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Op-Ed: TPP Could Bring Big Savings on Denim

Think back to your first days of school over the years. Whether it was skinny-leg, boot-cut, flare, dark denim, light-washed, torn, or even those dreaded bell bottoms, many of your school memories were built wearing jeans.

With millions of children heading back to school across the country, the sounds of recess—kids playing sports, scrambling over playground equipment and laughing through games of tag—are beginning to fill schoolyards. While adjusting back into studies, many of these kids will be wearing new clothes that their parents recently purchased during back-to-school sales, and denim will be plentiful.

While parents are always looking for smart deals, these purchases are rarely inexpensive, particularly when the prices of these products are increased because of hidden tariffs imposed when those goods are imported into the United States.

About $47 of the estimated $674 that parents will pay this year actually reflects a back-to-school import tax on such highly-taxed items like clothes, shoes and backpacks.

Fortunately, one trade deal pending before Congress could alleviate this burden and bring real relief to hardworking families.

The Trans-Pacific Partnership (TPP) agreement will link the United States and 11 Pacific Rim countries into a trading bloc encompassing 800 million consumers and more than 40 percent of the world’s economy. The United States currently collects more than $2.8 billion in tariffs on apparel, footwear, and travel goods imported from our TPP partner countries. These tariffs ultimately get eliminated under the TPP, which means they will no longer be passed along to consumers in the form of back-to-school import taxes.

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Under the TPP, the U.S. agrees to reduce and eventually eliminate all tariffs it has previously imposed on these products if they originate from one of the other 11 trading partners in the TPP. For footwear and travel goods, the origination rules are pretty straightforward and most of the duties are eliminated quickly so the tariff relief will come soon.

For apparel, which features longer tariff phase outs and stricter “yarn forward” style rules of origin, the calculus is a bit more complicated. But it is no less powerful, especially for companies that take the time to study the rules and master their intricacies.

An innovative provision relating to cotton trousers and denim jeans is just one example.

Known as the Earned Import Allowance Program (EIAP), this provision incorporates lessons learned from previous trade programs to provide duty relief for U.S. apparel importers and practical export opportunities for U.S. textile manufacturers. It works like this:

  • Every square meter of fabric, classified in Chapter 52 of the Harmonized Tariff System, that is formed and finished in the United States, and then exported from the United States to Vietnam generates two kinds of credits. Importers can use these credits to import duty free into the United States twice the amount of garments they might otherwise be able to import under a basic yarn forward construct.
  • Specifically, one of these credits can be used to enable duty free importation of denim and cotton trousers made with those U.S. fabrics. Without this first credit, such garments would only be eligible for limited duty reductions until the twelfth year the agreement is in force.
  • The other credit can then be used to support the duty free importation of denim and cotton trousers made with any fabric from any country. Without this second credit, the good would be ineligible for duty reduction altogether.

While there are some limitations, including specific ratios on how the credits are applied and the fact that only two lines of men’s and two lines of women’s trousers are eligible, the program has incredible potential. In 2015, Vietnam ranked as the third largest supplier of these products to the United States— behind China and Bangladesh. During that year, the U.S. government collected more than $136 million in taxes from Vietnam from these four lines of trade alone, and that number looks set to increase by more than 10 percent in 2016.

Similar opportunities exist for specialty denim and other woven fabrics that have been included in the TPP agreement’s short supply list. This list enables importers to use fabrics that don’t meet strict origination requirements, although the resulting garments do not always qualify for immediate duty-free treatment.

While such provisions are limited, they do create significant opportunities for those willing to learn how to use them, which in this case would mean lower costs for denim jeans.

But none of this happens unless Congress, which is now ending its own recess and will soon go on another one, takes action.

When we send our children to school, we expect them to study hard and finish their work on time. We hold ourselves to the same standard as we approach our jobs, whether they are managing global supply chains or understanding complicated trade agreements. We should expect no less of our elected representatives, urging them to get back to work and approve the TPP.

Click here to urge your elected representatives to support this important deal.

By Steve Lamar, executive vice president of the American Apparel & Footwear Association.

This piece is part of the outreach by footwear, apparel, travel goods, and retail industry organizations to raise awareness regarding the positive economic potential of the TPP trade agreement. AAFA will host a Trans-Pacific Partnership (TPP) workshop in Ho Chi Minh City, Vietnam on November 14, 2016. Click here to join and discuss how to use TPP to reduce costs, stay competitive, and enter new markets.