WASHINGTON — The U.S. and Singapore have negotiated strict rules of origin for apparel and textiles in a tentative trade pact, but they do allow for some exceptions, a U.S trade official said.
The U.S. pushed for and obtained a yarn-forward rule of origin, which requires apparel to be made of yarn and fabric sourced within the free-trade area, said the official, who spoke on the condition of anonymity.
But U.S. negotiators also had to make some trade-offs for the strict rule of origin, the official said.
The big surprise to some domestic industry groups was the inclusion of tariff preference level provisions in the agreement, which will allow Singapore to use a certain amount of cotton and man-made fiber from any country in the world and still receive the trade breaks.
Under the terms of the TPL provision of the agreement, 25 million square meters equivalent of cotton and man-made fiber from anywhere in the world can be used in apparel production in Singapore in the first year.
However, the 25 million SME will be phased out in equal increments over eight years, according to the U.S. official.
In addition, duties on the 25 million SME will be phased out over five of the eight years so that in the first year duties on apparel entering the U.S. made of third-country components will be reduced to 80 percent. By the fifth year, these goods will be able to enter the U.S. duty-free.
Meanwhile, duties on apparel that is made in Singapore with U.S. yarn and fabric will be dropped immediately. The same would hold true if Singapore made fabric and yarn, though the country does not have a well-developed textile industry.
TPL provisions are not uncommon in trade deals. The TPL allowances under the North American Free Trade Agreement are permanent and allow importers the flexibility to use a limited amount of fabric made outside of Canada, Mexico and the U.S.
David Spooner, special textile negotiator at the Office of the U.S. Trade Representative, was in Singapore last week to hammer out the apparel and textile details.
USTR Robert Zoellick, the top negotiator in the U.S., left Singapore Tuesday without a final deal with Singapore but claimed he still expects a deal by the end of the year. It must then be approved by Congress.
Neither importers, who wanted higher TPL allowances, nor the domestic textile industry, which opposed any exceptions to a strict rule of origin, were satisfied with the deal.
“This notion of TPLs is like international legal tender to sweeten a deal,” said Jock Nash, Washington counsel for Milliken & Co. “That’s wrong and it’s unnecessary for our government to keep spending our textile jobs so they can get yet another free trade agreement.”
Nash said the U.S. should have left apparel and textiles out of the negotiations altogether in light of the fact that Singapore does not produce textiles and produces much of its apparel on two Indonesian islands.
Parks Shackelford, president of the American Textile Manufacturers Institute, said the ATMI is “disappointed” about the TPLs.
“There is certainly a long history of problems with TPLs in many cases and it’s likely to create problems because it diminishes the opportunity for our trade,” he said.
On the other side of the debate, importers and retailers have argued that time and distance will render the trade pact useless if yarn and fabric have to be imported from the U.S.
Some claim the allowance for 25 million SMEs of fabric — enough to make almost one-third of the 68 million SMEs of apparel Singapore exported to the U.S. for the year ended in August — isn’t much of a benefit to importers.
“While we have to reserve final judgement until we see the actual text, the initial indications leave our member companies very disappointed,” said Julia Hughes, vice president of international trade at the U.S. Association of Importers of Textiles and Apparel. “Companies can’t meet the requirements, and most of the business [they currently produce in Singapore] will not qualify under these rules of origin, especially with shrinking TPLs.”