48
United States apparel imports have been increasing steadily since the 1970s. The U.S. imported nearly $34.7 billion worth of apparel in 1995. During the period 1985-1995, the value of U.S. apparel imports in current dollars increased by 171 percent (see Table II-1).
Under domestic law and the rules of the international Multifiber Arrangement (MFA) of the General Agreement on Tariffs and Trade (GATT), the United States has limited the growth of apparel imports for more than three decades through the negotiation of bilateral textile and apparel quota agreements. The agreement establishing the World Trade Organization (WTO), however, provides for a 10-year phase-out of the MFA beginning in January 1995. Resulting reductions in tariffs and the eventual elimination of the MFA system of textile and apparel quotas are likely to accelerate increases in garment imports.49
a. Imports by Source
The United States imports apparel from all regions of the world. In 1995, Asian countries accounted for 61 percent of the value of total U.S. imports of apparel, countries in the Americas accounted for 27 percent, European countries for 8 percent, and other countries for 4 percent. (See Table II-1 and Figure II-2).
In 1995, Hong Kong was the largest source of U.S. apparel imports, accounting for $4.2 billion or 12.1 percent of total U.S. apparel imports. The next four largest sources of U.S. apparel imports in 1995 were China ($3.5 billion or 10.2 percent), Mexico ($2.6 billion or 7.4 percent), Taiwan ($2.0 billion or 5.9 percent), and the Dominican Republic ($1.7 billion or 5.0 percent). Figure II-3 shows the top 25 sources of U.S. apparel imports in 1995. In 1995, 168 countries exported apparel to the United States (See Appendix E).
b. Imports by Type of Importer
Garment manufacturers and retailers increasingly have resorted to imports from lower cost producers to retain their competitive edge in the United States market. Retailers are developing global alliances with suppliers and directly sourcing brand-name and private-label merchandise domestically and internationally.50 Many of the largest retailers also have become the largest importers of apparel. In 1993, retailers accounted for 48 percent of the total value of imports of the top 100 garment importers, according to the U.S. Customs Service.51
Apparel manufacturers and retailers are also increasingly turning to low-cost suppliers abroad to supplement their U.S. production. In some cases, manufacturers contract out apparel assembly operations to overseas contractors. In other cases, U.S. apparel manufacturers have shifted production abroad to take advantage of lower costs and, in some cases, preferential trade programs. To maintain market share, many U.S. apparel manufacturers are expanding their garment assembly activities in Mexico and the Caribbean Basin to take advantage of preferential trade programs.52
The North American Free Trade Agreement (NAFTA) provides reduced or duty-free entry and eliminates most quotas for apparel products from Mexico and Canada that meet certain rules of origin. Under the Special Regime Program, apparel assembled in Mexico from U.S.-formed and cut fabric is allowed quota-free and duty-free entry into the United States market. Finally, under the Special Access Program for the Caribbean, also known as the 807A Program, certain apparel products assembled in participating countries from fabric wholly formed and cut in the U.S. are afforded quota-free entry and preferential duties upon re-entry into the United States.53
3. Globalization and Working Conditions in Exporting Countries
The cost of producing clothing is largely determined by two components - the costs of labor and, to a lesser extent, materials. Clothing production is therefore prone to relocation to countries where labor costs are lower, with the exception of producers who escape cost competition through "up-market" strategies.54
The ILO has commented on the effect that increasing competition has had on working conditions in the mass segment of the market:
Some of the newest entrants in the producer market, which are attracting foreign investors, have mainly developed labor-intensive sewing and assembly activities.56 While some of these newest producer countries currently may be small suppliers to the U.S. market, they may also be the location of troubling labor practices.57