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Retailers Support Congressional Demand for Flexibility in TPP Rules

As the Trans-Pacific Partnership (TPP) hurtles to an ultimate conclusion, with all the relevant trade ministers scheduled to meet in Singapore this weekend, retail industry leaders and their congressional representatives are exerting pressure on the Obama administration to inject greater flexibility into the final formulation of the rules of origin. They’re also insisting that that the treaty provide immediate free market access for apparel.

The Retail Industry Leaders Association (RILA) made a powerful declaration of support for letters issued from both the House of Representatives and the Senate urging President Obama to protect U.S. yarn and fabric exports. The congressional letters, organized by Senator Mark Warner (D-VA) and Congressman Erik Paulsen (R-MN), made the protection of American jobs a principal concern. The letter from the Senate stated:

“We believe additional flexibilities in the rules of origin and duty-free market access for apparel are important to sustain and grow American jobs. These flexibilities for apparel are essential for growing U.S. yarn and fabric exports. Immediate and reciprocal duty-free market access and flexible rules for apparel will support the three million Americans whose jobs directly depend on the global value chains that design, produce and sell apparel imports.”

Much of the controversy regarding the TPP singles out the participation of Vietnam and the so-called “yarn forward rule of origin.” The US proposed rule stipulates that any garment must be made of either fabric or yarn supplied by the US or any signatory TPP nations to be eligible for duty-free benefits when shipped back to the US. For obvious reasons, many importers have strenuously objected to the rule. Conversely, many American textile producers declaim that it is absolutely necessary for them to remain competitive in the future.

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Some worry that the rule disproportionately favors Vietnam. Last September, a letter calling for robust protections of the US textile industry from the potential results of the TPP was sent to US Trade Representative Michael Froman, signed by nearly 170 members of the House of Representatives. This letter specifically cited Vietnam’s potentially unfair advantages. “After sixteen rounds of negotiations, Viet Nam is seeking to replace longstanding textile rules that have been included in previous free trade agreements with a new rule that would allow Viet Nam to source textiles from China and export garments and finished goods to the United States duty free,” the letter warned.

Viet Nam projects that the new rule would transform its market share in the US, which would bloom from 7 percent to 30 percent. The letter from US lawmakers complains that it could lead to the elimination of nearly 500,000 American jobs in the textile industry, potentially erasing another 1.5 million worldwide.

The House letter sent in September also defended the yarn-forward rule as essential: “The rule has a proven track record of job creation in the US and our free trade areas, and it is responsible for hundreds of thousands of US manufacturing workers and millions of direct and indirect jobs in countries south of our border and in Africa.”

The September letter also cited the yarn-forward rule as a necessary instrument for the protection of fragile emerging economies. “Maintaining provisions such as yarn-forward and strong duty preferences in the TPP will not only help the domestic textile industry keep well-paying and productive jobs in the U.S. but it will also aid the development and emergence of new export markets amongst our important trading partners. While the toll on U.S. manufacturing workers would be high, the social and economic impact on small developing economies south of our border that depend on the textile and apparel supply chain would be devastating,” the letter claimed.

Others contend that the US insistence on a yarn-forward rule, rather than aimed at unlocking closed markets, is  motivated by self-interested protectionism. The rule generates preferential treatment for yarn produced in participating nations but, of the lot of them, only the US has a significant textile industry (as distinguished from an apparel manufacturing industry). The result is the virtual elimination of any competition for the US, especially damaging since it already produces textiles considerably more expensive than China, India, Korea or any other TPP nation.

The letter just released from RILA makes the case that the continued competitiveness of the U.S. hinges upon these rules being formulated with some measure of elasticity. Stephanie Lester, vice president for international trade at RILA, wrote: “It is critical for U.S. trade policy to measure success by how it contributes to the competitiveness of U.S. companies, and the workers they employ. This is the clear message from Congress to President Obama. They want to see a successful TPP agreement that grows trade and investment in all sectors, including the apparel sector. To achieve that goal, the letters call on President Obama to offer more flexible rules and immediate duty-free market access for apparel. We applaud Congressmen Erik Paulsen and Mike Thompson, and Senator Mark Warner for their leadership to support a comprehensive, high-standard TPP agreement that maximizes opportunities to create new U.S. exports and U.S. jobs.”

Congressman Paulsen added, “The Trans-Pacific Partnership is a pivotal step forward in expanding U.S. trade, creating American jobs, and solidifying our relationships in the Asian-Pacific region. As we continue to progress towards a final agreement, it is important that we take tangible steps to ensure the comprehensive agreement grows trade and investment in all sectors of our economy.”