Exclusion of Turkey and India from GSP Could Bring New Sourcing Problems
A great deal of attention has been paid to the issues surrounding the Trump administration’s move to impose up to an additional 25 percent higher tariff on certain goods entering the United States from China.
Finding new sourcing partners for textiles created within a particular region or relying on the craftsmanship for which a certain country is known could prove increasingly difficult.
On May 16, the United States declared Turkey, a source for silk, ineligible to continue as a Generalized System of Preferences trade partner. In March, U.S. Trade Representative Robert Lighthizer explained that Turkey had evolved into a nation that is “sufficiently economically developed and should no longer benefit from preferential market access to the United States market.”
During 2017, U.S. trade with Turkey totaled an estimated $24 billion, with exports totaling $12.7 billion and imports $11.2 billion. In 2018, the U.S. saw its imports of Turkish apparel and textiles increase to $1.7 billion compared to $1.5 billion the previous year.
The United States is also considering removing India—a provider of handloomed cotton goods and supplies—from the list of eligible GSP countries. The U.S. trade agency on March 4 said, “India’s termination from GSP follows its failure to provide the United States with assurances that it will provide equitable and reasonable access to its markets in numerous sectors.”
In 2018, according to the U.S. trade office, trade with India totaled an estimated $142.1 billion, with $58.9 billion in exports—including $329 million in U.S. cotton—and $83.2 billion in imports.
India is a major supplier of apparel and textiles to the United States. In 2018, companies imported $7.7 billion in apparel textiles from that country, up from $7.4 billion the previous year.
“For a lot of the brands and retailers, they are sourcing GSP products of all kinds,” said Julie Hughes, president of the Washington, D.C.–based U.S. Fashion Industry Association. “We have to be concerned on all fronts regarding our direction on trade policy. I am always concerned when there is unpredictability and disruption to the supply chains of what that impact will be.”
Since 1976, GSP has offered duty-free preferences on thousands of items imported into the United States from developing countries. While many finished apparel products are not included on the GSP list, fibers used to make clothing such as certain silks and handloomed cotton have been considered eligible.
Tariffs along the supply chain
While the tariffs on silk from China have increased, Turkey is also known as a source for the fiber. Following the elimination of Turkey’s GSP status, tariffs have now been placed on certain garments and fabrics produced from silk.
For Pınar Tasdelen Engin, Turkey’s president of the Uludag Textile Exporters Association, the country’s removal from the GSP list will not largely influence the trade relationship between the two nations.
“Only 3 percent of the total textile exports of Turkey to the United States are part of the Generalized System of Preferences. Additionally, a very small portion of our ready-to-wear exports to the U.S. are also included in the GSP product lists,” she said.
“On the other hand, the decision to remove Turkey from the Generalized System of Preferences is inconsistent with the trade-volume target of $75 billion announced by both countries,” she said.
The United States’ decision regarding tariffs on Chinese textiles and possibly apparel has left many in the apparel industry searching for alternate sourcing partners. Countries such as Turkey and India, which could potentially provide alternatives to U.S. importers, are now facing their own restrictions.
“We’ve been lulled into a false sense of security that we try not to worry about,” said Tom Gould, senior director, customs and international trade at the international law firm Sandler, Travis & Rosenberg. “There are specific things that we get out of Turkey. There are specific things that we get out of India.”
These two countries are now at risk of having goods incur additional costs once imported into the United States. Apparel and textile importers should start examining alternatives to all of their partners due to the potential of additional trade problems with other countries. Gould recommends stateside businesses diversify their sourcing options.
“Companies that have been buying those items from those places for years have never considered alternate sourcing,” he said. “That is what people should be doing right now. They should be looking at their products and ask themselves what they are going to do if they can’t source it.”
In addition to building a more varied pool of sourcing partners, companies in the United States should take a more active role in engagement during the process by which the government is making important trade decisions, according to Hughes.
“This is the time for engagement from companies. They may not have the time nor want to be involved in Washington—it can be difficult and intimidating,” she said. “We are asking them to sign letters, come to Washington, file statements, write and call members of Congress, and stay in touch with the administration on the impact. It’s essential on all of these issues.”
Feeling the effects stateside
Because there is still a tariff exemption on handloomed cotton goods from India, Smita Paul, founder of the Oakland, Calif.–based Indigo Handloom, has been able to offset a bit of the costs associated with making her wholesale and private-label handloomed apparel, scarves and fabrics in India.
While she understands that trade should be mutually beneficial, she believes the sudden threat of imposing greater tariffs on goods made in a certain region is detrimental to U.S. businesses.
“There is no one handlooming in the U.S. on a commercial basis that I know of who could do the type of volume that India can do,” Paul explained. “I understand the need to protect your own industry, but there is no handloom industry in the United States. This is hurting people for no reason.”
With her 15-year-old handloom business comprising 80 percent finished goods and 20 percent fabrics, Paul has seen the demand for higher-quality products grow, but more tariffs will mean greater costs along the supply chain.
That means clients buying her goods on a wholesale basis will be forced to pass on the higher prices to their retail customers.
“Their products are now being taxed at a significant rate that they haven’t been in the past,” said Gould. “They are going to have to incorporate that into their budget and design calculations.”
Over the last few years, Paul has seen an increase in the demand for natural fibers, and she believes that growth with partners who rely on direct-to-consumer business models will thrive despite tariffs.
“We have new customers who came on in the last year and it’s because handloom is out there enough that people recognize there is something different about that fabric. There is a movement to wear natural fibers and a craving for something authentic,” she said. “Older people have the memory of cotton and are asking for it while younger people are attracted to the mission.”
The relationship between Turkey and the United States will remain strong, according to Tasdelen Engin, but she would like to see a commitment to achieve goals previously agreed upon by the two nations.
“The removal of Turkey from the GSP does not comply with our endeavors to achieve 75 billion U.S. dollar bilateral trade volume. The decision will also negatively affect manufacturers,” she said. “We still would like to pursue our target of increasing our bilateral trade with the U.S. that we see as our strategic partner without losing any momentum.”