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TPP: Where It Is, What it Means and Why It Matters

Since the 12 member nations involved in the Trans-Pacific Partnership (TPP) agreed on the trade deal two weeks ago, politicians have come out for and against it, experts are hedging bets on when it will actually take effect, and the general public still has limited understanding of what the deal will mean for the United States and trade.

During a panel at last week’s Sourcing Summit 2015, experts took a moment to dish on the deal of the decade and breakdown what TPP will mean for the sourcing sector.

Rick Helfenbein, president of Luen Thai USA who moderated the panel, jumped right into addressing what he referred to as the elephant in the room: What actually happened with TPP?

In short, he said, “The U.S. and 11 other nations have just agreed to agree. We have a long way to go.”

Part of the long way Helfenbein described includes finalizing the text before sending it to Congress and the U.S. International Trade Commission, having the Ways and Means and Senate Finance Committees consider it, and releasing it to the public to peruse for 90 days before President Obama signs it.

The U.S. may only account for 5 percent of the world’s population, but the country consumes 25 percent of the world’s apparel and footwear—and the average per person spend on these products last year was $1,100.

“We are buyers,” Helfenbein said. “That’s why TPP is so interesting for us because it will change the way we do things.”

The trade deal is expected to remove duties on apparel and footwear, which could ultimately mean better pricing for consumers; provide American brands and retailers greater access to consumers in TPP countries for their goods (which opposing sides argue could either foster jobs or send them abroad); and offer opportunities to expand sourcing and improve supply chains with major apparel-making nations in the agreement.

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In turning to the panelists, Steve Lamar, executive vice president of the American Apparel and Footwear Association (AAFA) and Nicole Bivens Collinson, president of international trade and government relations for the Sandler, Travis and Rosenberg trade law firm, Helfenbein said: “Yes or no, will it pass?”

Both answered a resounding, “Yes.”

June was a busy month for trade as we saw a 10-year renewal of the African Growth and Opportunity Act (AGOA) a long-term renewal of trade preferences for Haiti and passage of Trade Promotion Authority (TPA), the legislation that enabled President Obama to conclude the TPP.

Also in June, legislation that requires the administration to release the TPP text passed, meaning the president can’t sign the deal without the public being privy to its details, Lamar explained.

“The text will be released really soon,” he said, adding that there is a lot of speculation the text will be released this week.

When will TPP take effect?

While the agreement’s details may be public presently, the real question is: When does TPP actually turn on?

According to Bivens-Collinson, there’s a control provision that stipulates TPP can’t technically take effect for any parties until a trigger of 85 percent of the GDP represented by the countries ready to turn on the agreement are ready to go—meaning they are comfortable and ready to move forward with stipulated draft laws, labor commitments, new rules and regulations and the like—so nothing will happen until the U.S. and Japan are all aboard as they make up the largest economies among the 12.

“It could be quite sometime in the distant future,” Bivens-Collinson said.

TPP may also not turn on for every country at the same time, Lamar added. If a handful of the member countries put the agreement into force but one doesn’t, then manufacturers wouldn’t be able to use inputs from that country until TPP was in full effect there.

In the past trade agreements have taken an average of four years from signing to implementation, and with signing still a ways off, Bivens-Collinson said she expects TPP will take effect Jan. 1, 2020.

What about Vietnam?

Vietnam has probably been the most talked about in terms of the TPP countries best poised for business and Helfenbein said he has fielded inquiries about how to start making there.

Already the No. 2 supplier for apparel and footwear, Vietnam could see exponential export growth once it’s able to ship duty free to the U.S. Brands like Kate Spade have already started establishing solid footing in the country on TPP’s promise.

So what steps can manufacturers take to benefit from TPP, specifically with regard to Vietnam, when the time comes?

Bivens-Collinson said it all begins with the yarn.

“You could get a yarn from Japan, you could ship that into Malaysia, in Malaysia it could be woven into a fabric, it could be finished in Malaysia and then it could go to Vietnam, be cut and sewn and then come into the U.S. or Mexico or Canada duty free,” she explained. “As long as you’re spinning or extruding the yarn, weaving or knitting or tufting or felting or other fabric-making process of the fabric, cutting and sewing and finishing within those parties, you can go into any of the other parties duty free from Vietnam.”

Lamar added, “You can’t do that right now under NAFTA, but you will be able to do that under the TPP,” provided what’s reportedly in the TPP agreement is in fact there once the text is made public.

Will other countries be able to join TPP?

Another big question many sourcing executives still have is when other countries that aren’t part of this 12 will be able to join in on the trade deal.

The Philippines and Indonesia have expressed interest in getting involved with the TPP, but Bivens-Collinson said it’s unlikely any new nations will be added before the existing agreement’s implementation.

Part of the goal for TPP was to be a “magnet” to which other countries would eventually join, Lamar added, and those countries will likely be given more formal invitations to start talks post implementation.

“There’s probably half a dozen countries have already contacted the U.S. government and said, ‘When can we start?’”