The 2008 financial crisis, which translated into a global economic crisis, impacted the trade of goods and services in a harsh manner. This overall trade collapse observed in 2008-2009 has led to a renewed interest in monitoring the international merchandise trade flows in the new globalized economy.
Merchandise trade statistics record trade flows on a “gross basis” whereas the gross domestic product (GDP) aggregate measures the “value added” created during the production of goods and services. Thus, trade in intermediate products is only taken into account in GDP through the additional value produced at each step of the production process. In merchandise trade statistics, in contrast, intermediate goods are counted at full value each time they cross the border. Through the phenomenon of international supply chains, “multiple gross counting” is amplified. Indeed, the increase in trade elasticity observed after the late 1980s is probably due to a change in business model, where specific segments of manufacturing production have been progressively outsourced to other countries.
Trade statistics of economies are available and used in different statistical frameworks: national accounts, balance of payments, customs (national or international concepts), input-output tables, etc. The objective of official merchandise trade statistics is to describe adequately economic phenomena and provide decision makers with relevant indicators. Yet, the structural changes linked to globalization are challenging the relevance of these traditional trade statistics and these registered flows may also misrepresent current economic phenomena.
Indeed, international supply chains that characterize global manufacturing, particularly since the 1990s, are also affecting trade, as firms in industrialized countries look beyond the boundaries of the developed world to lower costs and access new talents. In addition, users of trade statistics often face issues of consistency and interpretation, especially when numbers are taken from different statistical frameworks.
Complex Supply Chains
The fragmentation of international production—and supply chains—and vertical integration also increase the importance of intra-firm trade of multinationals. The notion of a firm with a unique national identity is fading quickly. The strict application of the change of ownership principle for goods impacts the recording of such international transactions, perhaps necessitating supplementary data collections. However, the complexity of corporate ownerships may limit such data collections. The valuation of intra-firm transactions is often mentioned as a particular concern when measuring international trade flows as they may not reflect full market prices to take advantage of fiscal or tax regulations.
The concept of transfer pricing refers to both the issue and also the solution of a valuation problem in international transactions. On the one hand, transfer pricing means the allocation of profits for tax and other purposes between affiliates of a multinational enterprise, using artificial prices (over or under invoicing). On the other hand, transfer pricing refers to the valuation methods used by tax authorities with the aim of avoiding taxes.
Goods shipped for processing, increased intra-firm trade of multinationals or transfer pricing are interrelated phenomena that are growing with an increasing fragmentation of production chains. This trend adds to the difficulty in determining a product’s origin and in answering the question: “Who produces for whom in the world economy?”
Vertical fragmentation of production is a phenomenon of globalization that leads to an increase of trade flows in intermediate products in the manufacturing sector. Industrial supply chains may blur the country of origin concept as part of the commercial value of an imported good may not originate in the “country of origin” mentioned in the custom documents. Consequently, what part of value is a country adding to an exported product and which part is coming from an earlier-imported product? Users turn to international trade statistics for replying to such questions and try to break down trade flows for analyzing the effects of goods for processing, intra-firm trade and trade in value-added.
With multinational corporations fragmenting international production, sales of goods between firms or multinational companies have increased. This trend is reflected in an increase of trade in intermediate goods. Outsourcing is often used to describe this phenomenon, shifting production either to another domestic company or a foreign firm abroad (offshore-outsourcing). When the company abroad is an affiliate, involving foreign direct investment to establish it, trade between the two entities is considered as intra-firm, but does not appear as such in official trade statistics.
Nonwovens do not escape from this phenomenon. Additionally, the flows of nonwovens coming in and out of a region are not only roll goods moving across the borders. Final and other intermediate products made, partially or entirely, of nonwovens should also be taken into account, but this can only be achieved within the limits of the current official trade nomenclature. The uses of nonwovens are so diversified and most of the time not clearly identified in the nomenclature that it is not possible to trace progress through the different supply chains.
Despite the slowdown recorded in 2009, trade in nonwoven roll goods has been growing steadily over the past decade. Experts associate this positive trend with a number of developments. For instance, growth and increased sophistication of production has given birth to strategies involving fragmentation and reorganization of firms’ activities, both in terms of ownership boundaries and also location for production. Despite the bulky characteristic of many nonwovens, a continuous expansion of trade of roll goods has been recorded. This is particularly true for the European Union where more than 18% of the local production in tonnage is now sold to non-EU countries, while 12% of the apparent mill consumption within the EU is coming from outside the Union. Therefore, despite the complexity of the trade links between countries on a worldwide basis, it is crucial to monitor these flows.
Analysis of official trade statistics for nonwovens remains unclear because the information collected by the customs does not fit modern characteristics of our industry. The available figures are only in tons, and in value for the nonwovens classified in Chapter 5603 of the Harmonized System (HS) nomenclature. Subcategories of this HS 5603 propose a further classification of materials by production process (polymer or fiber-based) and by basic range of weight (less than 25 gsm, 25-70 gsm, 70-150 gsm and more than 150 gsm). This lack of official data is an obvious constraint in the subsequent analysis as the trends linked to the substitution by lower grammage products, for instance, are difficult to identify. Moreover, the different raw materials (polymer or fibers) used in production are not taken into account.
It is also important to remember that some nonwovens, mainly wetlaid and airlaid, made of more than 50% wood pulp or non-textile fibers are classified in the official nomenclature according to their raw materials and not in the nonwovens HS 5603 headings analyzed here. As these types of roll goods are grouped together with other kinds of products, and not differentiated in the official nomenclature, the only relevant and accurate information on these sorts of products, as far as Europe and the Middle East are concerned, can be found in the EDANA Annual Statistics report. (EDANA member companies have access to this report, free of charge, every year.)
In order to help its member companies, EDANA has developed a comprehensive database for nonwovens—polymer and fiber-based products, for import and exports, in tons and in Euros, for 68 declaring countries—including the nonwoven trade flows of the most important nonwovens suppliers since 1999. The most relevant trends are disclosed in this article, but additional information is available upon request.
The purpose of this article is to underline the main trade flows of nonwovens, and to show their development over the last 10 years. Local production showed impressive growth rates during this period in different regions and, despite the characteristics of nonwovens, exchanges between countries grew as well. The idea here is not to explain why such growth in trade has happened—as cause can be very different from year to year (such as intra-firm strategy), from product to product (limited analysis of the trend in gsm due to the HS nomenclature) and from raw materials to raw materials (nonwovens are not classified by their components)—but to show the current status of the worldwide trade of nonwoven roll goods.
Big Picture, Big Changes
In 10 years, the big picture of the worldwide trade of nonwovens has been modified quite significantly. The evolution of the export of nonwovens in both volume and value has been impressive. The European Union has never exported more than it did in 2011; compared to its 2001 level, the tonnage exported has nearly doubled, while increasing by 85% in value. During the same period, Chinese exports have skyrocketed (+947% in volume and +766% in value). (See Figure 1.)
The percentages of growth recorded by the major countries producing nonwovens in the world are proof of the huge development of the trade of roll goods. Looking at the leading economies of nonwoven trade, it is easy to deduce that the countries with the larger capacities of production—EU27, US and China—are the main exporters of nonwovens. However, it is also important to underline that these countries are also the main importers. (See Figure 2.)
Moreover, most of the trade by the three key regions occurs between them. While exports are quite diverse in terms of destinations, the three main markets import mainly from the two other major regions; 51% of US imports are coming from either the European Union or China. (See Figure 3.)
In 2011, the European Union (EU27) continued to show a positive and growing trade balance with the rest of the world, when the overall EU textile industry shows a deficit of its trade balance. Having recorded a slowdown in the period 2008-2009 and already a clear recovery in 2010, the exports of EU27 to non-EU countries reached their highest level ever last year, in both tonnage and Euros, compared to 2010 levels. EU27 exports of nonwovens to the rest of the world increased by 8.6% (+15% in Euros) while imports slightly decreased by 0.7% (+2.7% in Euros), meaning the trade balance increased by 22% in tons (29.5% in Euros). (See Figure 4.)
Last year, China became the largest supplier of non-EU nonwovens to the EU27, overtaking the US, the traditional trade partner of the European Union. (See Figures 5 and 6.) The flow of Chinese products entering into the EU has multiplied 17 times since 2001 (+24% compared to 2010). While the imports are mainly coming from few countries—the five largest suppliers, China, US, Israel, Turkey and South Africa, represented 84% of imports in 2011—EU27 exports are a lot more diversified, although the US and Turkey together represented 25% of these exports. The European Union had a positive trade balance with all the countries of the world, in both tonnage and Euros, with the exception of Belarus, China, Israel and South Africa.
Last year, in total, a majority of the roll goods coming in and going out of the European Union were spunmelt products. Whatever the type of product, EU27 exported more tons than it imported. Trade within the European Union, so-called intra-trade, has also been growing consistently over the last decade. While 612,383 tons of nonwovens (valued at 2,112 million Euros) were traded between EU countries in 2001, this amounted to 930,890 tons (3,162 million Euros) 10 years later. Compared to the previous year, the volumes exchanged declined by 22.2%, but the Euro value increased by 13%.
Looking at the US, despite the slight decrease observed for 2011 in import and export, the net balance was still positive, with the main trade flows also largely in spunmelt products. Nearly half of US exports were sent to the NAFTA region in 2011: 137,500 tons were delivered equally to Canada and Mexico. Another 69,000 tons were sent to Asia, including 37,000 tons to China. US deliveries to EU27 declined by 10,000 tons last year compared to 2010, and reached only 35,500 tons, the lowest level since 2002. (See Figure 5.)
In 2001, only 43,000 tons (of which 31,900 tons remained in Asia) were exported from China. Until 2004, China had a negative trade balance in nonwovens with the rest of the world. Exports have continually grown and the speed of this growth has increased even since 2009. In 2011, China became the leading global exporter of nonwoven roll goods.
Of the 451,000 tons of Chinese materials exported last year, 207,000 were distributed throughout Asia, mainly in Japan, South Korea, Vietnam, India and Indonesia. Outside Asia, EU27 and the US are the main destinations of Chinese products, with South America, the Middle East, CIS, Turkey and Africa also heavily supplied by Chinese goods.
While the overall Chinese trade balance was positive in 2011, a deeper analysis by the type of product shows that China was still showing a deficit (in value) in the trade of spunmelt, in particular for products between 25 and 70 gsm. Nearly 64% of the Chinese exports’ incomes came from fiber-based nonwovens. (See Figure 6.)
Beside the three major producing countries, we also need to consider the developing countries in production and trade flows of nonwovens. While the exports of India, South Africa and Russia are still limited, the flows of nonwovens coming from South Korea, Brazil and Turkey have shown important growth rates, and the development of Saudi Arabia is of interest to anyone watching the industry’s development. (See Figure 7.)
Nonwovens Trade Reaches Record in 2011
Growth for nonwoven roll goods has been steady over the past decade; China becomes leading global exporter.
By Jacques Prigneaux, Market Analysis and Economic Affairs Director, EDANA