And despite trade being a hotter topic than it has been in years, politics has put trade in an “uncomfortable place,” American Apparel and Footwear Association (AAFA) President Rick Helfenbein said in introducing a trade panel at Sourcing Summit 2016 in New York last week.
So what’s really happening with TPP?
Getting right to it, when Andrew Samet, principal at Sorini, Samet and Associations, asked whether TPP would pass this year, Steve Lamar, AAFA executive vice president, gave a resounding “yes.”
Which was of course followed by a “but.”
As Lamar explained, the politics that has left leaders and citizens on opposing sides of the TPP agreement has many thinking there won’t be enough votes to get the deal passed in Congress.
“We can get it done, and the dynamics, I think, will work for it to pass, but it really requires each and everybody in this room, and then each and everybody in this room telling five friends and so forth to make sure that members of Congress are hearing that we need TPP to go forward, that we need trade to go forward,” Lamar said.
Bill Jackson, the Assistant U.S. Trade Rep for Textiles at USTR said the public hasn’t heard enough about the deal. Or at least not enough accurate information.
“You can open up a newspaper every day and someone will come up with a new reason why TPP can’t happen, and the fact of the matter is, that it can happen,” Jackson said.
And here are reasons: The current administration, from President Obama and down, are committed to bringing the deal before Congress this year; it’s Obama’s highest priority and he has mobilized his cabinet to get it done; and there’s bipartisan support.
“You have a unique situation right now where you have the president and congressional leadership, they’re all very supportive of free trade,” Jackson said, adding, “There are a lot of jobs at stake here. We talk about jobs in manufacturing and production, but there are also a lot of jobs related to retail, which I think people lost sight of sometimes.”
Should companies still be investing in Vietnam ahead of the TPP?
Vietnam, one of the 12 TPP nations, is expected to realize the greatest benefit from the trade deal and as such, some companies have been starting to invest in building out supply chains there. Others, however, haven’t made the move yet and are wondering whether they’ve already missed the best window of opportunity.
“We’re very bullish on Vietnam,” Lamar said, noting that it’s currently the second largest supplier of apparel, footwear, and travel goods to the U.S. market and those numbers are growing by high single or double digits.
He cautioned, however—despite clear optimism that TPP will pass—that companies should first look at Vietnam without the TPP filter and assess whether it makes sense to be there.
“At the end of the day, I think TPP will pass but it will take a while before it takes effect, before the implementation occurs. Trade agreements often take some time period,” Lamar said. “If you’re in Vietnam now, grow it and then as the TPP begins to take effect and turn on, you’ll be able to use those provisions and grow your business even further.”
Will TTIP actually move forward?
One T that has gotten less love than the others, has been TTIP, and mostly because people have been so caught up on the already done, but pending, TPP.
TTIP, a trade deal the U.S. has been negotiating with the European Union for about three years, has gotten some recent criticisms from European nations for being a so-called “failed” deal that they’d rather not continue negotiating right now.
“Let’s face it, everyone knows that the political environment right now for trade is very difficult, including in Europe, which is one of the reasons I think we’ve seen a lot of concern coming out of Europe these days about their trade agreements with Canada and their prospective agreement with the U.S.,” Jackson said.
President Obama and U.S. Trade Representative Michael Froman have both said TTIP is an important agreement that should be taken as far as it can this year, Jackson said. Both Ambassador Froman and EU trade commissioner Cecilia Malmström recommitted to the process earlier this month and discussions are expected to be positive when talks resume at the next round in New York the first week of October.
On Monday, however, following a ministers’ meeting in Slovakia Friday, Malmström said the deal looks “increasingly unlikely” backing ministers’ doubts that the deal won’t be able to reach conclusion before Obama leaves office.
“I think it’s under appreciated just how important this agreement could be,” Jackson said. “It’s an $8 billion transatlantic trade in textiles and apparel with trade going in both directions more so than say, under TPP, even with respect to textiles and apparel. So again, there’s a lot at stake here and the administration is committed to taking this as far as we can take it this year and we’ll see what happens.”
Beyond just paving the way for greater free trade between the U.S. and EU, the TTIP is expected to create a more common regulatory approach, an aspect Lamar sees as key to the deal.
“If you’ve got the same type of standards between the U.S. and the European Union and you can avoid that double testing, or even conflicting standards, then when you’re selling to either of those markets, you only have to shoot for one target,” Lamar said. “That’s kind of a nirvana, but that’s really where we think this could go.”
What’s the outlook for trade in the coming year?
Even though China’s unit labor cost has been flat in the last few years, for goods that aren’t low-value added, where labor is a bigger factor in the cost, China isn’t as competitive as it used to be in terms of price and companies are still looking to diversify their supply chains.
And many are looking to Africa and the Western hemisphere.
Interest in Africa for sourcing piqued last year when the African Growth and Opportunity Act (AGOA) was extended for 10 years, meaning many goods could pass between the U.S. and designated nations duty free.
“Right now, more so than any time that I’ve seen since AGOA was first passes, that there’s a rising interest in Africa,” said Jackson, who worked in the USTR’s Africa office prior to moving over to textiles. “In the greater scheme of things, our apparel trade with Africa is going to remain small, but it could have a huge impact in Africa and I think it’s a legitimate place for many of you to look for sourcing. It’s not the sort of place you go for fast fashion, for example, because of some of the shipping times, but there’s a lot of opportunities there.”
More companies are keen on heading to—or returning to—the Western Hemisphere for sourcing, though many have been slow to actually set up there. And as Jackson put it, businesses are giving the region “another look” and trying to capitalize on existing free trade agreements there and the region’s new emphasis on speed to market and fast fashion.
“All in all, I think there’s some real trends these days moving away from China and toward some regional destinations,” according to Jackson.
Looking ahead, the Miscellaneous Tariff Bill (MTB) could be yet another way for companies to cut duties.
On Oct. 14, companies will have an opportunity to petition the International Trade Commission to reduce duties on particular products—whether inputs or finished products—they can’t find in the U.S.
Further, hoping to build on the addition of travel goods to the Generalized System of Preferences (GSP) program earlier this year, AAFA is working to extend the duty free access to more developing countries beyond those already on the list.
“When that occurs, that’s going to be a real opportunity for a lot of the companies in this room as well to reduce the costs associated with importing travel goods to help bring about further diversification from China and to really promote development in these countries,” Lamar said.