WASHINGTON — Talks for a free-trade agreement between the world’s two biggest trading blocs are about to start, but there are already some major hurdles ahead — and one of them involves the fashion world.
The U.S. and European Union took a unified stance on a trans-Atlantic trade accord on Monday, revealing they will launch the first round of negotiations in Washington the week of July 8. A trans-Atlantic trade deal has major implications for the industry, but one new trade dispute involving U.S. jeansmakers selling to the European market could create friction as the two sides get set to meet.
British Prime Minister David Cameron, who was in Northern Ireland with President Obama and other world leaders for the G8 summit, said the accord could be the “biggest bilateral trade deal in history,” while acknowledging the challenges that lie ahead.
“When we last met at Camp David in the G8 and we first suggested we could reach this moment here in Lough Erne, many doubted it would be possible,” he said. “Everyone knows these trade deals are difficult. Some take years to get off the ground and some never happen at all. So it’s a testament to the leadership and the political will of everyone here that we’ve reached this point. We must maintain that political will in the months ahead. This is a once-in-a-generation prize and we are determined to seize it.”
Cameron said the trade accord could add as much as $157 billion to the EU economy, $126 billion to the U.S. economy and as much as $133 billion to the rest of the world.
Obama, noting that the U.S.-EU relationship is already the largest in the world, with about $1 trillion in annual trade in goods and services, said he is “hopeful” that the two sides can achieve a comprehensive agreement, despite many “sensitivities” among nations.
“This ‘Transatlantic Trade and Investment Partnership’ is going to be a priority of mine and my administration,” Obama said. “It is important that we get it right — and that means resisting the temptation to downsize our ambitions or avoid tough issues just for the sake of getting a deal.…It’s important that we also make sure that it’s part of an overall plan to do what it takes to promote growth and jobs. Trade is critical, but it is not alone a silver bullet. It has to be part of a comprehensive strategy that we pursue on both sides of the Atlantic.”
José Manuel Barroso, president of the European Commission, said, “We intend to move fast. We can say that neither of us will give up content for the sake of speed, but we intend to make rapid progress. I’d rather see the core challenge, moving our regulatory regimes closer and addressing the harmful effect of behind-the-border trade barriers. Huge economic benefits are expected from reducing red tape, avoiding divergent relations for the future.”
Among the thorny trade issues between the U.S. and EU are France’s concerns over audiovisual controls, agricultural subsidies on both sides of the Atlantic, “Buy America” rules in the U.S. pertaining to government procurement and Europe’s opposition to the use of genetically modified foods in the U.S.
“I think there is definitely the political will in Europe,” Gary Hufbauer, senior fellow at the Peterson Institute for International Economics. “They are keen on this. They need something to get their economy going, and this is something that causes optimism in Europe, where the pessimism is so thick right now. I think it begins to engage Obama to a greater extent on trade, which has never been one of his favorite things. Now he has Syria to battle and Iran is boiling and there is always the relationship with Russia and China to deal with, but I think this puts trade higher on his priority list than it has been.”
Although none of the EU member countries are top apparel suppliers to the U.S., there are well-established relationships. Apparel imports from Italy to the U.S. were $1.1 billion in 2012, while imports from France were $151 million, followed by the U.K. with $98 million. Textile imports to the U.S. from the EU are also important. For example, Italy is the third-largest supplier of wool inputs to the U.S., followed by the U.K. as the fifth-largest supplier and Germany, which is ranked 10th.
Hufbauer said the big question for the fashion industry is how negotiations on a U.S.-EU accord will influence another regional trade deal under way in the Asia-Pacific, known as the Trans-Pacific Partnership, between the U.S. and 11 other countries.
“The interaction between these megaregionals will be quite intense,” he said. “The textile industry will be quite concerned if the U.S. and EU go on the glide path to zero duties and how this will affect the TPP negotiations, where they really do not want to go on that glide path and instead want very strong safety provisions and strong [restrictive] rules of origin.”
Jonathan Gold, vice president of supply chain and Customs policy at the National Retail Federation, said retailers support a liberal rule of origin in the negotiations and are interested in having a host of regulatory policy differences between the U.S. and EU streamlined, ranging from Customs procedures and product safety testing and certification, to environmental and privacy policies.
“Europe is an important export market for apparel and footwear made in the U.S. and it is an important source of wool fabric imported for garments made in the U.S.,” said Stephen Lamar, executive vice president at the American Apparel & Footwear Association.
One trade dispute between the U.S. and EU is putting a damper on the potential benefits of a comprehensive accord for U.S. jeansmakers, in particular. At the end of April, the EU more than tripled the tariff on U.S.-made women’s and girls’ cotton denim jeans to 38 percent, as part of retaliation for a World Trade Organization case the trading bloc won against the U.S. in 2005.
“That remains a very frustrating development that we are trying to get resolved before the talks get under way,” Lamar said. “It is not auspicious to start a round of trade talks with one of your major export products being basically removed from consideration because it is facing punitive tariffs.”