WASHINGTON — As the Obama administration turns up the pressure to complete an Asia-Pacific trade deal by the end of the year, the fashion industry is gauging the opportunities and risks of a pact that could impact billions of dollars in commerce.
This story first appeared in the August 20, 2013 issue of WWD. Subscribe Today.
U.S. Trade Representative Michael Froman said at a U.S. Chamber of Commerce dialogue last month that considerable progress has been made through 18 rounds of the Trans-Pacific Partnership negotiations between the U.S., Vietnam, Singapore, Australia, Peru, Brunei, New Zealand, Chile, Malaysia, Mexico, Canada and Japan.
The 19th round of TPP negotiations is slated to begin Thursday and run through Aug. 30 in Brunei.
“There is a real sense of momentum,” Froman said. “I think people really have a sense this is going to get done and it’s going to get done in this time frame that we have laid out to try get it done over the course of this year…It is an incredibly complex negotiation.”
Apparel and textile imports to the U.S. from the 11 TPP negotiating countries totaled $15.1 billion for the year ending June 30. Vietnam, already the second-largest supplier of apparel to the U.S., accounted for $7.5 billion of the total TPP apparel and textile import volume for the same period.
Vietnam is seen as the biggest opportunity and the largest risk by different segments of the industry.
Negotiators in Brunei will try to narrow differences between the countries over a textile rule of origin and tariff phaseout schedule on sensitive imports such as apparel and textiles. The U.S. has proposed a yarn-forward rule of origin that requires apparel be made of fabric and yarns supplied by the U.S. or other TPP partner countries to qualify for duty-free benefits when shipped back to the U.S. Importers oppose the rule, but American textile producers claim they need it to compete. The U.S. has also proposed a short supply program that allows importers to use third-country fabric and yarns in apparel production if the U.S. determines they are not commercially available in the TPP member countries.
“A strict rule of origin for TPP is too limiting,” said Rick Helfenbein, president of Luen Thai USA. “Surely, we can create a new export market for American raw materials and finished products, while at the same time, not trying to totally restrict the global realities of product origin.”
Helfenbein said Vietnam relies heavily on raw material imports such as yarns and fabrics — in the range of 70 to 88 percent that come primarily from Asian suppliers — for its apparel production, which would not be eligible for TPP duty-free benefits.
Stephen Lamar, executive vice president at the American Apparel & Footwear Association, which is part of a coalition that opposes a strict yarn-forward rule, said Vietnam leads the list as the fastest growing export market — textile exports to Vietnam rose 40 percent in the past 12 months — although it was far behind Mexico and Canada, the top two U.S. apparel and textile export markets.
“It demonstrates that apparel and textiles can definitely be exported to Vietnam, but the question is can it be narrowly accommodated through a yarn-forward approach,” said Lamar.
Kim Glas, deputy assistant secretary for textiles and apparel at the Commerce Department, said, “We think yarn forward will help not only U.S. providers, but other textile and apparel companies in the TPP to ensure the benefits accrue for all the TPP countries.”
The trade accord could boost business among TPP countries in other ways. A brand making jeans in Vietnam or Mexico, for example, could boost its exports to Japan, once tariffs are lowered. In addition, importers are hoping that regulatory barriers to imports are also lowered or eliminated, making it easier to expand business among the TPP countries.
“One of the goals of the TPP is to have it be a true 21st-century agreement and part of what that means is the ability of manufacturers in one TPP party to sell to all others with no new regulatory barriers, technical barriers [or tariffs],” said Julia Hughes, president of the U.S. Association of Importers of Textiles & Apparel. “Part of the point of TPP is to create a new supply chain among the countries.”
On the other side of the debate, textile executives contend that their export opportunities are contingent upon having a yarn-forward rule in place.
“I think it’s supercritical that we do maintain the yarn-forward rule for a couple of reasons, not the least of which is that we already have a yarn-forward arrangement with six TPP countries [Mexico, Canada, Australia, Peru, Chile and Singapore, through free-trade pacts],” said Auggie Tantillo, president of the National Council of Textile Organizations. “Some of them, like Mexico, are our largest export markets. If there is a fundamental change in the rule, that could significantly disrupt the current export performance of the U.S. industry to those six countries, Mexico being at the top of the list.”
Among the TPP countries, Canada and Mexico are the largest export markets for U.S. textiles and apparel. For the year ended June 30, U.S. textile and apparel exports to Mexico were $5.3 billion, while combined shipments to Canada were $5.2 billion. Industry exports to Vietnam were $77 million for the same period.
“Beyond that, we have extremely competitive prices on products such as cotton yarns and our quality in that area is second to none,” Tantillo said. “So we’re anxious that this rule be put in place because we believe we could be a significant exporter under TPP.”
David Sasso, vice president of international sales at Buhler Quality Yarns Corp., said there could be a two- to three-year window of export opportunity for U.S. synthetics producers in Vietnam under a TPP with a yarn-forward rule. Sasso said TPP could eliminate a 30 percent tariff on imports of synthetic garments to the U.S., which would help boost demand for American synthetic fiber, yarn and fabrics producers if there is a yarn-forward rule.
“There’s investment going into fabric formation in Vietnam, but not near the same volume or potential of volume of fabric that they will require to offset Asian fabrics going into Vietnam [that would not qualify for TPP duty-free benefits],” Sasso said. “Until Vietnam has its own [textile] infrastructure, and that could take a couple of years, U.S. manufacturers can take advantage of that.”