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Op-Ed: Hoping for a Home Run on TPP

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With the arrival of fall, baseball fans are thinking about the 110th World Series. And trade observers are thinking about another end game, too—specifically, the Trans-Pacific Partnership (TPP) “end game” that negotiators claim, and stakeholders hope, is finally near.

We know the TPP negotiators are working hard to close the agreement. Earlier this month, they met in Hanoi, where they reportedly made progress on state-owned enterprises, intellectual property rights, and investment, among other issues.

And last week, Vietnam’s Deputy Prime Minister Vu Nan Ninh and a senior-level delegation visited Washington to meet with U.S. Trade Representative Michael Froman and key stakeholders to make another pitch for Vietnam’s market access wish list, which like the U.S. fashion industry’s wish list, includes duty-free access on Day One of the agreement, and a flexible rule of origin that recognizes the global value chain for textiles, apparel and footwear.

Of course, textiles, apparel, and footwear is one remaining sensitive area of the agreement where significant work remains to be done. But if the negotiators take a truly 21st-century approach to the agreement, the textile, apparel and footwear provisions could benefit both the U.S. and Vietnamese economies, and consumers worldwide.

Among all the TPP partners (Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam), Vietnam is perhaps the most important for the fashion industry. While China remains the dominant supplier in all categories of textiles and apparel to the U.S. market, Vietnam is the second-largest supplier of apparel with 9 percent of the market share, and is the fourth largest supplier of fabrics with 7.33% of the market share. And Vietnam’s potential continues to grow, with U.S. apparel imports from the country up 13 percent in 2013 compared to the previous year.

The top imports by U.S. fashion brands and retailers are key products like cotton knit tops and cotton trousers. And the TPP countries have the capability to produce almost all types of apparel—with the ability to adapt to changes in consumer demand over the years.

If you add duty-free access and flexible rules of origin to the equation, these import numbers from Vietnam, and other TPP countries, could skyrocket when the agreement goes into effect, making the nation a success story for both U.S. trade policy, U.S. fashion brands and retailers and one of our new trading partners.

Unfortunately, TPP is unlikely to create this kind of success story for the fashion industry unless the negotiators change course quickly.

I’ve written previously that companies simply don’t use existing free trade agreements and preference programs. In 2013, only 16 percent of U.S. apparel imports were duty free, a slight decrease from the previous year. And, none of the top four suppliers of apparel to the United States—comprising more than 60 percent of U.S. apparel imports in 2013—have a free trade agreement or preference program.

According to our recent benchmarking study of sourcing executives from 29 of the largest fashion brands and retailers in the country, only NAFTA, CAFTA-DR, the African Growth and Opportunity Act (AGOA)–which is set to expire next year–and the U.S.-Korea FTA are currently used by 20 percent or more of the respondents, while many agreements are not used at all.

It’s not that companies don’t want to save money on duties and support our trading partners. On the contrary, those sourcing executives overwhelmingly said their biggest concern is the rising cost of doing business—and they overwhelmingly said the elimination of trade barriers around the world. (In fact, 85 percent support abandoning strict yarn-forward rules of origin in trade agreements and 81 percent support expanding the short-supply list in the TPP agreement.)

We hear over and over again from sourcing executives—most recently during our panel at SOURCING at MAGIC in August—that they don’t use free trade agreements and preference programs because the agreements don’t cover the products their customers want, and when they do, the rules are so complicated that it’s more time consuming and expensive than sourcing from China or Vietnam.

TPP is exciting because it could be a real game changer in this regard. It could address the fact that we don’t have many trade agreements with countries in Asia, where our members are already doing most of their business. TPP could create huge savings opportunities for U.S. fashion brands and retailers, allowing them to grow their businesses, hire more employees, and of course, pass along savings to consumers.

So, the bases are loaded—and the trade negotiators have to decide how to end the game.

If negotiators continue to push for strict yarn-forward rules of origin, long duty phase outs, and a limited short supply list that doesn’t address our industry’s needs, I don’t see brands and retailers utilizing the agreement.

But if negotiators take a new approach—with a flexible rule of origin, duty-free access on Day One, and an expanded short supply list that covers the products companies are really buying—then TPP could be a grand slam.

 

Julia K. Hughes is the president of the United States Fashion Industry Association (USFIA), which represents textile and apparel brands, retailers, importers, and wholesalers based in the United States and doing business globally.

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