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Vietnam Footwear Exports Grow Robustly; Source of TPP Controversy

Vietnam continues to be a dominant exporter of leather and footwear, sending the U.S. alone $10.3 billion worth of both in 2013, an 18 percent increase over the previous year.

According to the Vietnam Leather and Footwear Association (LEFASO), footwear exports totaled $8.4 billion in 2013, a 15 percent improvement in comparison to 2012. The U.S. is the primary importer of Vietnamese footwear, taking in $2.62 billion worth of shoes and sneakers. With respect to both leather and footwear, the U.S. accounts for 33.6% of Vietnam’s exports.

Approximately 31 percent of Vietnam’s leather and footwear exports find their way into the E.U. Footwear exports, specifically, reached $3.41 billion in 2013. Vietnam also counts as a major footwear supplier to the U.K., Japan, Germany, Belgium. Italy, China, South Korea, Canada and Chile.

Vietnam’s strength as a footwear exporter has become a principal topic of contention within the Trans-Pacific Partnership (TPP) negotiations. U.S. 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 U.S. 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.

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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 U.S. 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.

Nike has garnered some support among U.S. 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.”

Addressing these concerns, the U.S. Senate has introduced legislation that could profoundly impact the cost of shoes, particularly those produced for children.

The Affordable Footwear Act (S.1633) is sponsored by Senators Claire McCaskill (D-MO), Pat Roberts (R-KS), Jeff Merkley D-OR), Mike Johanns (R-NE), Roy Blunt (R-MO), Maria Cantwell (D-WA), Jerry Moran (R-KS) and Amy Klobuchar (D-MN).

The main purpose of the bill is to assist low-income families struggling to purchase affordable shoes due to what many argue is an inordinately high import duty, which can reach 65 percent in some instances. Compare this to the average import tax on consumer goods in general, which is 1.4%. Since more than 98 percent of all shoes purchased in the U.S. are imported, it’s all but impossible to avoid what some consider to be a hidden tax.

In total, if the bill should become a law experts estimate that it would eliminate as much as $800 million in duties on children’s shoes, a considerable chunk of the $2.3 billion collected overall for footwear in 2012.

The level of the import tax varies depending on the type of shoe. Leather dress shoes capture a tariff of 8.5%. The average pair of running sneakers usually commands 20 percent. And since the great majority of these shoes are imported from countries that do not have a free trade agreement with the U.S., especially China, these duties are unavoidable.

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.”