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2 The Changing Environment In the past two decades there were several major changes in the environment that affected both the global textile complex and complexes in individual countries. These changes can be broadly classified under two categories: economic and governmental. In the economic category, there were changes in consumption and production patterns, changes in international trade and invest- ment activities, changes in technology and productivity, changes in exchange rates, and changes in employment and wages. In the government category, there were changes in trade policies, changes in other policies directed specifically at textile com- plexes, and changes in policies that had an indirect impact on textile complexes. Because of the vast number and complexities of changes that occurred in the past two decades in these areas, Chapter 2 only highlights the major changes and their impact on the global textile complex, with particular emphasis on the U.S. complex. ECONOMIC CHANGES Production and Trade Patterns Fiber From 1970 to 1980, all major geographical areas expanded their man-made fiber capacity, although at different rates. The world's leading producer of man-made fibers is the United States. Between the 10 years (1970 and 1980) shown in Tables 2-1 and 2-2, the U.S. percentage of world production capacity has remained relatively constant at 26 percent. By comparison, Japan's relative share fell from 17 percent to 13 percent of the total and Western Europe's from 32 percent to 21 percent. On the other hand, the relative importance of production in Eastern Europe between 27
28 TABLE 2-1 World Fiber Production by Area and by Type (thousand metric tons) Rayon and Non~ellulosic Acetate Total Percent World 1970 4,700 3,436 8,136 100 1975 7,353 2,959 10,312 100 1980 10,492 3,242 13,733 100 Western Europe 1970 1,479 1,097 2,576 32 1975 7,353 720 2,586 25 1980 2,168 744 2,912 21 Eastern Europe 1970 363 852 1,215 15 1975 812 1,083 1,819 18 1980 1,197 1,141 2,338 17 United States 1970 1,509 623 2,132 26 1975 2,445 340 2,785 27 1980 3,242 366 3,608 26 Other Americas 1970 211 148 359 4 1975 491 142 633 6 1980 729 145 874 6 Japan 1970 970 492 1,462 17 1975 1,021 359 1,380 13 1980 1,357 397 1,754 13 All others 1970 168 224 392 5 1975 718 316 1,034 10 1980 1,799 449 2,248 16 SOURCE: Textile Organon, June 1977 and June 1982. these two years rose from 15 to 17 percent, while in other countries (mainly those in East Asia and the PRC) shares rose from 5 percent to 16 percent of world output. Within the U.S. man-made fiber sector, the production share of cellulosics fell from 54 percent in 1960 to less than 9 percent in 1979, while polyester became the dominant fiber (58 percent of all man-made fiber produced in the United States in 1979~. This pattern of fiber production was also reflected in the distribution of the U.S. textile industry's output. Man-made fibers accounted for more than 75 percent of all fibers consumed by the U.S textile industry; 68 percent of all broadwovens and over 85 percent of all knit fabrics produced contained man-made fibers. The U.S. patterns generally reflected global trends: worldwide production capacity of cellulosics dropped slightly between 1970 and 1980, while that of non-cellulosics increased nearly two and one-half times. The cellulosics share of total man-made fiber production fell from 43 percent in 1970 to 25 percent in 1980. Within the non-cellulosics group, polyesters experienced th e
29 TABLE 2-2 Percentage Change in World Fiber Production 1970 to 1980 (output in thousand metric tons) Rayon and Non~ellulosic Acetate Total World 123 (6) 69 Western Europe 47 (32) 13 Eastern Europe 230 34 92 United States 115 (41) 69 Other Americas 245 (2) 143 Japan 40 (19) 20 All Others 971 101 473 NOTE: Figures in ( ) indicate a decline. Percentages calculated 1980-1970 1970 SOURCE: Textile Organon, June 1977 and June 1982. fastest growth worldwide (almost 12 percent annually during the 1970s), followed by acrylics (7 percent annually), and polyamides (5 percent annually). However, there were distinct regional differences. U.S. output of polyesters advanced 11 percent annually, European closer to 5 percent, and Japanese 7 percent, while the world growth rate was nearly 25 percent. For man-made fibers other than polyester, acrylics, and poly- amides, the geographical differences were even more dramatic: U.S. production fell 21 percent, European rose 262 percent, Japanese remained essentially unchanged, while the rest of the world increased production by 155 percent. 1 Thus, there was a rising global demand f or non-cellulosics (at the expense of cel- luosics) and an increasing shift of man-made fiber production to East Asia, the PRC and Eastern Europe . While this report focuses on man-made fiber, a few comments about natural fiber production trends can add perspective. From 1960 to 198 0, total fiber production doubled. However, during that period, man-made fiber production increased more than 300 percent, while production of natural fibers increased only 3 6 percent.2 Thus, the natural fiber share of total world production declined from nearly 78 percent in 1960 to less than 54 percent in 1 980. The overall rising global demand for man-made fiber and yarn and the dramatic growth of fabric production in developing countries resulted in sizeable trade surpluses for the United States in man-made fiber and yarn. As shown in Table 2-3, the U.S. trade surplus in man-made fiber jumped from $3.8 million to $823.6 million between 1968 and 198 1. This resulted primarily from a huge rise in trade surplus with Asia (from a trade deficit of $3.7 million in 1968 to a trade surplus of $45 0.9 million in
30 - o o 3 - oo - `:: Ct oo ox - . . o ·;b - C~ ~: - C~ o ~D o - . - o 4, E~ C~ _. Cq ._ ~. E~ _ X o, .' 'o ~o _ .O o' D C \0 O - _ 0` cd _ 4) \0 O 0\ _ ~ 0\ 3 _ 0 . ~ ~ o' _ X fa, 0\ o ~ _ o~ _ L~-~ o~ c' D Co oo :~ 3 ox _ _ ~o _ C X _ o X ._ ~ C ~o o``o o ~o . _-o _ _ o. V} ~ o o oo ~ oo ~ ~ _ _ `° 1 - I r~ X _ ~ ~ ~ X ~o . . . . ~o ~ 1 ~t _ - . . . O ~ o~ - ~ O x . . . X ~o X ~r X ~ ~o X ~ _ o~ ~ ~~ ~ t oo - , o V~ O ~ ~ ~ _ _ \o _ _ 1~ 0 1 X ~i _ _ ,,~ ~ 4 - , - X ~ ~ o~ V) ~ O ~ ~ ~C \0 <, _ ~ ~ X ~ ~ ~ ~o V) _ o' 0 1 (~) 4} ~ = C ~ ~ V) `0 \0 ~ r~ X ~ ~r x .O 2, '- 3 ~ ~ E _ ~ C {,, o C~ ,,, ' ~ ~C ° c C) ~o o~ _ C ._ _ E o C ._ Y ~ to ._ = C C o ~ _ ~ E o - o '= . _ ~ _ . . C V, ~ · O C ~ Z x o~ - c x o~ - .~ _ - C~ ,;^ o - c o ._ - z - ._ . . CO~
31 1981~. A similar reversal occurred in EEC trade from a deficit of Ji2 7.3 million in 1968 to a trade surplus of $45.5 million in 1981. There was also a ninefold increase in the U.S. trade surplus with Canada and the rest of the world. The growing U.S. trade surplus in man-made yarn was also significant. It rose from $23.2 million to $663.8 million between 1968 and 1981, and similarly with the EEC where a trade deficit of 52 8.9 million rose to become a surplus of $ 1 01 .6 million. Th e trade surplus with Canada and the rest of the world moved up from $56.0 million to $258.2 million. It should be noted, however, that competition to man-made fiber producers arises not only from the importation of man-made fiber yarns, but also indirectly from the importation of fabric and apparel produced with foreign fiber. Imported apparel made with foreign fabrics is a form of indirect competition. Fabric and Apparel Fr om virtually the turn of the century, the estimated global production of fabric and apparel grew at rates below those of all manufacturing production. The gap narrowed somewhat during the period 1967 to 1979, as shown in Table 2-4. However, there were noticeable changes in regional shares of global production. As shown in Table 2-5, from 1963 to 1980, the share of OEC 13 (Organization for Economic Cooperation and Development) countries in both categories declined significantly: in fabric from 57.5 percent to 48.2 percent and in apparel from 70.2 percent to 52.3 percent.3 While the relative shares of developing countries increased, the major gains were in the centrally planned economies: in fabric from 28.6 percent to 37.5 percent and in apparel from 24.7 percent to 41.0 percent. In general, net trade flows had a relatively minor impact on the shifts in the broad regional patterns of production. What appeared to be the major factor was differential rates of growth of domestic demand in various groups of countrie - -primarily driven by demographic changes, growth of income, and income elasticities. The net result of these changes was a redistribution of fabric and employment more in line with that of world popula- tion, but with OECD and centrally planned economies still main- taining a higher percentage of fabric and apparel employment than their respective shares of world population (the opposite being true for developing countries). Looking more specifically at fabric production, growth in the United States averaged 5 percent per year during the latter half of the 1970s. In general, cotton and man-made broadwovens grew at rates higher than the overall average, while wool broadwoven
32 TABLE 24 Percent Average Annual Rate of Change, Industrial Production 1967-1979 Textiles Wearing Apparel, Leather, and Footwear Worlda 2.5 0.8 Centrally planned economiesb 4.4 4.4 Market economiesC 2.0 (0.8) Developed market economiesd 4.9 1.7 Developing market economiese 1.4 (1.9) North Americaf 3.7 2.6 Caribbean, Central and South America 3.5 (0.2) Asiag 1.6 (2.8) Asia excluding Israel and Japanh 1.3 (2.4) Europei 4.6 2.2 European Economic Communityi 5.2 2.9 European Free Trade Association k 3.8 1.4 Oceanial 4.5 5.2 aExcluding Albania, China, Democratic Republic of Korea and Viet Nam. bBulgaria, Czechoslovakia, German Democratic Republic, Hungary, Poland, Romania and the USSR. CDeveloped and developing market economies. dNorth America, Europe (excluding planned economies), Australia, Israel, Japan, New Zealand and South Africa. eCanbbean, Central and South America, Africa (other than South Afnca), Asian Middle East and East and South-East Asia (other than Israel and Japan). fCanada and the IJnited States of America. "Asian Middle East and East and South-East Asia. hAsian Middle East and East and South-East Asia (less Israel and Japan). Excluding centrally planned economies. Denmark, Ireland and Ignited Kingdom included for the entire period under review (even before they joined EEC). kDenmark and United Kingdom excluded in this tabulation (including the period when they were members of EFTA). Australia and New Zealand. NOTE: Figures in ( ) indicate a decline. SOURCE: United Nations, Yearbook of Industrial Statistics, 1979 edition, Volume I: General Industrial Statistics, pp. 578-590 (New York, 1981). f abrics and knit f abrics grew at rates lower than the overall average. While these trends were significantly influenced by U.S. consumer preferences, they were also affected by international developments as reflected in international trade patterns. As shown in Table 2-3, the United States had growing trade surpluses in man-made fiber, man-made fiber yarn, and man-made fiber woven fabrics. While the trade surplus in man-made fiber grew from $3.8 million in 1968 to $823.6 million in 1981, the U.S. trade position in cotton yarn reversed itself from a $20.4 million deficit to a $9.0 million surplus. On a geographic basis, U.S. trade patterns reflected the different degrees of international competi-
33 TABLE 2-5 Share in Worlda Production of the Textile and Clothing industries (percentages) Textile Industry 1963 1980 Clothing Industry 1963 1980 Developed market economiesb 57.5 48.2 70.2 52.3 OECD Europe 27.9 20.5 24.7 17.9 EEcc 23.4 15.9 22.1 14.4 North America 21.7 20.2 42.6 31.8 Japan 6.4 6.7 2.1 2.6 1 Centrally planned economiesa 28.6 37.5 24.7 41.0 Developing Countries 13.9 14.3 5.1 6.7 Asia 5.4 5 .4 2.1 2. ~ NOTE: Percentages for each line are calculated independently. Columns are not additive or cumulative. Production: value added in constant prices. al occluding China and other centrally planned economies. bOECD countries plus South Africa and Israel. CDenmark, Ireland, and the United Kingdom became members of the EEC in 1973. Their trade is reflected in 1980 numbers only. dSoviet Union and six European members of CMEA. SOURCE: United Nations: Yearbook of Industrial Statistics, various years. tiveness of foreign textile complexes. In most categories, the United States has had a relatively consistent trade deficit with Japan, Hong Kong, and the Republic of Korea, but a large trade surplus in fabrics with Canada and the rest of the world. The overall strengthening of the competitive position of the U.S. fabric industry during most of the 1970s appeared to be due in part to the depreciation of the U.S. cic~ll~r increased cl~m~ncl for button denim and corduroy, and improved efficiency of some U.S. mills. As for the apparel industry, the U.S. share of world production declined in many product lines, losing ground primarily to parts of East Asia and Pacific producers and those in centrally planned economies. In the last half of the 1970s, the value of U.S. apparel imports increased 140 percent, while the value of apparel industry shipments increased only 50 percent. As a result, U.S. trade deficits in apparel Leaped from $622.7 million in 1968 to nearly $7.0 billion in 1981. ^ that more than 90 percent of the U.S. trade deficit with the world originated in Asia (Hon~ mono. 29.3 Percent ReDublic of Korea. one major reason for this trade deficit is ~ I_ ~' 1 ~ ~ 20.5 percent the PRO, 6.7 percent; and the rest of Asia including Japan, 39.5 percent). As shown in Table 2-6 import penetration varied widely depending on product category. Once again, th e major cause of the U.S. trade deficit was East Asia and the PRC (which accounted for over 90 percent of the U.S. trade deficit
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37 with the world) and particularly East Asia (80 percent of the total U.S. trade deficit). The ASEAN countries' apparel trade surplus with the United States increased nearly six-fold, surpassing the trade surplus of Japan with the United States. Europe's trade surplus with the United States had also surpassed Japan's by the late 1970s. In sum, the performance of the overall U.S. textile complex was mixed. While production and exports increased in virtually all rn a jor segments, the U.S. share of world production declined in most segments. On the bright side, the U.S. man-made fiber industry did fairly well, increasing its world share and recording trade surpluses. The fabric segment's trade performance did not do as well. Its share of world production in most fabric categories declined (measured in value added terms), as did the number of firms and total employment. The apparel segment had by far the worst overall experience. Despite increases in productivity, total output, and exports, imports captured an increasing percentage of U.S. market share (from 5 percent of domestic consumption in 1970 to 25 percent in 1981),' and the U.S. trade deficit in apparel ballooned to nearly $7 billion. U.S. apparel employment of roughly 1.49 million6 in 1969 fell to 120 million by 1982, and the number of apparel establishments declined from 24,319 in 1970 to 23,026 by the end of 1978.7 Compared to the performance of the U.S. textile complex, the share of western Europe's percentage of world production of man-made fibers fell from 32 percent in 1970 to 21 percent in 1980.8 And during the last half of the 1970s, over 4200 European apparel and fabric firms were closed, over 442,000 jobs were lost in the fabric sector and 27 8,000 in the apparel sector. An d despite having an increasing trade surplus in fibers and fabrics, Japan's textile and apparel employment suffered a decline of 15.5 percent from 1970 to 1978. 10 rr - But while the U.S. textile complex may take solace in the fact that its counterparts in other developed countries also have problems, the fact remains that competition from textile complexes in developing countries is on the rise and is increasing at an increasing rate. Changes in Wages and Productivity Comparing wages and productivity in different countries is virtually impossible to do precisely. Even when data are available from a single source (such as either the U.S. Department of Labor, Bureau of Labor Statistics; UN; OECD; or ILO), the data are not truly comparable because they are typically based on government-supplied information that is not uniformly collected,
38 m easured, or interpreted. Therefore, considerable caution is required in making such comparisons in general and particularly w hen attempting to do so for a specific industry or industry subsector. However, there is something to be learned fro m making comparisons of those data where differences are of a truly large magnitude; i.e., where the differences are so large that the reporting discrepancies mentioned above are not material. For example, whether the average hourly wage rates in textiles in the United States and Korea are exactly $4.86 and $0.53 respectively is not as important as the magnitude of the difference. With these caveats in mind, it is possible to make some generalizations about wages and productivity on a comparative basis. Table 1-3 provides some international comparisons of wages in apparel and other textile products, while Table 1-4 offers infor- m ation on comparative productivity in spinning and weaving. Basically these tables show that the developing countries had significantly lower wages than- the United States and that several countries in Europe had somewhat higher wages than the United States. Thus, the U.S. experience with wage increases was better than most, but the United States remained a high labor cost country compared to all but a few other countries. However, wage costs are not sufficient in themselves to explain trade patterns; productivity changes are also important. To offset increasing wage costs, firms in all countries have sought ways to increase productivity by at least as much as the increase in wages. For example, higher labor productivity in the United States compared to Taiwan can help offset the compara- tively higher U.S. wages, and any time productivity rises faster than wages, a firm can become more competitive. However, many of the major U.S. trading partners had beginning levels of productivity much lower than the U.S. base so that their per- centage increases would naturally be higher. . . . . . . . . . r In addition, comparisons of aggregate levels and increases in productivity I I Finally, problems in comparing specific industrial productivity gains among countries are subject to even greater comparison validity problems than those already mentioned for wages. mask those In specific industries. So there is little that can be said definitively for the produc- t ivity of the U.S. textile complex vis a vis those in other countries. However, it was the general consensus of the panel that the U.S. textile complex overall remains the most productive in the world, but that the greatest edge is fabrics and man-made fibers. And while no readily available data exist to show that U.S. productivity is higher than other countries, the panel's perception is partially supported by the trade position of the United States in these two segments. Apart from the strong U.S. leadership in rnam mace fibers, the United States appears to have a strong
39 position in styling, production, and distribution technology in the sheet and towel sectors of home furnishings. In industrial and sophisticated specialty fabrics, West Germany leads in certain synthetic fabrics and the United States in fabrics for reinforce ment for automotive, aircraft, and other sophisticated machine- ry. In apparel fabrics, the United States continues to lead in denim and corduroy, while the Far East leads in knit fabrics and garment and shirting fabrics. However, as mentioned earlier, these fabrics are imported in the form of finished apparel. As to whether the U.S. lead is eroding, there is no conclusive evidence. It is evident, however, that much, if not most, of the gains in textile complex productivity worldwide are resulting from new technologies embodied in new equipment and, in the develop- ing countries, also from increased skill resulting from mor e experience in manufacturing. It also appears that productivity has increased faster in the larger firms in all segments in all countries (although the output per hour fin terms of value added] may not have risen as fast). The productivity question is discussed in more detail later in this chapter in the section on Changes in Technology. Foreign Investment Activity On the surface, the changing economic conditions would suggest that firms in developed countries should make foreign investments in developing countries to take advantage of the tatters' greater textile complex growth and lower wages; either to make less expensive products for import back to their home countries or to be more competitive in the foreign countries. However, there was not much foreign investment activity by American firms in general and not a whole lot more by European firms. In addition, the largest amount of foreign investments made by American and European firms was in man-made fiber segments in each others' countries, rather than in fabric or apparel in developing coun- tries. On the other hand, Japanese companies made major foreign investments in all segments of the textile complex and primarily in countries with high growth potential--those in East Asia and the PRC. Firms based in Hong Kong, Korea, and Taiwan also made major foreign investments in East Asia and the PRC, although to a lesser extent than Japanese firms and sometimes in conjunction with Japanese firms. As will be discussed in greater detail in Chapter 3, the extent of foreign investment activity in general and by nationality resulted from differences in industrial structure, the size of domestic markets, government policies, and individual corporate strategies and capabilities. As a whole, however, foreign invest-
40 ment activity in the global textile complex was dwarfed by trade activity, even though some of the changes in trade patterns resulted from foreign investment flows. Offshore Processing While the available data on foreign direct investments did not reveal much activity in general, there does appear to be increas- ing use of offshore processing by firms based in developed countries and particularly by apparel firms. In the typical case, cut material is shipped for sewing to lower labor cost countries and then reimported. By contrast, virtually no offshore pr ~ cessing occurs in spinning and weaving. The main reasons appear to be the increased domestic integration of spinning and weaving, the lower labor intensities, and, perhaps most importantly for U.S. firms, that the spinning, weaving, and finishing processes are con- sidered manufacturing and not assembly and, therefore, do not qualify for the benefits of Item 807.00,12 the U.S. statutory provision pertaining to offshore processing. In apparel production the decision to move offshore can be related to the variations in duty rates and the worldwide fiber and textile raw material costs, or it can be related to the ratios between the weight of the garment and the labor content. Products of a high weight-to-labor content ratio are not economi- cal to import. Sweatshirts, for example, contain a great deal of cotton fiber, are very heavy, and require very little labor in assembling. T-shirts and most underwear products are low labor content Garments making domestic Droduction very competitive v ~ , ~ . ... . . .. ~ . . .. . . . . . ... with Importation. brassieres, however, are 1lgntwelgnt with a relatively high labor content. They were one of the first gar- ments produced offshore in quantity, and there are fewer and fewer U.S. production facilities every year. J In some cases, original decisions to move offshore are reversed by a change in circumstances such as the development of a new technology. Fifteen years ago dress shirts were considered to be labor intensive, and much of the U.S production moved offshore. However, recent significant improvements in technology and productivity in dress shirt assembly in the United States may have caused a portion of that production to return. It returned because the ratio between the weight of the product and the labor content of the product shifted, and domestic production could now com- pete on a cost-of-production basis with imported dress shirts. While the general use, measured in value of shipments of offshore processing, appears to have increased between 1965 and 1980 (Table 2-7), Item 807 as a percent of total U.S. imports for consumption peaked in 1974 and seems to have leveled at between 8 and 9 percent.
41 TABLE 2-7 U.S. Imports for Consumption of Apparel (knit and woven): Market Value In Foreign Countries* (millions of dollars) Item 807.000 Imports Period 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 Total Value Value Percent of Total 578.2 628.1 687.5 863.0 1,079.1 1,247 7 1,502.5 1,859.4 2,118.5 2,313.6 2,630.6 3,685.6 4,338.4 5,353.5 5,469.4 6,007.9 1.7 6.4 12.2 24.0 40.5 50.4 69.3 95.0 141.0 238.3 253.3 292.5 327.9 418.9 476.7 524.0 0.3 1.0 1.8 2.8 3.8 4.0 4.6 5.1 6.7 10.3 9.6 7.9 7.6 7.8 8.7 8.7 *Exclusive of customs duties, ocean freight, and marine insurance. SOURCE: Compiled by Research Department, International Ladies Garment Workers Union. CHANGES IN TECHNOLOGY Numerous changes in technology have taken place in the global textile complex over the past several decades, and they influ- enced many of the changes in employment levels, productivity, and trade patterns just described. More specifically, new tech- nology enhanced productivity, permitted the manufacture of new and/or more complicated products, and enhanced the competitive ness of firms that properly utilized it, regardless of where they were located. The new technology utilized in the textile complex improved product quality as well as reduced the amount of labor required. As a result, it often reduced the need for labor, partic- ularly when productivity rose faster than product demand. Thus, these technological improvements often resulted in declining employment while simultaneously improving the competitive ability of the adopting firms. In addition, the more rapid and extensive the spread of new technology to developing countries, the faster they were able to upgrade their products in quality and style. This allowed import competition to broaden its base from low-end goods to middle-range goods. When transformed into additional exports from developing countries to developed
42 countries, technology transfer often resulted in additional employment losses in the developed countries. A side effect of technological developments was increased industrial concentration of several segments of the textile complex. Man-made fiber producers increased their share of output. lately at the expense of the less concentrated natural - -r ~ -a - A- v - -a ~ - - - ~ f iber Droducers. New production technologies in the textile industry encouraged integration of spinning and weaving. And in Europe particularly, regional economic integration created new opportunities for scale economies, and government policies favored mergers and acquisitions (the latter also occurred in Japan). The trend toward increased industrial concentration was not uniform across segments or countries. The man-made fiber segment had always been highly concentrated in all countries and the apparel segment very dispersed in most countries. Thus, the major impact of technology on industry concentration was great- est in the fabric sector and to a greater extent outside the United States. For example, industry concentration levels for most segments of the textile complex increased only slightly from 1963 to 1977. In contrast, the share (percentage of total value added) of British textile establishments with more than 1000 employees increased from under 13 percent in 1948 to 32 percent in 1970, and by 1976 the fire largest firms accounted for more than 50 percent of total employment and an even larger percentage of total output (compared to the 17 percent share of total industry employment by the five largest U.S. fabric firms). 13 Most of the technological developments in the textile complex originated with equipment suppliers; however, man-made textile fiber technology was typically developed by the companies that produce these fibers. As a result, fabric and apparel producers devoted a very small percentage of their sales dollar to research and development (as this term is normally defined). On the other hand, they spent substantial funds on designing, styling, and market research--items not typically treated as RED expenses, even though it might be argued they are a form of RtcD for fabric and apparel producers. An increasing percentage of new textile equipment was developed and manufactured by non-U.S.-based firms. The U.S. textile machinery industry has steadily contracted over the past 20 years, while those of Europe (East and West) and Japan grew. For example, U.S. imports of textile machinery grew from less than 9 percent of U.S. consumption in 1963 to nearly 50 percent by 1980, with imports from West Germany and Switzerland alone accounting for over 60 percent of U.S. imports. In one sense, it can be argued that where and by whom the equipment is developed is not as critical as the extent of new
43 Man-made equipment adoption/utilization. For example, firms in developing countries do not rely heavily, if at all, on domestically produced equipment, and many of their textile complexes do quite well internationally. And while there is an argument that domestically based innovations will be more suited to domestic producers and also be adopted faster than those developed outside the country, there is no clear cut evidence to prove this. Yet, the relative decline of the European textile complex, despite the acknowl- edged strength of its textile machinery industry, suggests that the adoption and proper utilization of new equipment is really the key issue. W ith these general observations in mind, the following is a more specific discussion of technological advances in the various segments of the textile complex. Fiber s The most dramatic technological developments in the fiber seg- ment occurred in the man-made fiber sector, beginning with the development of large scale man- made production in the 1 940s. Through much of the postwar period, technological developments resulted in new man-made fibers (e.g., polyester) and, until the 1960s, emanated mainly from it&i) activities of the large man- made fiber producers. Through the 1960s and most of the 1970s, equipment manufacturers played a larger and larger role in new t echnology development. As they sold their technology inter- nationally, and as larger fiber producers opened plants in other countries (embodying new technology), the newer technologies spread faster and further, reducing somewhat the technological lead of the major countries for producing man-made commodity fibers--high volume, more mature, and price competitive fibers. After the successive oil shocks of the 1970s, technology development shifted its emphasis toward reducing production cost and away from new fiber development, particularly in the man- made fiber sectors. This change in orientation was necessary to help offset the spiraling costs of crude oil, which had a dual effect on man-made fiber production cost: higher energy costs and higher material costs as petrochemical prices rose accordingly. As will be discussed in Chapter 4, the rest of this decade will probably see a change in emphasis once again in fiber technology development--this time toward new combinations and uses of existing fibers and what are termed higher-value, more special- ized fibers and composites. Expected to lead the way in this
44 movement are new developments in yarn spinning and entangle- ment. It is also - expected that an increased percentage of ne w technology development will be done in-house by the large man- rnade fiber producers, rather than by equipment manufacturers. In sum, man-made fiber technological developments initially gave developed countries a position of world leadership and have continued to do so even though their international competitive lead in commodity products may have been reduced. N atural In the area of natural fiber production, only a few major tech- nological developments occurred in the past 40 years. The per-acre yields of cotton were increased significantly, and the shift of consumer preferences to man-made and blended-fiber products generated some technical advances in cotton and wool fibers, notably in the processibility, easy-care, and maintenance areas. Given the global trend in consumer preferences for man-made fibers and man-made and natural fiber blends, this phenomenon of low level of technology development was not surprising. Nor is it expected to change very much. Most of the technology affecting natural fiber production was in processes and equipment that combined natural fibers with man-made fibers (i.e., spinning and entanglement) or that reduced worker health and safety hazards incurred in producing natural fiber products. Most of the latter resulted from more stringent regulations of working conditions in plants as part of the U.S. Department of Labor's Occupational Safety and Health Adminis- tration (OSHA) regulations. While the initial impact of such regulations resulted in a diversion of corporate capital away from other pro jects and activities, it is expected to result in overal 1 productivity gains as well as reducing the health and safety hazards for workers. Yarn In yarn production, there were several major technological developments, particularly in new opening, drawing, and spinning processes. Perhaps the biggest breakthrough was in open-en d s pinning, a new process that increases productivity while decreasing the number of process steps and the amount of labor required to produce a specific level of output. Other major breakthroughs, although not yet fully proven, occurred in texturing.
45 The new jet spinning, introduced in 1981 by Murata (the 801 M]S), eliminates roving and yarn rewinding and offers reductions in space requirements per production unit, noise levels, and main- tenance costs. It also offers finer counts (NE 40-80~. A major application for these yarns is expected to be in cris~handle, high-quality shifting and blouse fabrics. Another new piece of equipment with great potential is Fehrer AG's Dref 3--a covered yarn system that produces yarn from two separate sliver feeds or from one filament yarn and one style component. Dref 3 supposedly makes yarn faster than any short-staple spinning system now on the market 350 mpm on man-made fibers and 300 mpm on cotton and cotton blends. In addition, Dref 3 spins from a wide range of raw materials (including cotton, polyester, acrylics, viscose, polypropylene, and polyamides), but primarily in the medium count range (NE 5-15~. Yarn properties produced by Dref 3 approximate those of rin g- spun yarns, not those produced on rotor spinning. Dref 3's applications have already been demonstrated by European installations in home furnishings (upholstery, wall coverings, awning fabrics, and mattress tickings), apparel (jeans, cords, and substrates), and leisure goods (deck chair canvas and camping articles). If there has been any international competitive impact of changing technology in the use of natural fibers and spinning equipment, it is difficult to assess. In the short run, adopting the new technology required in some countries for worker safety and health reasons may have initially reduced the competitiveness of firms that were required by law to comply (compared to firms in other countries that had no similar requirements). Such required expenditures may also have caused some old processes to be scrapped, some spinning plants to be closed, or some entire firms to go out of business. If the expected benefits materialize from these required expenditures and other technological expenditures (higher productivity, better products, and lower production cost), then the long-term international competitive effects should be positive. . . . nave already been . . . demonstrated by ~ . ~ Fabrics Wovens In the past two decades, technological developments in the fabric segment were among the most extensive of any segment of the textile cornplex.1 In the weaving sector, the major develop meets took the form of new looms: missile, rapier and water-jet looms, and more recently, air-jet looms. While these were
46 -developed by equipment manufacturers outside the United States, their utilization by U.S. firms has accelerated'rapidly in the past decade. These looms are' faster, more efficient, produce higher quality fabric and require less labor than their predecessor, the fly-shuttle loom. On the negative side, the new looms are con- siderably more expensive; less flexible; require new, mor e advanced, and more expensive support equipment and require more skilled operators.l5 Despite the fact that the abov~mentioned looms still represent a minority of all looms in operation, another generation of looms is being developed, e.g., wave shed, bi-phase. Britain's Bentley Machinery Ltd.'s Orbit is a good example of the ne w generation--termed by Textile World as a "space-age departure from standard loom construction.''] 6 The machine has an extremely high filling insertion rat - -much greater than any '' '' ' '' ' ~ its multiple rapier insertion produces fabric on both ends of the machine. The machine has had considerable interest from plants with large volume and long runs of standard construction, such as some types of industrial fabrics and backing constructions. Also included in - ~ I _ l a-- Investa of . .. . . weaving machine currently avallaDl - -Decause this new generation IS a macnlne Developed Dy Czechoslavak~a, which also simultaneously weaves two fabrics. It offers a radically new air-jet picking system utilizing a dual air-jet vent positioned in the center of a bi-phase loom. Knits In the knit fabric sector, the major technology development was in knitting machines, most of which were developed by textile equipment firms. Knit fabrics and apparel became quite popular in the 1960s, and U.S. firms that moved into knits enjoyed an initial period of world leadership in their production. However, slowing domestic demand for knits, increased knit fabric produc- tion abroad, and increased import competition, particularly from East Asia, kept knit fabric prices low and reduced U.S. producers' market share. Particularly impacted adversely were smaller U.S. firms whose production was limited to knit fabrics or knit apparel in very narrow product lines. Larger, more diversified firms could better adjust their product mix or find new uses for knits. In terms of production technology, a major breakthrough occurred with the introduction of the basic double-knit machine, f allowed by successively finer gauge doubl~knit machines. However, double knits and warp knits have lost so much i n popularity that these sectors have become disaster areas. In the future, technological innovations are expected to continue in needle refinements (compound needles) and in new loo~forming
47 systems replacing the present latch-needle systems on circular knitting machines. Increases in machine speeds are also expected, as well as the development of a practical electromechanical bar-guide indexing device to replace chain-hook systems for multibar tricot-raschel machines. Non-wovens Significant technological advancements in fabric production have also occurred in the non-woven sector. While many non-wovens became substitutes for woven or knit fabrics, others had uses that wovens or knits did not have. The traditional technology was largely one of compressing natural fibers to form fabric, e.g., felt. But, recent technological developments in fiber bonding and interlocking by mechanical thermal, chemical, hydraulic, and/or solvent processes have revolutionized what was a fairly insignifi- cant sector into a high-growth, technologically intensive one with myriad end uses and equally varied inputs (e.g., wool fibers, plastics, and polymers, in addition to fibers typically used in woven and knit fabrics). And, as was described in Chapter 1, the new processes and equipment made it possible to produce flat textiles at incredible speeds compared to even the most modern technologies in weaving and knitting. For some of the larger fabric firms, non-wovens offered a diversification potential. For traditional broad-woven firms, some new competition emerged in product lines for which non-woven s became substitutes. Finally, for most of the existing firms that were affected by the significant emergence of non-woven firms, there was a new and different kind of challenger: some firms that were not generally textile firms, such as paper companies, chemicals, plastics, and medical suppliers, often had different resources, capabilities, strategies, and outlooks, making it more difficult for textile firms to strategically assess their competition. Other Processes Other technological developments that affected fabric producers were those in fabric inspection and in dyeing and finishing, such as new laser greige fabric inspection equipment and color measure ment instruments. In addition, new techniques and equipment for f abric sanding, napping, printing, and coloring followed earlier developments in fabric treatments, such as permanent press and antisoil. For example, traditional flat screen printing of fabrics was increasingly replaced by roller printing. And according to
48 their corporate reports, textured fabrics of Springs Industries and Dan River have become increasingly important lines. Utilizing these technologies gave a temporary advantage to firms in the United States and other developed countries over imports from developing countries by means of product differ- entiation. The uniqueness of such fabrics allowed firms to remove themselves partially from the intense price and import competi- tion in low-end, undifferentiated goods. However, such competi- tive advantages were generally short-lived because the firms in the more advanced developing countries were soon able to purchase and utilize the same equipment and techniques. While some technological developments affected only certain subsectors of the fabric industry, there were a few that affected all segments. The most notable examples were developments in materials handling, production monitoring, job assignments, and use of microprocessor - -the computerization of the firm. Some developments in materials handling were generally prompted by new federal government regulations concerning worker health and safety, especially in the United States. These regulations and their impact are discussed in the next section. In the micro- processor area, many of the larger firms had used computers for some time for inventory management and production planning. However, the development of the microprocessor and the declining cost of computers made computerization more feasible for medium and small firms. The use of the computer was also expanded to better control energy utilization, analyze market data, and make more numerous types of management decisions. In the process, firms could also streamline personnel costs or expand the use of existing personnel to other activities. Apparel As was the case with fabric production, most of the technological changes affecting apparel production took the form of new equip- ment developed by the machinery industry. While there have been numerous improvements in sewing machines, which are the real backbone of the apparel manufacturing process, the biggest tech- nological changes have not been in the sewing process, instead they have been in the presewing processes pattern grading, marker-making, and cutting. Much of this new equipment relies heavily on computer technology. Computer technology has also been applied to programmable sewing machines, automated pocket positioning/sewing machines, to various administrative functions (payroll, billing, production scheduling, logistical flows, tracking market trends, and so on), and even found some use in garment design. Still other technological advances in machinery
49 have involved finishing work of garments (including chemical treatments such as waterproofing and crease-resisting) if the fabric was not already treated before purchase from textile mills. All in all, technology has had less impact on apparel produc- tion than on most other segments of the textile complex. While it has been becoming more capital intensive, apparel manufacturing remains more labor intensive and the least capital intensive of all segments. The constantly changing fashions, fabric weights, and the many separate sewing operations for a single garment have made it difficult to automate key processes in apparel manufac- turing. Because there appear to be no real manufacturing economies of scale as far as sewing is concerned, small sewing operations continue to enter and exit the industry, both inside and outside the United States. However, for the larger apparel firms, advanced technology can result in some company economies of scale as opposed to sewing economies of scale. Centralized computer designing facilities, cutting, grading, marking, as well as administrative operations, can lower overall manufacturing cost of multiplant firms in particular. The Japanese government recognized this potential and has recently appropriated $60 million solely for research in apparel automation. Therefore, because the new equipment is both expensive to purchase and most beneficial to larger firms, its utilization has been higher and more effective for larger apparel firms in all countries. Summary The numerous changes in technology that have occurred have benefited the companies that have been able to utilize them effectively: the main result being an improvement in their inter- national competitiveness. However, the competitive advantages gained from effectively utilizing a single technological develop- ment have not proved to be long in duration, despite the increas- ing cost and sophistication of new technology. This has primarily resulted from the more rapid spread of new technology world- wide. Thus, technological development and adoption must be a continuous process if any competitive edge is to be maintained. CHA N GES I N COVER N ME NT P OLICIES Government policies can have a major impact on the competi- tiveness of any industry. They can encourage, limit, or foreclose entry into an industry; affect access to particular markets; influence the size of competitors and their ability to integrate
50 vertically or horizontally; and generally influence the profitability of firms in an industry. In a global context, each government's influence may vary significantly, focusing on substantially differ- ent problems or on different solutions to similar problems. Other than perhaps industries considered vital for national defense, intensive government policies related to industries ar e most often directed toward industries that can or do employ a significant amount of labor. The reasons are obvious. Thus, due to its significant employment levels, the textile complex world- wide receives a lot of government attention. If a country has no textile complex or only a small one, it generally enacts policies to aid the country's growth in size and sophistication. If it already has a large one, government policies generally seek to maintain it, or at least restructure it. The specific government policies avail- able and in use are virtually infinite, but can generally be classi- fied into three groups: (1) those dealing with international trade and investment, (2) those dealing with the domestic complex per se, and (3) those that have an indirect impact on the textile industry but are not targeted directly at the complex. The discussion of changes in government policies focuses on these three major types. . . · · . International Policies Probably no other manufactured products receive as much protec- tion as fabric and apparel. Import protection (tariffs, quotas, and non-tariff barriers) is extensive throughout the world and, with the exception of tariffs, has increased rather than decreased. 17 Under the aegis of the multinational Multi-Fiber Agreement (MFA) and a host of bilateral agreements, developed countries have sought to regulate the flow of imports. More than any other protectionism device, quota arrangements determined the basic international trade patterns. Because quotas were originally set based on prior levels of trade, those countries receiving the largest quotas did the most exporting, and changes in quota allocations caused some shifts in trade and investment patterns. The United States and the EEC have not been alone in their desire and efforts to control the volume of imports. In attempt- ing to develop their own domestic textile complexes, virtually all countries pursued import restrictions on many categories of apparel, fabric, or fiber. And although it is difficult to assess precisely the effective level of protection because tariffs may be low but non-tariff barriers high, it appears that the overall levels of trade protection are higher in dealing with some countries than others.
51 Another type of government policy affecting international trade patterns is export subsidization and assistance. Unlike the United States, most countries have enacted more substantial export subsidy policies, ranging from export tax rebates to tax credits for developing overseas markets and general export facilitating programs (such as government-collected data on differences in desired international sizes, colors, fabrics, and fibers). Virtually all governments have trade policies directly at fecting their textile complexes. They also have non-trade policies affecting the textile complex, directly or indirectly, as explained below. Textile Complex Specific Policies The more extensive direct government policies have been those related to the very existence of the domestic complexes them- selves. In developing countries, the policies have been of a nurturing variety, e.g., policies to aid the start up of a domestic textile complex and to have it Prow in size and sophistication. . . . . . . . . N umerous types ot government assistance nave been mace available, many times encouraging incoming foreign investments-- all behind an increasing trade protectionist shield. Workers are trained in government-funded programs, managers and designers are sent abroad for training at government expense, tax induce meets are made for new investments in the complex, for purchasing modern equipment, promoting mergers, and so on. At the other extreme are government attitudes that foster the r ationalization of the domestic textile complexes. Under these policies, few or no incentives, inducements, or other forms of assistance have been made available to firms in the complex in terms of domestic expansion. Instead, firms are encouraged and sometimes offered incentives to move production offshore, to make investments in other sectors, or to restructure their opera- tions to put greater emphasis on certain product lines and eliminate others. In still other countries, there have been a mixed assortment of government policies concerning the existence and future direction of their textile complexes: intermittently supporting them or discouraging them and, in some cases, doing both simultaneously. Depending on the particular orientation of a government's policy concerning its textile complex, trade and investment patterns and corporate activities soon reflected their impact. The supportive model of Asian, Eastern European, and most Latin A merican countries usually led to reduced imports, increased exports and investment from other countries, and growing domes-
52 tic employment with increasing skills of labor and sophistication of operations. Among the essentially non-interventionist policies are those of the Netherlands and West Germany, and particularly their policies concerning the apparel industry during most of the 1970s. Both governments concluded that, without increased protection, trimmed-down apparel industries were inevitable and judged that there would be an overall net benefit to their countries if they allowed market forces to dictate events. Virtually no government assistance was provided to help domestic firms adjust, although as signatory countries to the MFA, some trade protection remained in place. The net result was a drop in apparel employment by more than 50 percent in the Netherlands and nearly 30 percent in West Germany from 1973 to 1977 due at least in part to increased offshore production. At the time these policies were enacted, both countries had relatively strong economies and currencies and a need for labor in other industrial sectors. More recently, however, in the aftermath of the precipitous declines in employment and the general economic recession in Europe, both governments appeared to be shifting their policies toward more Intervention. Falling in the middle of these extremes have been the basic restructuring policies of the other European countries and Japan. Their governments believed that an orderly restructuring of their textile complexes was necessary. Orderly meant continued protection with a f air dose of government assistance to help companies improve their international competitiveness--after which the trade protection could (might) be reduced. In Britain, France, and Japan, such government assistance was channeled into R&D efforts that would benefit their domestic firms, primarily those in apparel and fabric production. The Japanese and French encouraged mergers and takeovers to increase the average size of firms and, along with the Belgians, also provided federal and/or regional assistance to help retrain or relocate labor for jobs inside or outside the complex. The French, Belgians, and the British also provided employment subsidies to keep labor from being displaced too rapidly. In Japan, the govern- m ent encouraged business groups with textile and apparel com- panies to transfer workers into their non-textile operations and lessened capital outflow restrictions to allow more Japanese firms to invest offshore. The net results of the various government strategies were mixed. All of the countries mentioned experienced reductions in their domestic textile complexes and particularly in the apparel segments during the mid-1970s, with obvious ripple effects back to the other segments of their textile complex. While data from the OEC1) are incomplete, it also appeared that industrial con-
53 if c entration increased in most of the countries mentioned above. At this point, it is not clear whether the attempted restructuring/ revitalization policies resulted in increased international competi- tiveness (with the possible exception of Japan, which may have become more internationally competitive) reversing an earlier deficit in textiles. In the United States, a somewhat different position was taken n terms of developed country government policy. The quota protection continued, but nothing was attempted to restructure the domestic complex, and little was done to otherwise help firms improve their international competitiveness. Indirect Policies ()ther policies that influenced textile complex firms have been those concerning environmental protection, product standards, and working conditions. While these kinds of policies are not generally aimed directly at a specific industry, nor are they generally enacted with a goal of affecting international competitiveness, they often do have a competitive impact on specific industries. For example, in terms of the U.S. textile complex, flammability standards for children's sleep wear were tightened, causing textile and apparel firms to change fiber or finishing processes. Many foreign exporters were unwilling or unable to do so, and the extensive import competition in children's sleep wear abated for a while, helping U.S. producers. However, the chemical flame retardant "TRIS" was subsequently shown to be carcinogenic, and U.S. textile and apparel firms were forced to recall their "TRIS"- treated products, causing significant financial hardships on many firms. Other examples are regulations on cotton dust and noise levels in U.S. manufacturing plants. Both require expensive changes in equipment and processes for U.S. textile firms and expenditures of scarce capital that most foreign competitors did not have to make. Yet, while such expenditures may have a negative short- term effect on the U.S. complex, the new equipment and processes m ay increase worker productivity and manufacturing ef f iciency and, therefore, may improve international competitiveness. Another area of government policy in various countries affect- ing international competitiveness is regulation of wage rates and working hours. By keeping wage rates low (such as in Eastern Europe and Southeast Asia), countries could gain a competitive cost advantage over competitors in other countries with higher wage rates. For the more labor-intensive segments of the textile complex, such as apparel, this competitive edge was more
54 significant in terms of impact. On the other hand, increases in U.S. wage levels during the 1960s and 1970s forced U.S. companies to look harder for ways to increase productivity, which in the long run may lead to improved international competitiveness. Other labor policies throughout the world, such as the maxi- mum number of hours employees can work, the fringe benefits they are required to receive, and whether they are allowed to strike, also affect competitiveness. In Eastern Europe and much of East Asia and the PRC (compared to developed countries), the required work week is longer, fewer fringe benefits are required, and strikes are generally not permitted. Thus, firms based in these countries have fewer labor constraints and expenses to contend with than their competitors in most developed countries. Still another policy area of important influence is taxation. Because taxes are a major expense for corporations, tax reduction policies provide additional income that firms can put to productive/competitive use. The generally higher corporate and personal taxes in Western Europe were not of much help to the European textile complex in its efforts to become more com- petitive, while the generally lower taxes in developing countries had the opposite result. In the United States, recent changes in federal tax laws generally improved the competitive situation for U.S. firm - -allowing faster depreciation of assets, less taxation of expatriates' income, and so on. As the U.S. complex becomes more capital intensive and internationally oriented, these recent changes, if not reversed, can be expected to have a greater beneficial impact. In sum, there were various degrees of government intervention and numerous changes in policies that influenced the international competitiveness of textile complexes throughout the world. The ways in which various firms have reacted to some of these gov- ernmental policies is described in Chapter 3. NOTES 1. See W. Storck and D. Sullivan, "Fibers Thriving in Developing Countries," Chemical and Engineering News, March 1 981. 2. Source: The Johnson Redbook, Section 7B, "Chemical Industry Statistics," February 27, 1981. 3. Table 2-5 defines production as value added in constant prices. However, these data may not reflect differences among areas on the relative shares played by value added in the total value of the product. 4. The 1981 figure is an estimate by ATMI. (Table 2-3~.
55 5. On an equivalent square-yard basis. On a dollar basis, the share of imports is lower. These estimates were supplied by the staff of the American Apparel Manufacturers' Association. Estimates made by the Research Department of the International Ladies' Garment Workers' Union found that the ratio of garment imports to U.S. consumption of apparel rose from 10 percent in 1964 to 21.7 percent in 1974 and to over 40 percent in 1982. 6. SIC 23 plus SIC 225 less SIC 239. 7. Employment figures from the U.S. Bureau of Labor Statistics. Establishment estimates supplied by the staff of the American Apparel Manufacturers' Association. 8. See United Nations, Yearbook of Industrial Statistics, 1979. - - 9. See J. Arpan, J. de la Torre, et al., The U.S. Apparel Industry: International Challenge/Domestic Response, Business Publishing Division, College of Business Administration, Georgia State University, Atlanta, GA, 1982. 10. United Nations, Yearbook of Industrial Statistics, 197 4 and 1979. 11. The major segments of the U.S. textile complex experi- enced productivity gains above the U.S. national average for all industries. 12. Item 807, as it is commonly referred to, is Item 807.00 of the Tariff Schedules of the United States. It specifically deals with the assembly of U.S.-made materials abroad. I 3. Source: Textilwirtschaft, Frankfurt, West Germany, various issues. 14. For fabric firms that were also involved in yarn spinning, their operations and competitiveness were impacted by th e technology developments in both the yarn and fabric sectors. 15. For example, the shuttle looms generally cost under 510,000 while some of the new shuttleless looms can cost over $100,000. In addition, the new looms generally require better yarn spinning and processing equipment, which can cost as much as a new loom (if the fabric firm does its own spinning). Finally, the older looms could more easily handle a greater variety of yarns than many of the new ones. 16. See Peter Lennox-Kerr, "Bi-phase: technology," Textile World, February 1982. . . - r - - ~ Weaving's newest ~ /. Willie tariffs were s~gn~cant~y reduced during the Kennedy and Tokyo rounds of GATT, these reductions prompted many countries to increase their non-tariff barriers.
