WASHINGTON — As U.S. negotiators open the seventh round of Trans-Pacific Partnership trade negotiations in Vietnam on Wednesday, the fashion industry expects the U.S. position on textile and apparel import issues will begin to take shape.

This story first appeared in the June 14, 2011 issue of WWD. Subscribe Today.

The stakes are high for the industry, which has been shifting more apparel production out of China due to rising labor, raw material and transportation costs, to countries such as Vietnam, a key player in the TPP negotiations that could receive duty free benefits in the trade accord.

The Obama administration has made the TPP a centerpiece of its trade agenda and hopes to complete a framework with the eight other countries — Vietnam, Singapore, Australia, Peru, Brunei, New Zealand, Chile and Malaysia — by November’s APEC meeting in Honolulu.

Several apparel and retail executives — including representatives from Target Corp., Nike Inc., Levi Strauss & Co., Hanesbrands Inc. and American Eagle Outfitters Inc. — are expected to be on hand in Ho Chi Minh City to offer input on their positions, according to industry sources. A coalition of apparel brands and retailers also plans to hold a workshop on maximizing opportunities in the TPP in the city on Friday that is expected to attract 100 apparel supply chain experts.

Vietnam is the second largest supplier of apparel to the U.S., with $5.8 billion in apparel imports in 2010, behind only China. The country shipped $6.3 billion in apparel and textiles combined to the U.S. last year, while China exported $38.4 billion in goods from the sector to the U.S. in that period, 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 in 2010.

“Given that Vietnam is already the number-two apparel supplier and given that other countries such as Peru, which has a vibrant, high-end apparel industry, and Malaysia, which has some fine skilled apparel production and amazing quality yarn and textile production, and the U.S., which of course has sophisticated yarn and textile production, I think there is a tremendous opportunity for the industry in [the TPP agreement],” said a senior administration official, who requested anonymity. “Apparel brands and companies have to figure out how to take advantage of the agreement. Those opportunities will unfold as we move along and decide on a rule of origin and the way market access will occur.”

Gail Strickler, assistant U.S. Trade Representative for textiles, will head up the textile negotiations in Vietnam, as textiles was added to the schedule, according to a USTR spokesman.

It is unclear whether the U.S. will offer a proposal on a textile and apparel rule of origin, which is often a politically sensitive issue for all countries involved, during this round.

“We have some details to work out with stakeholders and some of the other countries, and we are going to start moving toward a conceptual idea about a rule of origin in this round and next [which will be held in San Francisco in September],” the official said.

Stephanie Lester, vice president of international trade at the Retail Industry Leaders Association, who plans to be in Vietnam this week for the negotiations, said, “I think this is a pretty important round on apparel, particularly because it is in Vietnam, so there are a lot of stakeholders who care most about this issue who will be there. The U.S. said it wants to get all of the text and categories [in the form of a proposal] on the table and I’m guessing that includes apparel text.”

Importers plan to push negotiators in Vietnam for a “flexible” rule of origin that does not restrict where the fabric and yarns are made in order to qualify for duty free benefits. The rule-of-origin debate has pitted apparel importers against the U.S. domestic textile industry, which is advocating 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.

“When you have a rule that is more restrictive and burdensome, it discourages trade and investment from occurring,” said Steve Lamar, executive vice president of the American Apparel & Footwear Association, who will also be in Vietnam this week, adding that AAFA member companies often use U.S. yarn and fabric and forgo duty free benefits in other trade deals because the rules are so burdensome.

But a yarn forward rule is a linchpin for U.S. textile industry support.

A bipartisan group of 52 House lawmakers, many from traditional textile states, recently sent a letter to U.S. Trade Representative Ron Kirk making their support of any deal contingent upon a yarn-forward rule of origin, exclusion of certain products from tariff reduction or elimination, tariff reductions for specific sensitive imported products versus phaseouts for groups of products, and strong customs enforcement language to prevent transshipments from China.

“It makes no sense in our opinion to disenfranchise textile producers in the U.S. so Vietnam [a nonmarket economy that subsidizes its exports] can source product components from China and ship products to the U.S. duty free,” said Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition. “What we know is that the yarn forward rule of origin will create an environment that gives support to expanding our export markets.”

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