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OCR for page 66
4
Future Scenarios, Policy Options,
and Their implications
The purpose of this chapter is to (1) project the structure and
international competitiveness of the American textile complex
(the basic scenario), (2) identify government policy options in a
number of areas that could alter the basic scenario, and (3) assess
what impact these options could have on the international
competitiveness of the U.S. textile complex.
Drastic changes in trade or other government policies were not
considered because they would be unrealistic and unfeasible in
today's world. The discussion centers on incremental changes,
rather than massive, sweeping varieties. Within this framework,
the main policy areas examined were trade mechanisms, tech-
nology, manpower education and training, taxation, and regulation.
As important points of departure, the following points of panel
consensus should be kept in mind. First, it is extremely doubtful
that employment in the U.S textile complex will increase or even
be maintained at its current level even if, by taking various
measures, the complex becomes more competitive. However, the
rate of decline in employment can be slowed. Second, the prod
jected decline in employment and other impacts of competitive
changes will not be felt equally in all segments of the complex,
nor geographically equally within the United States, nor dem o-
graphically equally among various groups of the work force.
Third, the rate and extent of possible impacts will depend both on
future government policies and on the activities of firms in the
complex. Finally, it was the consensus of the panel that govern-
m ent policy should be directed toward achieving as orderly a
transition/adjustment as feasible and that government policy
should be more consistent, proactive, and comprehensive than it
has been in the past.
66
OCR for page 67
67
THE BASIC SCE N ARI O
Assumptions no changes in existing government policies (such as
trade restrictions) or the economic, technological, and corporate
activity trends described in previous chapters.
Expected Results:
· The combined U.S. trade deficits in fibers, yarns, fabrics,
and products made from textile fabrics (apparel, home furnish-
ings, and industrial products) will widen further, with an increasing
trade deficit in apparel more than offsetting any future trade
surpluses in fibers, yarns, and fabrics.
· Technological and other productivity-related developments
will continue to reduce the need for labor in the complex but also
will increase the demand for higher-skilled workers and
management, permit more sophisticated products to be made, and
lower production costs, particularly for apparel.
· The projected overall slow growth in domestic demand for
the output of the complex in the face of increasing imports and
productivity will result in employment declining slowly but
steadily. The greatest reduction will take place in apparel and in
those parts of the fiber and fabric segments that are heavily
dependent on the apparel segment. ~
, An, _ _ · ,
In addition, employmen t
reductions will be largest in the unskilled categories and among
women and minority groups, as has been the case in the past.
Finally, employment reductions will particularly impact urban
regions of the United States where relative production costs are
highest.
· Increased competition from foreign and large domestic firms
and the necessary increased capital outlays required to become
more competitive (e.g., newer technology, more productive
equipment) will result in continued industrial concentration of the
U.S textile complex. Because the man-made fiber segment is
already highly concentrated, and there are not major manufac-
tur~ng economies of scale in the apparel segment, the greatest
consolidation may take place in the yarn and fabric (textile mill
products) segment. Increased concentration is expected to
continue in the apparel segment due primarily to marketing
economies of scale, but it is not expected to be as extensive as in
the fabric segment.
· With a more concentrated and productive complex, the U.S.
textile complex will become more competitive. As mentioned
previously, however, the expected increase in U.S. international
competitiveness will not be great enough to reverse the combined
U.S. trade deficit in fibers, fabrics, and apparel, nor prevent an
overall reduction in employment in the complex.
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68
GOVERNMENT POLICY AREAS AN D
THEIR P OTE NTIAL I MPACT
The policy areas examined below pertain to international trad e
m echanisms, technology, manpower and education, taxation,
antitrust, and other regulations. Major policy changes in these
areas could significantly alter the expected results of the basic
scenario described above.
Trade Mechanisms
As a preamble to this discussion of trade mechanisms, several key
points are important.
First, there is an existing, official, and highly complex framed
work governing international trade that comprises a number of
specific mechanisms: primarily, the General Agreement on Trade
and Tariffs (GATT), the MFA,2 and a host of bilateral trade
agreements. The first deals primarily with trade in almost all
products, while the latter two deal primarily with regulation Of
trade in cotton, wool, and man-made fiber textiles and apparel.
Historically, changes in the MFA have had more of an indirect
than direct effect on fibers and their greatest direct effect first
on apparel, then fabrics, then yarns. However, as pointed out in
Chapter 1, unfavorable impacts on just the apparel sector will
ripple backward to the fabric, yarn, and fiber sectors.
Second, one of the intended purposes of these trade policies
a nd mechanisms was to allow developing country producers to
increase their exports without unduly disrupting developed
countries' markets, firms, and employment levels. Thus, there are
inherent political dimensions, domestic and international, that
cannot be separated from the existing and future trade framework.
Third, the existing framework seeks to regulate trade between
exporting and importing countries, including the trade access of
developing countries to developed countries' markets. Yet, in
terms of the output of the global textile complex, the greatest
future growth is projected to occur outside the developed coun-
tr ies4 in the developing countries where there are considerable
tariff and non-tariff barriers and restrictions on inward foreign
i nvestment, which are not likely to be reduced unilaterally.
Therefore, modifications of existing trade mechanisms discussed
in Chapter 2 are not likely to significantly improve the access of
U.S. firms to foreign markets, be it by export or foreign
investment.
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69
With these overview considerations in mind, the options for the
U.S. government are as follows:
1. To better enforce the existing trade mechanisms system
and tighten controls, as well as to respond faster to changes in
market conditions and import surges.
2. To seek reduction in tariff and non-tariff barriers in other
countries.
3. To change to a system of granting licenses to U.S.
mporters instead of foreign exporters.
4. To change policies concerning offshore processing.
il
Better Enforcement and Control
During the Carter administration, an administrative "White Paper"
addressed many of the complaints of the U.S. textile complex
concerning what it perceived as slack enforcement of the MFA
provisions and promised better enforcement.5 While this White
Paper was considered by the industry to be a move in the right
direction, there remain several areas where improved enforcement
is still needed. While the renewed (12/81) MFA is expected to help
reduce these problems, faster enforcement and more strict
controls would lessen import surges and market disruptions, lessen
the risks and improve the planning ability of domestic firms, and
make for a more orderly transition and adjustment by the complex.
The key to proper enforcement in the United States rests with
the [J.S. Customs Service and the amendment of customs legisla-
tion, which, for example, imposes no penalties on quota violators
when tariff rates are not at issue. The Customs Service has never
had sufficient personnel, and recent budget cuts have seriously
lessened its effectiveness.
Testifying before the Trade Subcommittee of the House Ways
and Means Committee, Customs Commissioner William Van Rob b
acknowledged that the 1983 budget as submitted by President
Reagan may force a layoff of over 1500 employees with a further
cut of some 800 jobs through attrition. Layoffs are likely to
involve some 240 import specialists, who classify and monitor
imports and assess and collect duties; some 1200 inspectors, who
staff U.S. border crossings and ports; and 40 special agents, who
investigate quota violations and fraud. There are at the present
time some 1100 import specialists in all fields, 4350 inspectors,
and 635 special agents, although only 400 of them are active in the
field, with others assigned to supervisory and foreign liaison
duties. Washington recently placed the enforcement staff under
the regional directors, thus minimizing the already inadequate
effectiveness of the enforcement effort.
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70
There is a need to strengthen the enforcement capabilities by
providing improved procedures and by strengthening penalty
provisions, to increase the size of the Customs Service personnel
(additional manpower in this field pays several fold for itself
through increased duty collections), and to bolster its enforce-
ment activities and personnel.
in creasing Responsiveness
It was the consensus of the panel that the existing trade restric-
tion mechanisms are not sufficiently responsive to import surges
or other significant changes in markets, competitive forces, or
company activities. As a result, irreversible damage can be done
even before an investigation begins or a response is undertaken.
There are currently provisions in both the MFA and most U.S.
bilateral agreements concerning flexibility. For example, para-
graphs six and nine of the Protocol extending the MFA until 1986
(concluded on December 22, 1981) justify reductions in the posi-
tive import growth rate and flexibility provisions for particular
products from particular countries in specified circumstances. In
addition, there are required consultations with a country whose
exports to the United States increase rapidly, either because they
were not covered by a bilateral agreement or because the par-
ticular agreement did not set a quota for the specific product. If
no agreement can be reached, the United States can usually act
unilaterally, either in accordance with the provisions of the
bilateral under Article 3 of the MFA, or under the provisions of
Section 204 of the Agricultural Act as amended, as the case may
be.
However, delays in action by U.S. authorities often permit the
build-up of exports to very high levels, and some bilaterals do not
always specify that once consultation is requested, the exporting
country will limit its shipments to a specified fraction of the prior
year's shipments. Nor do U.S. bilaterals provide that, when under-
shipments occur, imports cannot increase in the subsequent year
by more than a specified percentage of the applicable quota. In
addition, the existing provisions (i.e. swing or shift, carry-over,
and carry-forward) often increase the import growth provided for.
While recognizing that multilateral trade agreements are
inherently complex and that they already contain some responsive
provisions, the panel believed it beneficial for the United States to
examine ways to improve the speed of U.S. response.6
OCR for page 71
71
Reduction of Tariffs and Non-tariff Barriers Abroad
While the average tariff levels on fabrics and apparel are gener-
ally higher in developing countries than In the United States, the
problem is even greater for non-tariff barriers. Non-tariff bar-
riers (such as custom clearance delays, time-consuming inspection
procedures, local content requirements, labeling procedures,
border taxes, and equalization taxes) are often greater trade
impediments than tariffs and are far more difficult to identify and
assess.7
Obtaining reductions in foreign trade restrictions and impedi-
ments would improve U.S. export potential and, in the process,
could result in improved U.S. trade balances and increased employ-
ment. The potential impact on the U.S. complex of greater
exports should not be underestimated. As previously mentioned, in
the future both population and per capita consumption (in pounds)
of textile products are projected to increase faster outside the
United States. Therefore, the more trade restrictions in other
countries can be reduced, the more the U.S. complex can
participate in and benefit from global growth in consumption. At
the same time, it must be acknowledged that U.S. firms must be
suitably prepared for and capable of participating in this growth if
the benefits are to be realized. This will require greater
international commitment and skills, a point addressed separately
in a subsequent section of this report.
Changing the Export Authorization System
Unlike many countries, including European countries, the United
States allows exporting countries to decide who shall export within
the limits set forth in their bilateral agreements and does not
employ a double check system. This permits foreign exporters to
buy or sell their licenses to export, thus giving the economic rents
(profits) to foreign holders of the licenses, rather than to U.S.
citizens. This system makes it much more difficult to control the
actual flow of goods to the United States. While the panel was not
able to fully assess the impact of the current U.S. policy in this
area, it did consider that it would be prudent for the U.S.
government to investigate the issue further, that is, to analyze the
U.S. system and compare it with systems in other major importing
countries to determine if the U.S. system should be retained or
revised.
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72
Changing Item 807 (Offshore Processing)
The U.S. textile complex has not historically been a major user of
offshore processing, but its use in the recent decade has in-
creased, particularly by the apparel segment, as shown in Chapter
.
The consensus of the panel, with one strongly dissenting
opinion,8 was that offshore processing (the use of Item 807)
preserves jobs9 in the fiber and fabric sectors and even some in
apparel and may allow some U.S. firms to be more competitive.
The panel also believed-that offshore processing has a positive
, ~ ~ . . ~
political impact internationally, as most of the U.S. apparel
segment's use of Item 807 is in Latin American and Caribbean
countries, areas with whom the United States continues to seek
improvements in its political relations.
Therefore, the consensus of the panel (although with som e
strong dissent) was that the United States should not eliminate
Item 807 but rather should consider policies that would increase
its use.l]
While the panel acknowledged that increased offshore process-
~ng might lead to some reduction in domestic employment, more
service jobs might be created, the international competitiveness
of firms might increase, and the longer-term prospects for the U.S
textile complex might be enhanced. An interim test of any such
changes might clarify this view.
Summary
While changes in almost any of the above areas would help the
U.S. textile complex become more competitive, concurrent
changes in several of them would have an even greater positive
impact. The sooner the changes are implemented, the sooner the
benefits would occur.
Technology
As described in Chapter 2, both the pace and costs of technologi-
cal change have increased sharply. While these changes have had
greater impact in the fiber and fabric sectors than in the apparel
sector, all segments of the textile complex are expected to be
i ncreasingly affected by future technological developments.
Because adoption of new technology enhances international
competitiveness, careful consideration should be given to policies
that affect directly and indirectly the development and utilization
of new technology.
OCR for page 73
73
Examples of government policies that have a direct impact on
technology development are (1) support for the scientific com-
munity and its RED activities, (2) tax incentives for corporate
R&D programs, and (3) support for projects that have high R&D
components and spimoff applications. Examples of policies that
have an indirect impact on technology development are particle
larly those that affect (1 ) future market stability and (2) the
amount of capital available to conduct R&D. In the former case,
an unstable or pessimistic future can increase the risks and
negative perceptions of potential future technology development.
In the latter case, if firms or other organizations do not have
enough capital to spend on R&D, less R&D will be done.
The result can be a kind of "Catch 22" situation. If business
prospects and funds availability are low, R&D declines, causing
international competitiveness to decline. This causes business
conditions, expectations, and future funds to decline further.
causing R&D to decline further, and so on. On the bright side, the
converse of this scenario is also true. If business prospects and
capital availability are high, RED increases, competitiveness
increases, business prospects and capital availability improve
further, and so on. The obvious trick is to get the cycle moving
upward.
All of these comments essentially also apply equally to the
utilization of technology. Without available funds or a suff i-
ciently optimistic future market, firms will be less inclined and
less able to purchase (utilize) the new technology. The British
economy and textile complex are illustrative examples.
Finally, in this technology area, there is the issue of who does
it--does it make any major difference (1 ) whether technology
development is done by firms in the complex or by the equipment
industry, and (2) whether it is done domestically or abroad? The
important distinction in the first case is that firms within the
complex may be more interested in selling their products than
their technology, while independent equipment manufacturers'
products are their technology developments. Thus, the distribm
tion of technology, domestically and internationally, is faster if it
is developed by firms outside the complex that have no incentive
to restrict its distribution. The important consideration in the
second case hinges on who is doing the technology development
abroad. If it is firms in the foreign textile complex, R&D devel-
opments will be slower in spreading to the United States, and U.S.
competitiveness could be affected adversely. On the other hand,
if it is being done by foreign equipment manufacturers, then it will
be made available faster to the U.S. complex, and U.S.
competitiveness will be affected only by the firm's willingness and
ability to purchase it.
OCR for page 74
74
Future Technology Scenarios
Previous chapters described the increasingly rapid rate of tech-
nology development for the textile complex and the forms it had
taken. Major developments occurred primarily in new fibers and
fiber combinations, yarn and fabric formation, product quality,
and automated equipment (generally). Most of them were labor-
saving, more energy-efficient, and oriented toward increasing
productivity or enhancing product features. Most of them also
emanated from equipment manufacturers and increasingly from
sources outside the United States. In general terms most of these
past trends are expected to continue.
Fiber
In the man-made fiber segment of the complex, the R&D empha-
s~s of the past seven years on energy-cost reduction and EP A
equipment-r elated technology will shift to product and process
variant technology:
taking existing polymers and making new
combinations, nigher value products, and better products in terms
of quality and aesthetic and processing properties. It is not
expected that any major, totally new fibers will be developed. 1 1
It is expected, however, that more, if not most, of the new
technology will be developed by the major fiber firms, i.e.,
in-house rather than by equipment manufacturers.
Yarn
New developments in yarn spinning are among the most likely to
occur and will have a major impact on fabric production, as new
methods of spinning make yarns of better quality and more able to
be processed on new high-speed equipment. New opening, draw-
ing, and spinning processes (particularly air-jet spinning and open-
end spinning) are expected to lead the way.
Fabric
Perhaps more than in any other segment, technology is expected
to move farthest and fastest in fabric formation. Fly-shuttle
looms may well become obsolete in the United States, replaced by
newer missile, rapier, water, and air-jet looms, and later by the
wave-shed and bi-phase generation of machines. Technology is
also expected to advance in knitting (needle refinements, co m-
pound needles, new loop-forming systems, among others), although
OCR for page 75
75
not as dramatically as in wovens. As in wovens, however, much, if
not most, of the new technology in knitting is expected to
emanate from non-U.S. equipment manufacturers.
Finally, there remains the non-woven sector--perhaps th e
single area where future technological breakthroughs could be
dramatic and far-reaching. While currently rather limited, the
applicability of non-wovens is hindered only by technology. Non-
wovens offer tremendous potential as substitutes for wovens and
knits and more importantly as new markets for flat textiles. In
addition, the technology is primarily located in the United States
and will probably continue to be in the near future. New tech-
nology that widens the use of non-wovens in industrial and home
furnishings markets represents a major future competitive advan-
tage for U.S. firms in these markets. However, it is not likely
that major technological breakthroughs will occur in the near
future in the use of non-wovens as apparel fabrics.
Dyeing, Printing, and Finishing
Fabric dyeing, printing, and finishing represent still other areas
where technology is expected to advance. The main reason is that
these processes add flexibility to firms' strategies and products
and help differentiate them from developing country firms, which
compete mainly in undifferentiated low-price goods. While the
United States has enjoyed technological leadership in most of
these processes, the Japanese and Europeans can be expected to
increase their efforts in the future.
A pparel
Unlike most of the other segments of the textile complex, there
appears to be little on today's horizon that suggests that applied
technology for the apparel industry is going to change very much
in the next 10 years.
While the Japanese will be spending 550 to $70 million over the
next 5 to 10 years on the potential application of robots to apparel
manufacturing, few immediate,,short-term applications to apparel
.
-1 ~ 1 ~
m anufacturing are envisioned.) ~ In the immediate future, new
and more extensive use of microprocessors and technology related
to body fit and materials handling appear to be the key areas for
major developments. In the more distant future, garment molding
may eliminate some sewing operations (and sewing operators) but
would probably have limited applications because it would not
permit alterations or offer the flexibility provided by sewn seams.
OCR for page 76
76
It does not appear that most U.S. apparel firms will be
increasing their own R&D efforts in the future, but instead will
continue to rely on technology developed in other segments of the
textile complex.
Home Furnishings and Industrial Fabrics
Except for carpet, the manufacturing technologies of the home
furnishings sector are fairly similar-to those of the fabric sector.
Therefore, future technology scenarios for them are similar to
those just mentioned for fabrics.l3 However, technologies of the
industrial fabric sector are much more varied. They are more
technical and it&D-oriented, utilize more specialized equipment,
and, for some products such as geotextiles, are significantly
different.
In addition, an increasing number of home f urnishing and
industrial textile products rely on non-woven processes and
technologies, and this trend is expected to increase. Therefore,
increasing U.S. leadership in non-woven technologies could figure
prominently in the future competitiveness of industrial and home
furnishing sectors.
All in all, the expected technological impact on the industrial
product and home furnishing sectors is likely to be similar to that
projected for fabrics in general. New technology should make the
sectors more capital intensive, more concentrated, and more
internationally competitive.
Policy Implications
There can be a clear benefit to the United States from increased
technology development. The most technologically advanced
i ndustries in the U.S. economy are the most competitive inter-
nationally and are growing the fastest. However, there must be
increased funds to continue this development, either from the
government sector or the private sector, with the greatest
potential benefit probably resulting from government approved
cooperative efforts.
The most defendable and pressing case for government-
sponsored R&D concerns the apparel industry. Of all the segments
of the U.S. textile complex, apparel is in the most precarious
position. Because historically the apparel industry has not
invested heavily in R&D or technological development, that
industry is the one with the highest potential marginal returns
from new technology. What happens to the U.S. apparel industry
in the future will have major repercussions on the rest of the U.S.
textile complex.
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77
The more intense levels of international and domestic com-
petition in apparel suggest that they will not be capable of
developing major technological breakthroughs on their own.
However, they would be in a position to provide input into a
collaborative R&D effort, particularly with the fiber, fabric, and
equipment industries. An examination of the efforts and results of
such cooperative, government-sponsored RED projects in the Far
East and Europe could prove enlightening and beneficial and should
be undertaken.
As for the other major segments of the U.S. textile complex, it
was the consensus of the panel that increased government
emphasis on technology development would be less beneficial than
increased emphasis on policies that affect equipment utilization.
Examples include more favorable tax incentives tor tne use OI
new, experimental equipment (not just for one piece of equip-
ment, but for multiple units, e.g., an entire bank of looms) and
more funds for education and retraining of both labor and
managers in the use and servicing of more modern equipment and
processes. These examples suggest that all government policies
affecting capital formation within companies are important, as
well as policies that mandate certain allocations of corporate
capital, if the benefits of new technology are to be maximized.
For, even if new technology is developed, the firms must be able
to absorb it, financially and managerially.
Thus, government-sponsored R3cO, as well as policies increas-
ing capital formation in firms to develop their own R&D or to
purchase and utilize other firms' R&D will all be essential. Yet,
even then, they alone will not provide an automatic increase in
U.S. international competitiveness. They are but one critical
component in what has to be a multifaceted strategy of cor-
porate, economic, and societal development.
v'
Another key
component in this regard is manpower education and training.
Manpower Education and Training
The combined impact of the two previous scenarios suggests that
the future manpower needs of the textile complex will be differ-
ent than they have been in the past. In general, fewer people will
be employed (particularly in apparel), but more skilled workers and
managers and a different orientation of managers will be needed
in all segments of the complex. Therefore, the human aspects of
the textile complex will also need increased attention if its
international competitiveness is to be increased.
Government policy options affecting these expected trends are
OCR for page 78
78
(1) To slow the projected labor displacement to allow more
time for the adjustment process to work (e.g., retraining, reloca-
tion, attrition).
(2) To develop more effective and efficient federal adjust-
ment programs for the textile complex, particularly of the job
training and skill-upgrading variety.
(3) To enact policies that result in firms' having more funds to
develop more productive workers and sophisticated managers,
either through creation or expansion of their own programs or by
sending more of their personnel to outside programs.
(4) To increase funding of research and educational programs
at colleges and universities that address the future manpower
needs of the textile complex.
(5) To provide specific, direct government intervention or
assistance in the area ot manpower eaucal~on.
While policy option (5) could be considered inconsistent with
the historic laissez faire doctrine of the United States, it should
be recognized that the underlying assumptions of laissez faire do
not exist in reality. Even though, in the long run, market forces
may be sufficient in magnitude to force the adjustment process to
work, there would be major short-term problems that would need
to be addressed. Thus, the panel did not believe that policy option
(5) was feasible nor desirable for the United States to pursue.
The anticipated impact of the other policy changes would be a
more highly skilled labor force for the textile complex and less
short-term unemployment for the United States as a whole. The
former would clearly enhance the international competitiveness of
American industries, while the latter would lower the social costs
of the anticipated higher levels of unemployment.
The reasons behind the need for increased skill levels of U.S.
production workers have already been discussed at length earlier
in this report. Comparatively higher U.S. wage rates place U.S.
firms at a competitive disadvantage against firms in developing
countries unless U.S. productivity is commensurately higher. U.S.
productivity, in turn, requires new equipment and a labor force
that can properly utilize and service it. Thus, increased effort and
funds must be allocated to upgrading the production and service
skills of the textile complex's labor force.
Not fully elaborated yet in this report are the problems and
needs of management--from supervisory levels up through top
management levels. Therefore, the rest of this section is devoted
to these areas.
At the lower levels of management, production supervisory
skills are in critically short supply, as are high-grade technicians
and especially production and design engineers. What appears to
be necessary in order to help solve these shortages is a redirection
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79
o f educational emphasis. But, because financial support for
education is being significantly reduced, it is not likely that the
educational system will be able on its own to redirect its empha-
sis. Therefore, the panel believed policy changes at the federal
and state levels could facilitate movement in the needed
redirection: more specifically, additional financial support for
expansion of technical and supervisory training programs and
applied engineering programs. In addition, increased scholarships
or other forms of financial assistance would help motivate and
make it possible for more people to enroll in such programs.
The panel also believed that more middle management
development programs will be needed because the nature of the
textile business and its work force will be continually changing.
Unfortunately, current curricula of many business schools place
emphasis on large organizations, growth industries, and on
preparing people for top management. They do not suitably
interest nor prepare people for working in middle management, in
smaller scale enterprises, or industries with slow growth--
characteristic of several segments of the textile complex. As a
result, business school graduates do not readily seek employment
in the complex and, when they do take jobs in the complex, may
find themselves ill-equipped and frustrated. Thus, what is needed
are more emphases and programs in business schools oriented
toward developing needed skills of middle management and small
business. But while government assistance in the development and
funding of such programs would be beneficial, the firms
themselves must be educated and motivated and resolve to spend
additional time and money of their own in these areas.
At the top management level, many problems also exist an
oversupply of people with inappropiate skills and orientation and,
at the same time, a shortage of people with the needed skills and
orientation. There is probably no single area where this problem is
more acute than in the existing domestic and production (supply)
orientation of top management in the fabric and apparel
segments. What is needed now and particularly in the future are
international and marketing (demand) orientations.
If the U.S. textile complex is to become internationally
competitive, it must not restrict its orientation to just becoming
more competitive in the U.S. market--it must grow and become
more committed and more competitive outside as well. In
addition to this fundamental change in perception, there is a great
need for increased business knowledge and skills in the areas of
international trade and investment (mechanisms, structure,
dynamics, and other foreign ways of doing business) if the future
global opportunities are to be achieved successfully. While most
business schools are moving the curricula in this direction, the
pace and extent of the movement need to be accelerated if future
managers are to be suitably prepared.
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Better marketing at home and abroad will be equally necessary
and critical. Better anticipation of changing markets and the
appropriate matching of technology changes and the firm's
capabilities to these markets will be essential for future success.
In a broad sense, this process and related procedures concern
strategic management, the most critical aspect of which is
strategic marketing; identifying what market niches will best
protect the firm from competition while placing it in a position to
take best advantage of opportunities. The strategic planning
process and its outwardly focused orientation are particularly
critical for mature, slow growth industries. More research,
education, and training in the areas of strategic management and
the management of mature industries would clearly benefit the
textile complex. However, given the recent reduction in federal
and state support for education, additional support and commit-
ment will be necessary from industry associations and the firms
themselves.
Taxation
Most of the preceding discussions point to an increased need for
money--money to develop and acquire new technology and skills,
to undertake new activities, and to weather any financial storms
that may occur in the interim. Where will the money come from?
If the government is to play a major financial role in these areas,
a reallocation of existing government revenues is one optior'
increasing the revenue base through higher taxes is another.
Neither option appears politically feasible in the near future. A
third option, and one that many argue is both wiser and more
feasible, is for the government to enact policies that will result in
greater capital formation and after-tax income for
companies--income that can then be used by the companies
themselves to become more competitive.
While recent changes in the U.S. tax laws are a movement in
this direction, the panel questioned whether they will be suffi-
cient. The panel did agree that (a) tax policies that improve
profitability will increase both capital formation and U.S.
competitiveness at home and abroad, and (b) existing tax and
depreciation rules are not a unique problem to the textile complex
but are in fact a national economic problem that should be
approached at that level.
Specific tax policy options suggested by the panel for
government consideration were the following:
( 1 ) To revitalize U.S. industry, the government should
consider providing greater tax incentives to assure more
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investment in new plant and equipment and R&D. It should
specifically consider faster depreciation of fixed assets, greater
tax incentives for scrapping obsolete equipment and plants, and
more favorable tax treatment for R&D (development and experi-
m entation) and expenditures related to meeting government
regulations (e.g., EPA, OSHA).
(2) To stimulate capital formation, the government should
consider eliminating double taxation of dividends, further
Increasing or removing ceilings on interest rates for personal
savings, and decreasing further the capital gains tax and taxes on
interest (or increasing further the tax exempt ceilings).
(3) To promote the expansion of the U.S. exports, th e
government should consider:
(a) simplifying or revising the rules for Domestic Inter-
national Sales Corporations (DISCs),l4
(b) increasing the amount (percentage) of deferrable DISC
_
Income,
(c) providing tax incentives for export market develop
ment and establishing foreign sales offices and possibly for
developing cooperative (multifirm) export organizations.
Options (3a) and (3b) would permit more aggressive marketing, and
in particular pricing, of U.S. exports as well as encourage more
firms and smaller firms to begin exporting or expanding their
exports.
Option (3c) is related to the need for greater U.S. expertise
about, and presence in, foreign countries. Both would provide
greater knowledge of foreign market conditions, better contact
with foreign buyers and government officials, better after-sale
service capability, and show foreign buyers a greater commitment
of U.S. firms to their particular market--all of which should
translate into increased U.S. exports and improved international
business skills of U.S. personnel.
In sum, a larger pool of investable funds would facilitate
American firms in becoming more competitive in many ways.
While it would probably benefit larger firms more than smaller
ones, all firms could benefit, and, the more they do, the greater
their competitiveness.
One final note. As far as the panel could determine, there has
been no truly comprehensive study of the comparative impact of
U.S. and foreign taxation on the respective textile complexes. It
has been alleged that taxation systems and procedures in foreign
countries give competitive advantages to their complexes, even in
countries where official corporate income tax rates are higher
than their U.S. counterpart. A future study examining this issue
might prove enlightening and beneficial for the United States.
. .
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Other Government Regulations
Like its foreign counterparts, the U.S. textile complex is affected
by a wide variety of government regulations other than taxation.
In general, such regulations are designed to safeguard various
aspects or members of society, and they have proliferated rather
than decreased in number. It was well beyond the charge to this
panel to assess the desirability or adequacy of such regulations.
However, many existing regulations do impact the competitive
ness of American industries, including the textile complex--a
subject within the scope of this panel's charge.
It was the consensus of the panel that government regulations
have had a mixed impact on the textile complex some favorable,
some unfavorable. In addition, it was felt that too often their
i mpact on American competitiveness was insufficiently con-
sidered before and even after some regulations were enacted.
In general, the panel believed that a more thorough study of
the impact of regulations is needed. Such a study should assess
how existing regulations are affecting U.S. international com-
petitiveness, and how existing regulations could be altered to
increase U.S. competitiveness.
A few specific examples where such a study would be helpful
are antitrust and the impact of regulatory compliance on capital
formation and allocation.
In the antitrust area, it is difficult, if not illegal, for U.S. firms
to cooperate on R&D projects, even if such projects are designed
to result in new processes or equipment to meet government
regulations in such areas as EPA or OSHA. The same conclusion is
basically true for cooperative export market development, despite
the fact that expanding exports are a government priority and that
cooperative export associations are legally excluded f ram
antitrust regulation under the Webb Pomerene Act.~5 Antitrust
regulations may also become increasingly important as the fabric
and apparel sectors continue to consolidate, and if further
integration (horizontal or vertical) takes place. The lack of
comparable antitrust enforcement in major economic competitor
nations does provide an international competitive advantage for
their firms and industries--often at the expense of their U.S.
counterparts. While the intent of U.S. antitrust is to insure fair
competition in the United States, the government should consider
the impact of antitrust on American competitiveness
internationally.
In the area of regulatory impacts on capital formation,
previous sections of this report have discussed several areas of
impact. Mandated expenditures for compliance with EPA, OSHA,
and many of the 37 other U.S. regulatory agencies use up scarce
corporate capital. While a few of these expenditures result in
increased productivity, others do not and, hence, take capital
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a way from potentially productive use. Of course, there is no
guarantee that greater capital availability will result in increased
competitiveness. . . . ~ I I ~ I ~ ~
However, reduced capital avallaolllly IS cer-
tainly not conducive to increased international competitiveness.
GENERAL POLICY CONSIDERATIONS
Almost regardless of which future policy directions the U.S.
government takes, it was the consensus of the panel that there is a
great need for more consistency in U.S. policy. The uncertainty in
the economic environment is already enough to make corporate
planning difficult and long-term capital commitments risky. As
has been pointed out already, increased planning and investment
are key components of future American industrial success at home
and abroad. If uncertainty about future government policy is
added to the uncertainty in the market, necessary and appr o-
priate corporate adjustment will be harder to achieve. The
American textile complex is capable of adjusting to a number of
different government policies, but greater government policy
consistency would be both beneficial and welcomed.
In addition to greater consistency, the panel believed that
future U.S. policy should also be more proactive rather than
reactive. That is, the future impact on the textile complex of
changing economic conditions and government policies at home
and abroad should be estimated, and then policies should be
enacted to facilitate the adjustment process (lessen the expected
adverse impacts and increase the desirable impacts) before the
proverbial horse is out of the barn. For example, many govern-
m ent assistance programs for firms have been so difficult to
qualify for and the assistance so long in coming that some firms
went bankrupt before the assistance was received (or the cost of
assistance was much higher than it would have been had it been
given earlier, because the necessary changes had become so
massive).! 6
SUMMARY AND CONCLUSIONS
While the future for many firms and segments of the American
textile complex is far from rosy, the complex as a whole is in a
position to increase its international competitiveness. It can do so
by becoming more capital and R&D intensive utilizing higher
skilled manpower Resulting in higher oroductivitY), by becoming
,
more concentrated!', by changing its historical product mix, and
by becoming more internationally oriented and active. While most
of the larger and financially stronger firms will be able to
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meet these goals largely by their own efforts, most of the rest of
the firms need some additional government assistance (directly or
indirectly) to improve their competitiveness.
Al most no matter what government policy may be in the
future, not all firms will survive, nor will all jobs be maintained.
Such is the nature of competition. The expected employment
reduction in the textile complex and the rising levels of immigra-
tion into the United States have the potential for substantially
increasing U.S. unemployment levels, particularly among minor-
ities, women, and lesser skilled and educated people. Given the
U.S. government's historic policy of full employment, the govern-
ment will need to address this future problem in addition to what
future policies, if any, it undertakes concerning the textile
complex or any other American industry.
NOTES
1. The panel believed that U.S. apparel employment could
decline to a level as low as 800,000 people by the end of the 1980s.
2. the MFA in Article 1 (2) states that its objectives "shall
be to achieve the expansion of trade, the reduction of barriers to
such trade, and the progressive liberalization of world trade in
textile products...while at the same time ensuring the orderly and
equitable development of this trade and avoidance of disruptive
effects in individual markets and on individual lines of production
in both importing and exporting countries."
3. However, the MFA does contain a provision for man-made
f ibers, specifically, Article 12~2), which reads:
"Artificial and
synthetic staple tube, tow, waste, simple mono- and mult i-
filaments are not covered by paragraph 1 above. However, should
conditions of market disruption (as defined in Annex A) be found
to exist for such products, the provisions of Article 3 of this
Arrangement (and other provisions of this Arrangement directly
relevant thereto)...shall apply."
4. Th is conclusion is based on several estimates that per
capita consumption of fiber (and hence fiber products) will
increase faster in developing countries because their current
consumption levels are so low relative to those in developed
countries. This point, combined with faster population growth in
developing countries, results in the projections of greater demand
growth outside developed countries in the future.
5. It referred to the need for better and improved adminis-
trative measures to enforce the textile agreements "including the
use of penalties available under law where aDDroDriate. with
respect to improper
meets, and violations of quantitative limits."
. ~
. . . . . .
, ~ ~ , .
transshiDments. country of origin require
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6. Several panel members recommend that the United States
seek improved ways to speed up the period of consultations with
exporting countries, set up specific limits in the event of import
advances sufficiently in advance of the high build-up of shim
meets, and provide a formula for rapid resolution of disputes.
7. For a comprehensive description of the thousands o f
non-tariff barriers that exist in the world, see U.S. Department of
Commerce report, Foreign Regulations Affecting U.S. Textile/
Apparel Exports, August 1981.
8. Details of the position of the dissenting view can be found
in the testimony of Sol C. Chaikin before the House Subcom-
mittee on Trade of the Committee on Ways and Means, Special
Duty Treatment or Repeal of Articles Assembled or Fabricated
Abroad, March 24-25, 1976.
9. The domestic employment effect of offshore processing
remains a controversial subject in virtually all countries. There is
no question that some firms have closed domestic plants as a
result of establishing offshore production or have reduced employ-
ment in their domestic plants (without closing plants) by moving
offshore. Yet offshore processing is also said to have lessened
even more drastic reductions in employment that would have
occurred if the moves offshore had not been made. That is, by
increasing the firms' competitiveness, domestic employment
shrinkage was lessened. Studies showing both results have been
conducted and, therefore, no unassailable conclusion can be
reached about offshore processing's precise impact on employ-
ment within the industry directly involved.
10. Three changes suggested by some panel members but not
supported by all included (1) remove Item 807 imports from the
quota allocation given each country., (2) permit cutting, button-
holeing, and other jobs that presently disqualify the product from
the benefits of Item 807 to be done offshore; and (3) provide more
information and training for the industry on the effective use of
offshore processing.
11. While not likely, some new fiber breakthroughs could
emanate from the paper or plastics industries, both of which
already produce laminar flexible products.
12. The main reasons are that the robotic equipment co m-
panies will continue to concentrate their efforts on industries
where the use possibilities and potential gains are highest, and
apparel is not one of them. Constantly changing fashions, styles,
and fabric weights pose great difficulties for automation. To
date, roughly $2 million has been appropriated by the Japanese
government for its project on robot application for apparel
m anufacturing, and so far no reports have been issued on the
success or failure of its robotics project.
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13. As for carpet, no ma jor technology breakthroughs are
expected in the basic manufacturing process (tufting). New
developments are more likely in new fiber combinations
(emanating from the fiber industry) and in printing and dyeing
(emanating from the equipment industry).
14. DISC came into existence in 1971 as a measure to help
offset the tax advantages and subsidies that foreign governments
were extending to their own exporting companies. In 197 6
Congress weakened a number of DISC provisions with a tax reform
act, largely in response to the feelir~g that these provisions might
be inconsistent with GATT.
15. Less than two dozen Webb Pomerene associations have
been established in the more than 60 years the Act has been in
force.
16. See Jose de la Torre, et al., Corporated Responses to
Import Competition in the U.S. Apparel Industry, Business
Publishing Division, College of Business Administration, Georgia
State University, Atlanta, GA, 1978.
17. For the apparel sector, however, concentration may not
result in increased competitiveness. The main reason would be
that greater flexibility, particularly in terms of market antic i-
pation and response, may exist in small firms.
18. One can argue whether such government assistance i s
advisable or desirable compared to letting market forces
determine which firms survive. Ultimately, this is a societal
recision.
Representative terms from entire chapter:
offshore processing
