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TPP Debate Grows Heated

As the conclusion of the Trans-Pacific Partnership (TPP) negotiations draws closer to a conclusion, disputes over its wisdom have grown more contentious. With billions of dollars at stake, representatives from every quarter of the apparel and textile industry has been weighing in with impassioned positions.

Debate has been particularly heated especially now that, heading into the nineteenth round of negotiations, there is clear progress and a discernible end on the horizon. US Trade Representative Michael Froman recently reported: “There is a real sense of momentum. I think people really have a sense this is going to get done and it’s going to get done in this time frame that we have laid out to try get it done over the course of this year…It is an incredibly complex negotiation.”

The nineteenth round begins August 30th in Brunei and includes the U.S., Vietnam, Singapore, Australia, Peru, Brunei, New Zealand, Chile, Malaysia, Mexico, Canada and Japan.

And the opportunities, as well as risks, are unusually high. The eleven countries involved in the negotiations sent $15.1 billion worth of apparel and textile imports to the US last year. Of these, Vietnam was the biggest supplier by a wide margin, accounting for $7.5 billion of that volume.

So it should be no surprise that the current 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. 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.

Just recently, Smyth McKissick, CEO of Alice Manufacturing, cautioned that a poorly negotiated trade deal could “decimate” the US textile industry. “If properly structured, the US textile industry is poised to continue a positive trajectory of growth. However, if weak rules are adopted, particularly given Viet Nam’s participation in the TPP, our industry will be at the mercy of an unfair trade agreement, that will decimate the US textile industry once again,” said McKissick, speaking at a US House Small Business Committee Hearing on American competitiveness.

McKissick predicted that, in the absence of such a rule, China would take advantage of its favored trade status to export more cheaply by rerouting its textile products through Viet Nam.

The House letter 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 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.

Other industry leaders have contended that a rule too rigidly articulated could be problematic. Rick Helfenbein, president of Leun Thai USA, said, “A strict rule of origin for TPP is too limiting. Surely, we can create a new export market for American raw materials and finished products, while at the same time, not trying to totally restrict the global realities of product origin.”

David Sasso, vice president of international sales at Buhler Quality Yarns Corp., argues that the TPP could potentially erase a 30 percent tariff on synthetic imports to the US, which would significantly increase demand for American producers. He said, “There’s investment going into fabric formation in Vietnam, but not near the same volume or potential of volume of fabric that they will require to offset Asian fabrics going into Vietnam [that would not qualify for TPP duty-free benefits]. Until Vietnam has its own [textile] infrastructure, and that could take a couple of years, U.S. manufacturers can take advantage of that.”

Auggie Tantillo, president of the National Council of Textile Organizations, also vehemently defended the yarn-forward rule:

“I think it’s supercritical that we do maintain the yarn-forward rule for a couple of reasons, not the least of which is that we already have a yarn-forward arrangement with six TPP countries [Mexico, Canada, Australia, Peru, Chile and Singapore, through free-trade pacts]. Some of them, like Mexico, are our largest export markets. If there is a fundamental change in the rule, that could significantly disrupt the current export performance of the U.S. industry to those six countries, Mexico being at the top of the list.”

Some see the TPP as a watershed moment in the gradual opening of other markets across the participating members. Julia Hughes, president of the US Association of Importers of Textiles and Apparel opined, “One of the goals of the TPP is to have it be a true 21st-century agreement and part of what that means is the ability of manufacturers in one TPP party to sell to all others with no new regulatory barriers, technical barriers [or tariffs].Part of the point of TPP is to create a new supply chain among the countries.”

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 tug-of-war over the TPP, especially the yarn-forward rule, is likely to continue until the ink on the final agreement is dry. A consortia of thirty-four retailers sent Froman a letter strongly urging him to advocate for a much more flexible interpretation of the rule. The letter signatories include Wal-Mart Stores Inc., Target Corp., Sears Holdings Corp., J.C. Penney Co., LF USA, Ann Inc., Levi Strauss & Co., Macy’s Inc., Gap Inc., Nike Inc., American Eagle Outfitters and Kohl’s Corp. A key paragraph stated:

“Our experience with yarn forward is that, in most cases, it no longer serves as an effective model to support all the various supply chains on which our companies rely. A flexible rule of origin for apparel products, and immediate and reciprocal duty-free access, are critical for a commercially meaningful agreement, which will help support and grow the three million U.S. jobs created by American retailers, apparel brands, manufacturers and importers, as well as domestic textile and apparel producers.”