By  on March 29, 2011

WASHINGTON — The Trans-Pacific Partnership trade negotiations are hitting a critical stage and the fashion industry is gearing up for a contentious battle in a high-stakes game of trade that will impact billions of dollars in commerce.

The Obama administration is holding the sixth round of negotiations with eight other countries this week in Singapore in an ambitious effort to create a free trade area in the Asia-Pacific region with Vietnam, Singapore, Australia, Peru, Brunei, New Zealand, Chile and Malaysia.

With the goal of completing a framework agreement by the next APEC meeting in Honolulu in November, negotiators are closing in on important areas that will have a direct impact on the fashion industry. Among the key issues to be determined are a textile rule of origin, a possible separate textile chapter, a tariff phaseout schedule on textile imports, and “cumulation,” which would allow apparel to be produced and textile inputs to be supplied and manufactured within any of the TPP partner countries and still receive duty free treatment.

“We hope to build on existing best practices of our trade agreements and address new issues of concern to business and workers, to promote production and economic activity in the region and develop new and promising market opportunities for our textiles and apparel sector through these negotiations,” said a spokeswoman for the U.S. Trade Representative. “The nine countries presently participating in the TPP include some of the largest textile and apparel producing and exporting countries in the world, and the TPP terms for the textile and apparel sector will be a critical component of a successful agreement.”

The most significant country involved in the trade negotiations for the fashion industry is Vietnam. It is the second largest supplier of apparel to the U.S. with $6.3 billion in apparel and textile imports in 2010, behind powerhouse China, which shipped $38.4 billion in goods to the U.S. last year, according to the Commerce Department’s Office of Textiles and Apparel. Apparel and textile imports from the other seven countries combined totaled $1.2 billion million in 2010.

Vietnam has been growing rapidly as a sourcing platform for apparel production in the past several years as rising labor and raw materials costs in China have forced companies to find alternatives.

Rick Darling, president of LF USA and chairman of the American Apparel & Footwear Association, has said “there would be a significant shift” of production if Vietnam received duty free status.

“I think over time we will begin to see investment in infrastructure and capital investment in those countries that have duty free status and certainly from AAFA’s standpoint, we will continue to put pressure on the administration to execute these trade agreements,” Darling said.

Levi Strauss & Co. also sees big opportunities in a regional Asia-Pacific free trade area, particularly in Vietnam.

“We just recently opened up a finishing facility in that country and so for us it is a great opportunity to be able to develop and finish our goods in one country because it give us more flexibility,” said Helga Ying, senior director of worldwide public policy and government relations at Levi’s, which makes apparel in 34 countries, with no country having more than 20 percent of its production. “We use fabric globally, wherever we see it as being the right fit and cost competitive. That’s why it is so important for us to have a flexible rule and simple rule of origin for the apparel industry. It really gives us a competitive edge.”

A coalition of industry groups, of which Levi’s is a part, is lobbying for a flexible rule and against a “yarn forward” rule of origin that would require apparel to be made of fabric and yarn supplied by the U.S. or the other TPP partner countries. The U.S. textile industry is actively pressing for a separate textile sectoral negotiation, a long tariff phaseout of up to 15 years on “sensitive” imports and a yarn forward rule of origin, particularly for Vietnam, a nonmarket economy, which the industry contends subsidizes its exports.

“This agreement holds potential to send shock waves through the current production structure that exists, not just in the U.S. but in the entire NAFTA-CAFTA region,” said Auggie Tantillo said, executive director of the American Manufacturing Trade Action Coalition.

Cass Johnson, president of the National Council of Textile Organizations, said, “We compete with Vietnam for the same products in the Western Hemisphere. Their biggest exports are underwear, knit shirts and trousers and those are the biggest products in the Western Hemisphere.”

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