WASHINGTON — The biggest benefits for Gap Inc. in the 12-nation Trans-Pacific Partnership trade agreement will come from tariff cuts on apparel, particularly in the area of cotton sweaters, dresses, outerwear, skirts and cotton woven shirts.
Stephanie Lester, director of government affairs at Gap, outlined the benefits of TPP at a hearing before the U.S. International Trade Commission on Friday. Lester testified on the last day of a three-day hearing at the ITC, which has instituted an investigation to assess the “likely impact” of the TPP on the U.S. economy and specific industry sectors. The ITC is seeking input from an array of industry sectors in the public hearings.
Trade ministers reached a deal in October on TPP, which includes the U.S., Australia, Japan, Mexico, Canada,Vietnam, Malaysia, Peru, Singapore, Chile, Brunei and New Zealand. It aims to tear down barriers to trade and would encompass 40 percent of the world’s gross domestic product if enacted.
The U.S. fashion industry has a big stake in the 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.
“Trade is a matter of global competitiveness for us. Gap Inc.’s fiercest competitors are based in Europe and Japan, and the trade policies in their home markets are more favorable for apparel retailers,” Lester said. “For example, both Europe and Japan include apparel in the Generalized System of Preferences programs for developing countries and their free trade agreements are more liberal than U.S. free trade agreements for apparel, with faster duty phaseouts and more flexible rules of origin.”
“The TPP can help level the playing field with our competitors by reducing U.S. tariffs on apparel products and saving millions of dollars, which can be reinvested into our workforce and operations or passed on to our customers,” Lester continued. “As we increase trade, companies such as Gap will be able to expand and hire here at home.”
One of the biggest benefits for Gap will be in duty cuts on cotton sweaters. Lester said the U.S. imported nearly $1 billion in cotton sweaters in 2014, with the majority coming from China.
“With a 16.5 percent tariff on sweaters, importers paid $153 million in duties on those sweaters in 2014,” Lester said. “TPP will provide immediate duty-free treatment for qualifying cotton sweaters and we expect some sweater trade to migrate to the TPP region to take advantage of the agreement.”
Lester said Gap does not expect the TPP, which will provide “substantial benefits for apparel retailers,” to come at the expense of the Western Hemisphere producers or for U.S.-based textile suppliers because those supply chains benefit from duty-free benefits under the Central American Free Trade agreement.
She said, as with cotton sweaters, the trade is expected to shift to TPP from other supplier countries that currently impose full tariffs on the sweaters. In addition, TPP would give more favorable treatment to products currently sourced in Asia, such as cotton sweaters and man-made fiber garments, and give less favorable treatment to products that have a higher share of Western Hemisphere trade such as cotton T-shirts, Lester said.
“For Gap, while we plan to grow our TPP business, we are also working to expand our Western Hemisphere sourcing during the same time period,” Lester said. “Within the next two to three years, we plan to triple our Western Hemisphere production, particularly in Haiti and the Central American countries.”