Though the text of TPP is now available online, it’s not that simple to digest the 5,500 page document. Matt Priest, president of the FDRA, explained the four main concepts the footwear industry needs to know.
Some shoe categories will not be duty-free on day one
The majority of footwear produced in TPP countries will be duty-free on day one; out of the 120 footwear classifications at the 8-digit level, 102 will be duty-free, and the other 18 lines will follow duty phase-out schedules. These shoes will include specific styles from the following categories: work boots, waterproof shoes, hip waders, leather boots, women’s pumps, cold weather boots, textile upper casual dress shoes and athletic shoes valued at over $12 per pair.
Athletic shoes will benefit most, but other categories will follow
Athletic brands will see immediate benefits from TPP, as Vietnam is a home base for athletic manufacturing, with almost every sports footwear brand producing there. The athletic category is doing well even without TPP, and when TPP goes into effect, a lot of athletic footwear will be duty-free on day one. The other tariff lines will receive a 40 percent reduction cut on day one and by year five, half the duty on sensitive tariff lines will be gone.
The agreement will also allow for Vietnam to open up their manufacturing. “A lot of our members are going to investigate,” said Priest. He suggested that brown shoe and fashion manufacturers will also begin to investigate opportunities in the country, and though they may leave 90 percent of their business in China, he anticipates a shift. “This is a big deal and it’s a big deal because everyone will benefit,” he said.
The rules of origin will allow for non-originating materials
The rules of origin provisions state that footwear will be duty-free even if it is constructed with materials originating in non-TPP countries. However, if a company is sourcing footwear components, a second rule applies. For example, Vietnam will be able to source leather and PU from China, but if they source items like outsoles or heels, a second rule applies that is much more onerous and requires more record-keeping.
Who benefits from savings will depend on the market segment
Priest said that at mass market retailers like Wal-Mart, Target and Payless, where pricing is super competitive, the savings will be directed back to the consumer. Other savings may be directed back into the supply chain. Priest explained that the tariff structures make it so that shoes are often redesigned to avoid higher duty rates. Shoe brands may incorporate elements like new types of materials and cold weather protections when the duty is lowered.