WASHINGTON — Executives from Wal-Mart Stores Inc. and Target Corp. touted the benefits that the retailers and consumers could derive from the 12-nation Trans-Pacific Partnership trade deal at a forum here on Wednesday.
Trade ministers reached a deal in early October on TPP, which includes the U.S., Australia, Japan, Mexico, Canada, Vietnam, Malaysia, Peru, Singapore, Chile, Brunei and New Zealand. The pact seeks to eliminate duties, strengthen labor and environmental provisions, ease the flow of cross-border trade and strengthen intellectual property protections. Congress is expected to vote on the deal next year and it must also be approved by all of the other governments.
One key component of TPP for U.S. retailers is duty elimination. For companies that make their products in any of the TPP countries and ship them back to the U.S. to sell, the agreement will provide both immediate and longer-term tariff reductions and phaseout for imported products.
While many high-volume “sensitive” products will be subject to longer tariff phaseouts, with some having to wait 12 years for duty elimination, many were also granted duty-free treatment on day one.
“We’re mostly an open economy in the United States and our tariffs are low,” said Janis Lazda, senior group manager of government affairs for Target. “Most goods face about a one percent tariff. Apparel faces high tariffs of about 13 percent. The disparity is so huge that while apparel accounts for just 4 percent of all imports, it accounts for 35 percent of duties collected.”
Underscoring the disparity even further, he noted that a luxury item such as a cashmere sweater faces about a 1 percent tariff when imported to the U.S., but the same sweater sold at Target made of cotton or acrylic is about “ten times higher.”
Since the majority of apparel sold in the U.S. is imported, companies and consumers end up paying more because of the high duties, he added.
“TPP for us is really all about Vietnam,” said Lazdas. “Vietnam is incredibly competitive and a growing country of production.” He noted that imports from the country have grown about 20 percent year-over-year.
Lazda said immediate duty savings will create “value” for Target customers.
He listed as examples duties on imported women’s blazers that can currently face a 30 percent duty but will go to zero when TPP is implemented.
Some imported sweaters that face a 30 percent duty will also go to zero in some cases on day one.
Swimwear, which is a large category for Target, will also benefit from duty reduction. In some cases tariffs as high as 25 percent will be eliminated on the first day of implementation.
“It is a really significant value proposition,” Lazda said. “If we can drive down these tariffs, we can pass value on to our consumers.”
Lazda said consumers spend roughly $1,100 to $1,700 a year on average on apparel. An average tariff on imported apparel products amounts to as much as $200.
“Consumer value in TPP is really significant,” Lazda said. “It drives our support for TPP.”
Sarah Thorn, senior director of federal government affairs at Wal-Mart, said the retail giant also supports TPP, which would provide duty reductions and elimination on everything from imported travel goods and footwear to the U.S., to American beef exports to Japan.
“Trade agreements reduce cost; they reduce friction in supply chains, which add to costs, and for us they also help with rules for investment and certainty,” Thorn said. “When we look at the TPP, on balance we think we’ve achieved that.
“There are some immediate benefits that we’ll see in travel goods because travel goods means back to school for us — backpacks, pencil cases and things moms are shopping for on an annual basis. Those will be duty-free on entry into force.”
Thorn also pointed to a disparity in imported luxury goods versus basic products, noting that children’s footwear imports to the U.S. currently face “enormously high tariffs, whereas Bruno Magli shoes relatively don’t.”
“The duties you pay on footwear are extraordinarily high. However there are not that many footwear producers still in the U.S.,” Thorn said.
Citing footwear industry estimates, Thorn said the U.S. imposes some $400 million to $450 million in tariffs on footwear imports to the U.S., many of which will be reduced and cut under TPP.
“For us that means the mom that is shopping will be able to buy shoes for her child and have more money in her pocket to buy other things. That is really important for us as a retailer,” Thorn said.
She acknowledged that there will be more challenges with apparel because of the strict yarn forward rule in the agreement, which requires that yarn and fabrics be made in one of the TPP countries to qualify for duty-free benefits.
“On apparel we’re going to have to be a little more creative,” Thorn said. “The yarn forward rules for us means that [in terms of] the duty benefits, we’ll have to really think about how to make supply chains work under that context.”