WASHINGTON — The stage has been set for a tense political battle after the Obama administration clinched a deal on Monday with 11 other countries on the sweeping Trans-Pacific Partnership agreement, a trade zone encompassing 40 percent of the world’s gross domestic product.
This story first appeared in the October 6, 2015 issue of WWD. Subscribe Today.
Reactions from U.S. politicians ranged from the critical to the cautious, but the business community lined up solidly in support of the agreement. The TPP is considered a major market-opening opportunity for companies doing business in the 12 countries involved: The U.S., Japan, Mexico, Canada, Vietnam, Malaysia, Peru, Singapore, Brunei, Australia, New Zealand and Chile.
The U.S. fashion industry has a big stake in the trade agreement. The U.S. imports $22 billion in apparel, textiles and footwear from the TPP countries and exports around $14.25 billion. Vietnam is the second-largest apparel supplier to the U.S. after China and a big sourcing hub for companies.
“The TPP agreement is historic and will save American families hundreds of millions of dollars by providing American businesses with improved access to critical markets throughout the Pacific Rim,” said Sandy Kennedy, president of the Retail Industry Leaders Association.
David French, senior vice president of the National Retail Federation, said: “We are starting in a posture of trade liberalization and a large multilateral agreement like TPP is very important. But dropping this on Congress in an election year, we’re realistically looking at a vote in a lame duck session and it will be complicated.”
That lame duck session will come after next year’s presidential election and before Obama leaves office.
The U.S. Trade Representative’s office released outlines of the chapters of the agreement, but many details will not be released for at least 30 days. “The TPP parties agree to eliminate tariffs on textiles and apparel, industries which are important contributors to economic growth in several TPP parties’ markets,” USTR said.
Most tariffs will be eliminated immediately on textile and apparel products, but some tariffs will remain on “sensitive products,” it said.
In addition, USTR said the textile chapter includes specific rules of origin, known as a yarn-forward rule, that require use of yarns and fabrics from the TPP region, “which will promote regional supply chains and investment in this sector, with a ‘short supply list’ mechanism that allows use of certain yarns and fabrics not widely available in the region.”
The deal includes strong enforcement language aimed at preventing duty evasion, smuggling and fraud, as well as a textile-specific safeguard to be used in the event of a proven surge of imports causing serious damage or the threat of serious damage to the domestic industry.
“There are a number of chapters that cover issues important to retailers, not only on textiles and apparel, but also services and cross-border data flows that help sell online to customers around the world,” said Hun Quach, vice president for international trade at RILA.
Quach said the agreement contains new provisions that will give the administration a good case to make on Capitol Hill, where it faces strong opposition, not least of which from Obama’s own Democratic Party.
“There are additional market access provisions that we’ve never had before,” she said. “So for folks to turn away from this agreement, it would be leaving millions of dollars on the table for our competitors.”
A recently completed trade deal between the European Union and Vietnam is on retailers’ radar screens, she said.
“That will impact everything from the supply chain to the capacity of factories,” she said. “All of those things are elements that are putting big pressure on retailers to advocate for TPP to close sooner rather than later.”
Augustine Tantillo, president of the National Council of Textile Organizations, said, “Due to the sheer volume of trade covered by this agreement, it was critical that the final terms strongly reflect our input. This included the need for TPP to establish a yarn-forward system as the basis for rule of origin determinations and the setting of multiyear-tariff phase-outs on sensitive textile and apparel products. Based on our debrief with the U.S. government in Atlanta [where the final talks took place], we believe that, in great part, these key objectives were met.”
Tantillo also said he believes Congress will eventually pass TPP.
“I haven’t seen a free trade agreement yet that has been defeated once it was signed,” he said. “I would say there is a likelihood a coalition will be put together to pass the agreement. The first-day reaction [from lawmakers] is pretty typical.”
Julia K. Hughes, president of the U.S. Fashion Industry Association, said, “The Trans-Pacific Partnership represents an important opportunity for American fashion brands, retailers, importers and wholesalers who are already doing significant business in several TPP partner countries.”
Hughes said USFIA’s benchmarking study released in June showed its members currently source from five TPP partner countries: Vietnam, Peru, Mexico, Malaysia and the U.S. Nearly 80 percent of respondents said they expect the TPP to affect their business practices.
“We believe there will be victories for specific products,” said Nate Herman, vice president of international trade at the American Apparel & Footwear Association, which has been pressing for duty elimination on all products to help reduce costs for both companies and consumers. “We won’t know all of those details until we see the full agreement. Having said that, the agreement itself combines 12 countries, 40 percent of the world’s economy and holds huge potential for both sourcing as well as selling into big markets.”
The Obama administration has made TPP a centerpiece of its trade agenda, although the deal faces a battle over Congressional approval. Under the rules of Trade Promotion Authority, the President must notify Congress when a deal is reached and wait 90 days before signing it, which means the earliest Congress could begin considering TPP would be sometime in January. The presidential primary season will be ramping up then and, combined with the looming Congressional elections, could complicate final passage of TPP.
Obama, who stands to mark TPP as a key achievement of his legacy, said, “This partnership levels the playing field for our farmers, ranchers and manufacturers by eliminating more than 18,000 taxes that various countries put on our products. It includes the strongest commitments on labor and the environment of any trade agreement in history, and those commitments are enforceable, unlike in past agreements. It promotes a free and open Internet. It strengthens our strategic relationships with our partners and allies in a region that will be vital to the 21st century. It’s an agreement that puts American workers first and will help middle-class families get ahead.”
Criticism of the deal on Capitol Hill had already begun even before it was publicly unveiled in Atlanta.
Senate Finance Chairman Orrin Hatch (R., Utah), who helped usher through Trade Promotion Authority in June, giving Obama broad negotiating powers, and Rep. Sander Levin (D., Mich.), who has voiced strong opposition to TPP, were among the first lawmakers to criticize portions of the deal, saying some areas fell short of what they had expected.
USTR Michael Froman fielded questions in Atlanta about whether he was concerned about the political headwinds, and whether the political climate heading into an election year in the U.S. would impact TPP’s prospects.
“Today represents an important first step in this process,” he said. “We’re confident that people will see this as a very strong deal, very much consistent with the directions and directives of Congress with regard to Trade Promotion Authority, and that it helps set the rules of the road for the region in a way that is consistent with both our interests and our values. Given where we are in the calendar and the requirements of TPA, this is really a 2016 issue for Congress to consider, not a 2015 issue.”
Joshua Meltzer, a senior fellow on the global economy and development at the Brookings Institution and adjunct professor at the Johns Hopkins School for Advanced International Studies, said, “I think there should be enough members the administration can get on board to pass TPP through Congress,” once lawmakers have had time to review the deal and explain the benefits to constituents.
Meltzer acknowledged that presidential politics in the U.S. will complicate matters, but noted that if Congress votes on TPP in April or May, which he said is a likely scenario, the frontrunners for both parties will take a stronger stance on the trade deal.
“Hillary Clinton is a great example,” Meltzer said. “She has been supportive of this agreement throughout her tenure as secretary of state, but through the TPA debate she was a lot less supportive of trade and TPP, which was largely reflective of her positioning herself in the presidential election [and catering to a much broader base].”
He said as the primaries progress and if Clinton becomes closer to securing the Democratic Party nomination, he expects her to be more supportive of TPP.
“The handful of Republicans I think are credible candidates all tend to support trade,” Melzter said. “Trade is a more straightforward issue for Republicans to support than it is for Democrats.”
Phillip Swagel, a professor of international economic policy at the University of Maryland, said, “The prospects for enactment during President Obama’s term depend on the reaction of the dwindling group of centrist Democrats. If enough of them support it, then Republican votes will supply the bulk of ayes.”