One of the top questions I’m frequently asked, and one I will no doubt be asked next week at the Sourcing Journal Summit, is whether the Trans-Pacific Partnership (TPP) will pass this year.
The intense interest in the TPP is understandable. After all, this trade agreement will join together the United States with 11 Pacific Rim countries in a bloc representing 40 percent of the world’s economy and more than 800 million consumers. For our industry, duty savings during the first year alone will exceed $1 billion as all 12 countries eliminate tariffs on originating items—some all the way to zero—during the first year.
Over time, those savings will grow.
Just look at Vietnam, which is the second largest supplier of apparel, footwear and travel goods to the U.S. market. In 2015, the United States collected more than $2.8 billion worth of tariffs from Vietnam. Almost all these duties were generated on U.S. imports of clothes, shoes and bags.
For backpacks and most shoes, many of the duty benefits fully apply on day one as the U.S. drops just about all duties for these items to zero upon entry into force. For apparel, which is subject to longer tariff phase-ins and more difficult rules of origin, the picture is a bit more complicated.
More than 90 percent of Vietnam’s textiles are currently supplied by non-TPP parties—a difficult reality given that most garments must be made from yarns and fabrics produced in TPP countries. But even these hurdles are naturally overcome as new investments occur, as trade patterns reorient themselves to take advantage of the TPP’s provisions and, perhaps most importantly, as more countries join the agreement.
But none of this happens until the agreement enters into force. And that cannot happen until after Congress passes implementing legislation.
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There is no question that TPP faces a tough slog. In what seems like a weird parody of “Green Eggs and Ham,” both major party presidential candidates have repeatedly stated their unequivocal opposition to the TPP no matter when or where it is presented.
Some will point out that the Congressional Democratic leadership remains strongly opposed while the Republican leadership has publicly questioned if TPP can be approved this year. President Obama is steadfast, but seems nearly alone, in his belief that TPP can be approved on his watch.
Many are eager to look at the political rhetoric (which is never kind to trade, but that’s another issue) and declare that the TPP is dead. Others, parroting a famous Monty Python sketch, will declare that TPP is not dead, and then hedge by adding the word “yet.” Such attitudes can form the basis of a self-fulfilling prophecy.
But here’s what we know. The earliest the TPP implementing bill can be brought to a vote in Congress will be sometime during the post-election “Lame Duck” session in November or December. Contrary to popular belief, there is plenty of time to debate and vote on the legislation during that period. But then why haven’t we had the vote yet? After all, the agreement was signed way back in February.
The hold-up has to do with two things:
First, Congress passed Trade Promotion Authority (TPA) last year to establish a detailed consultation and review process through which trade agreements, like TPP, can be considered. Although this process is mistakenly referred to as “fast track,” it is actually very deliberative to give the Administration, Congress, and all stakeholders a chance to digest the agreement and make sure its provisions are correct.
And it actually hasn’t been very long. Over the last 25 years, the average length of time between when a free trade agreement (FTA) is signed and when it is submitted for Congressional approval is more than 550 days. It has been less than 225 days since the TPP was signed.
Second, the Administration and Congress are working through the details of the implementing bill and attempting to address several pending high profile issues, such as the length of data exclusivity for biologic drugs. Such negotiations are also typical as members of Congress push for clarifications, commitments, and sometimes changes to the way an FTA is implemented. They are also important to ensure that the FTA implementing bill, once submitted, has the necessary support to prevail.
At AAFA, we are working to see TPP approved and enter into force as soon as possible. We’ve been extolling the benefits of the TPP and are encouraging our members to communicate their support for TPP and trade in general by contacting Congress. Last week, we partnered with trade associations in our industry to lead a campaign explaining how TPP would benefit every American during the back-to-school season.
Will we prevail? Until the agreement is brought to the question and the votes are counted, nobody knows for sure. But we do know that if we don’t fight now, the opportunity to secure this once-in-a-generation trade opportunity will slip through our fingers.
So this brings me back to the original question. Do I think TPP will pass this year?
Join me next Tuesday at the SJ Summit and we can discuss this more.
By Steve Lamar, executive vice president, American Apparel and Footwear Association