With the conclusion of the Trans-Pacific Partnership (TPP) negotiations earlier this month, 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.
A common assumption underpinning these questions is that no or low tariffs on textile and apparel products will immediately result in more imports coming to the United States at lower prices. Unfortunately, this is simply not true.
Higher tariffs isn’t a significant impediment to sourcing decisions. The top five textile and apparel exporters to the United States are China, India, Vietnam, Pakistan and Mexico. Of these, only Mexico currently enjoys duty-free, quota-free access to the United States. Of the current U.S. free trade agreements and preference programs, only two of the top 10 apparel exporters receive duty-free, quota-free access: Honduras and Mexico. The remaining top eight have duties as high as 32 percent.
In June, the United States Fashion Industry Association (USFIA), which lobbies to eliminate barriers on textiles and apparel, surveyed major American apparel brands, retailers and importers on their sourcing practices, and found very few take advantage of U.S. free trade agreements and preference programs. With the exception of NAFTA and a handful of other free trade agreements, U.S. preference programs are used by less than one-third of companies—despite the fact that these same companies said they continue to seek ways to cut sourcing costs.
The TPP negotiators have emphasized that this agreement is an ambitious, 21st century agreement – and in many ways, they’re correct. This deal could be very good for Vietnam and Malaysia, who will enjoy lower tariffs for certain clothing and shoe exports to the U.S. Other TPP partners will see a complete phase-out of tariffs over 12 years after the agreement is operable. Importantly, the agreement also addresses modern issues including intellectual property protection, expedited customs procedures and labor and human rights protections.
But, don’t hold your breath for lower-cost T-shirts and jeans from TPP partners just yet. The earliest TPP would enter into force is 2018—and even then, factors such as political instability, labor volatility, natural disasters and transport delays will affect cost and competitiveness. The ability to control these costs and ensure that products make it from the factory to the retailer’s shelf smoothly and at a low cost will ultimately determine if a producer can be successful in this very competitive market, whether there is a free trade agreement or not.
TPP contains many exciting opportunities intended to benefit both companies and consumers. But, it’s important to keep our expectations in check, because a free trade agreement does not immediately result in low prices for the consumer, especially for textiles and apparel.
In the meantime, you can still expect great sales on Black Friday, but TPP isn’t the reason. Not yet anyway.
Mara M. Burr is Senior Vice President at Albright Stonebridge Group. Julia K. Hughes is President of the United States Fashion Industry Association (USFIA).