In 2013, the United States exported about $14 billion in yarns and fabrics worldwide. More than half of this output was shipped to Western Hemisphere nations that are members of the North American Free Trade Agreement (NAFTA), the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR), and the Caribbean Basin Initiative (CBI). These FTAs provide that certain exports from member countries may enter the U.S. market duty-free only if they are made from textiles produced in the region. This has encouraged manufacturers in Mexico and Central America to use U.S.-made yarns and fabrics in apparel, home furnishings, and other products. Exports to the NAFTA and CAFTA-DR countries contributed to a U.S. trade surplus of $2.4 billion in yarns and fabrics in 2013. Aligned against them are retailers and apparel companies that want to be able to import apparel from producers wherever they are located, regardless of whether U.S. textiles are used; they urge full inclusion of textiles and apparel in any TPP agreement and favor preferential access for apparel cut and sewn from fabric made in countries not included in the TPP, such as China. The U.S. Textile Industry and Its Markets

With nearly $57 billion in industry shipments in 2013, textile manufacturing, which produces yarns and fabrics from raw materials such as cotton and various man-made fibers, is a supplier industry to three industrial sectors. At the end of 2013, the domestic textile industry employed about 230,700 workers, accounting for fewer than 2% of the nearly 12 million domestic factory jobs (see Appendix A ). Vietnam, a fast-growing source of apparel for the U.S. market, furnished 10% of imports, and Mexico accounted for 5%, but the other TPP participants shipped only small quantities of apparel to the United States. Almost all U.S. apparel imports from Central America, the Caribbean, Mexico, and Canada are made with textiles produced in the United States. If apparel produced in Asian TPP countries gains duty-free access to the U.S. market, it could displace apparel manufactured with U.S. fabric in the Western Hemisphere, adversely affecting U.S. textile exports. Also, should Vietnam develop a larger textile industry, U.S. textile exports could be hurt if the TPP were to allow Western Hemisphere apparel producers to use textiles made in any TPP member country and still enjoy duty-free access to the U.S. market. Among the Asian and Pacific countries in the TPP, Vietnam is the only one with significant textile and apparel trade with the United States. The United States' main textile-related export to Vietnam is raw cotton: U.S. exports supply about 60% of the cotton used in Vietnamese textile mills. Cut and S ew : Only the cutting and sewing of the finished article must occur in FTA member countries, providing maximum flexibility for sourcing. U.S. negotiators have proposed that the TPP agreement incorporate a unified yarn-forward ROO, with perhaps some exemptions for inputs considered to be in short supply, or "not commercially available," in the region to assure that duty-free preferences only benefit countries that are part of the agreement. This would permit use of yarns and fabrics from China and other countries in garments qualifying for duty-free access to all TPP countries. For textile manufacturers, the inclusion of a significant apparel producer such as Vietnam in a free trade agreement holds the potential to dramatically shift global trading patterns. U.S. textile manufacturing interests have urged U.S. negotiators to insist on a "yarn forward" rule in the TPP. Domestic manufacturers of household and technical textiles seem less likely to be immediately affected by any TPP agreement. U.S. manufacturers appear to be internationally competitive in these sectors, and Vietnam's low labor costs will provide little comparative advantage in areas where production is highly automated.
Textiles are a contentious and unresolved issue in the ongoing Trans-Pacific Partnership (TPP) negotiations to establish a free-trade zone across the Pacific. Because the negotiating parties include Vietnam, a major apparel producer that now mainly sources yarns and fabrics from China and other Asian nations, the agreement has the potential to shift global trading patterns for textiles and demand for U.S. textile exports. Canada and Mexico, both significant regional textile markets for the United States, and Japan, a major manufacturer of high-end textiles and industrial fabrics, are also participants in the negotiations.
U.S. textile manufacturers produce yarn, thread, and fabric for apparel, home furnishings, and various industrial applications. In 2013, the U.S. textile industry generated nearly $57 billion in shipments and directly employed about 230,700 Americans, accounting for approximately 2% of all U.S. factory jobs. More than one-third of U.S. textile production is exported, with the bulk of the exports going to Western Hemisphere nations that are members of the North American Free Trade Agreement (NAFTA), the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR), and the Caribbean Basin Initiative (CBI). These free trade agreements provide that certain exports from member countries may enter the U.S. market duty-free only if they are made from textiles produced in the region. This has encouraged manufacturers in Mexico and Central America to use U.S.-made yarns and fabrics in apparel, home furnishings, and other products. Exports to the NAFTA and CAFTA-DR countries contributed to a U.S. trade surplus of $2.4 billion in yarns and fabrics in 2013.
The TPP has the potential to affect U.S. textile exporters in at least two ways. First, it could enable Asian apparel producers, principally Vietnam, to export clothing to the United States duty-free. This would eliminate much of the advantage now enjoyed by Western Hemisphere apparel producers in the U.S. market and, because Vietnamese manufacturers make little use of U.S.-made textiles, could reduce demand for U.S. textile exports. Second, if the TPP were to allow Western Hemisphere apparel manufacturers to use yarn and fabric made anywhere in the TPP region and still enjoy preferential access to the U.S. market, an enlarged Vietnamese textile industry could, at some future time, compete with U.S. exporters in Mexico and Central America.
Textile industry trade groups have urged the United States to insist on a strict "yarn forward" rule that allows a garment to enter the United States duty-free only if yarn production, fabric production, and cutting and sewing of the finished garment all occur within the TPP region. U.S. negotiators have also proposed that certain textile inputs "not commercially available" in TPP-member countries could be sourced from outside the region, including China. On the other side, retailers and apparel companies with extensive global supply chains want maximum flexibility for sourcing and are less concerned about whether textiles manufactured in the United States are used; they urge textiles and apparel to be treated like other products in any TPP agreement, and they want any apparel cut and sewn within the TPP area, regardless of where the fabric originates, to be eligible for duty-free entry. Members of Congress have voiced their support for both sides.
The TPP seems likely to have less impact on those segments of the U.S. textile industry that do not supply apparel manufacturing. U.S. manufacturers of household and technical textiles appear to be internationally competitive, and it is not evident that lower-wage countries would have comparative advantage in these highly capital-intensive sectors.