Agreeing on the Trans-Pacific Partnership was the biggest thing to storm the trade scene this year, as was the 10-year extension of the African Growth and Opportunity Act (AGOA), but as the world looked to ease trade in the global market more countries partnered on trade agreements and duty privileges.
After more than five years of negotiations, the United States and the 11 members of the Trans-Pacific Partnership (TPP) reached an agreement on the landmark trade deal slated to affect 40 percent of the global economy.
The long-awaited Trans-Pacific Partnership text was released Nov. 5 morning after rampant rumors about when the day would finally come. A letter from U.S. Trade Ambassador Michael Froman within the report on the nearly 18,000 individual tariff cuts, said TPP is the largest tax cut on American exports in a generation.
Apparel brands and retailers will see significant benefits under the in-work Trans-Pacific Partnership once the agreement is implemented and in the years following, and now that the text for the textile chapter of the trade deal has been released, details surrounding what those benefits will be and when they will be realized are at least a bit clearer.
In short, most apparel will be yarn forward—meaning goods would have to be made using U.S. or other TPP country yarns to qualify for benefits, dresses, skirts and bags made of textiles will see duties eliminated from day one, and most knit tops and woven pants won’t have duties phased out for 10-12 years after implementation.
With the conclusion of the TPP negotiations, there are high hopes that this ambitious trade agreement will lead to greater market access, lower tariffs and more duty-free apparel from TPP partner countries like Vietnam, translating to cheaper clothing and shoes for consumers.
However, a lot of questions remain about what changes will take place and under what timeframe. Will TPP bring about a strategic shift in sourcing decisions by U.S. fashion retailers and brands? Will TPP partners Vietnam and Malaysia displace China, Bangladesh and India as the major sourcing centers for U.S. retailers?
The answer to all of the above questions is – maybe, but probably not.
The African Growth and Opportunity Act (AGOA) was extended for a 10-year period, firmly securing the continent’s position as the next sourcing destination, and major brands are making bigger efforts to uncover opportunities there.
The AGOA renewal has further fueled talk about East Africa as the next big sourcing hub, but what remains to be seen is how well positioned the region is to receive an influx of apparel sourcing.
A McKinsey & Company report titled, “East Africa: The next hub for apparel sourcing?” said ever since European retailers like H&M, Primark and Tesco started sourcing garments in Ethiopia two years back, the apparel sector started paying attention and interest in Ethiopia and the East Africa region has been steadily on the rise.
Swedish fast fashion retailer H&M was one of the first to foray into Africa for sourcing in 2013 and the company has since been vocal about Africa being its future continent.
H&M started with a small operation in Ethiopia—where it now has its regional hub office—to test the waters, then opened up production in Kenya, and so far things appear to be going well.
During a panel on best practices for a sustainable African apparel value chain at the Africa Sourcing show in Ethiopia, H&M country production manager Hande Diltemiz said, “We are very excited to be here and we are looking for more opportunities here. We want to contribute to sustainable growth here.”
With low labor costs, even lower energy costs and a sizable, available workforce, Africa is primed for investment and savvy manufacturers want their share of the pie.
China devalued its currency and furthered discussions on rival TPP deal
China let its currency, the renminbi (RMB), fall to three-year lows, further feeding fears for China’s already slowing economic growth and stirring concern for other global markets and worries of possible currency wars.
Some economists felt the move was meant to give China’s exporters a break by making their goods cheaper on the world market, but others indicated a different motivation: Because the Asian powerhouse’s currency maintains a close relationship to the U.S. dollar, when the dollar jumps against world currencies, the yuan rises against China’s trading partners’ currencies too.
China’s sudden yuan devaluation shook things up across the globe, sending stocks seesawing and stoking fears of even slower economic growth in the Asian nation.
Some countries, however, stand to feel the effects of China’s currency moves more acutely than others—namely Africa, where China is the top trading partner for most of the continent’s countries.
Trade between China and Africa as a whole totaled more than $220 billion in 2014, according to figures from the World Bank and the U.S. government, which is roughly three times the amount of Africa’s trade with the U.S.
With a weaker yuan, Chinese goods will be cheaper in Africa and African exports will be more expensive in China as they are often priced in U.S. dollars—likely meaning lower demand for African goods.
China, it seems, won’t be wasting any time securing its footing in trade—just weeks after the Trans-Pacific Partnership was agreed on and days after the document’s text was released, the Asian powerhouse said it’s gearing up to push its own Asia-Pacific trade pact.
At last year’s Asia-Pacific Economic Cooperation (APEC) summit in Beijing, leaders endorsed a plan for realizing the Free Trade Area of the Asia-Pacific (FTAAP) deal, which would include all of APEC’s 21 member countries—all of the 12 TPP nations plus China, Russia, the Philippines, and six others.
EU and Vietnam reach free trade agreement
It may have taken two and a half years of negotiations, but the European Union and Vietnam have settled a free trade agreement that removes nearly all tariffs on goods traded between the two nations.
Following a phone call between EU Trade Commissioner Cecilia Malmström and Vietnamese Minister of Industry and Trade Vu Huy Hoang in August, both sides agreed on all issues of substance, according to the European Commission, and reached a mutually beneficial deal.
“This finely balanced agreement will boost trade with one of Asia’s most dynamic economies. It sets a new, better and modern model for Free Trade Agreements between the EU and developing countries, and establishes a good standard for the trade relationship between the EU and South East Asia as a whole,” Malmström said.
The agreement is the first of its kind the EU has negotiated with a developing nation.