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Vietnam Continues to Dominate TPP Debate; Footwear Tariffs Now the Issue

After nineteen arduous rounds of negotiations, the Trans-Pacific Partnership (TPP) has become a case study in how difficult multi-nation agreements can be to broker. US Trade Representative Michael Froman explained that “in many issues across the TPP we’ve got stakeholders with multiple interests, and obviously we also have eleven other countries. No one is going to get 100% of what they want.”

As an instructive illustration, consider one minor dispute that has now roiled into a more significant one that could potentially halt already stalled talks: US tariffs on sneakers made in Vietnam.

US tariffs on footwear imported from Vietnam have been in place since the 1960’s, in response to a seismic shift in sneaker production to Asia, a movement incentivized by low labor costs. The rationale behind the tariffs was that minimum wages and strict labor laws unduly disadvantaged US manufacturers, diminishing its competitiveness in relation to Vietnam.

However, Vietnam is no longer an emerging economy with respect to footwear, now the number two manufacturer behind mammoth-maker China. Those tariffs still remain, though, and average about 10 percent, though in some circumstances they can hit much higher.

Nike, an Oregon-based sneaker company which produces the bulk of its product in Vietnam, has forcefully argued during TPP discussions that the tariffs are thoroughly obsolete. According to Greg Rossiter, a spokesman for Nike, the exaggeratedly high tariffs punish US consumers who ultimately bear the brunt of inflated prices. “The question is why high duties should be maintained at a high cost to U.S. consumers and businesses,” he said.

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Nike has garnered some support among US congressman; a group of fifteen senators led by Oregon Sen. Ron Wyden, a Democrat, has championed Nike’s position. “It is in our nation’s interests to obtain trade rules…that promote U.S. employment throughout the supply chain, from innovation to manufacturing to retail sales, as well as obtain rules that benefit consumers,” articulated a statement collectively issued by the group.

Others contend the tariffs are are necessary as ever. New Balance, a Boston-based footwear and apparel company, argues that the tariffs protect US manufacturers that would otherwise be unfairly hamstrung by the starkly different labor regulations in Vietnam. Matt LaBretton, a spokesman for New Balance, stressed that the tariffs were indispensable instruments in allowing their sizable operations in Vietnam to continue there. “They don’t need a reduction in tariffs to continue to thrive. We need tariffs to remain in place for our ability to continue to operate here. It is a very simple argument.”

Senator Susan Collins, a Republican from Maine, resoundingly voiced her support. “The TPP agreement must recognize how tariff rates on certain footwear products–in concert with continuing innovation–help to preserve U.S. jobs. Companies like New Balance are simply asking that they be given an opportunity to compete and keep good manufacturing jobs in the United States,” she said.

Froman has been studiedly equivocal, addressing the issue publicly without expressing clear agreement with either side. After visiting New Balance’s factory in Maine, he hedged, “It’s a very impressive operation. And we very much want to make sure that this agreement both promotes domestic manufacturing and creates opportunities for growth and opens markets.”

From the beginning, Vietnam has been a central seat of controversy for nations embroiled in TPP negotiations, especially regarding the “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.

Some worry that the rule disproportionately favor Vietnam. A letter calling for robust protections of the US textile industry from the potential results of theTPP 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.

The textile and garment industries are central to Vietnam’s economy. Last year, its more than 4,000 companies earned in excess of $20 billion, accounting fora bout 15 percent of its GDP.

Vietnam has much at stake in the footwear tariff issue, with $7 billion a year in footwear exports out of its $140 billion economy. Vietnamese Prime Minister Nguyen Tan Dung has stressed how central the TPP is to his nation’s economic future, stating that “flexibility from our partners, particularly in areas in which Vietnam has strong interests, such as garment and textile, footwear, agricultural produce…would be important.”