WASHINGTON — While the concept of a global free trade accord appears to be dead in the water, the Trans-Pacific Partnership negotiations between the U.S. and eight other countries is gaining momentum and gathering interest from Asian-Pacific countries.
U.S. Trade Representative Ron Kirk said last week that the current model of 10-year-old World Trade Organization-sponsored global talks, known as the Doha Round, is “not working” and pointed to the TPP — a regional trade negotiation spanning four continents in what is defined as the greater Asia-Pacific region that is garnering interest from more countries — as a key area of focus for the Obama administration.
“This bold initiative remains a top priority of the Obama administration because we think TPP has the potential to be a real game changer in terms of trade and jobs,” Kirk said.
The TPP negotiations encompass nine countries: the U.S., Vietnam, Singapore, Australia, Peru, Brunei, New Zealand, Chile and Malaysia. Three additional countries — Japan, Mexico and Canada — have signaled their interest in beginning consultations to join the talks.
“The fact that Japan, Canada and Mexico have all expressed interest in a conversation and participating in TPP is suggestive there is potential for momentum here,” said Brad Jensen, a professor of economics and international business at the McDonough School of Business at Georgetown University.
Jensen said the trade community appears to have “moved beyond Doha.”
“My sense is that people are pretty discouraged by Doha and when they talk about TPP with the addition of Japan, Mexico and Canada, that’s a pretty big deal,” he added.
Gary Hufbauer, senior fellow at the Peterson Institute for International Economics, said, “The forecast is not bright for Doha, whereas TPP seems to be gathering steam,” adding that he doesn’t think the “game is over” on Doha until 2013. Hufbauer said he believes Japan’s interest in the talks will spur South Korea to join, as well.
The regional trade pact is seen as a counterbalance for the U.S. and other countries to China’s still-dominant position in Asia, despite losing some market share of late.
“China is continuing to construct its own network of trade agreements, which are pretty numerous already,” Hufbauer said. “The feeling is that China will work out a lot of preferential entry into many Asian markets without this counterbalance [TPP]. Quite a few Asian countries have high bound tariffs and if China gets access to those markets, it would bring tariff lines down to zero for their imports, which would be a big advantage for Chinese firms competing with the U.S., or Japan or any of the other TPP countries.”
China has a vast network of preferential trade arrangements, including ones with the Association of Southeast Asian Nations, Chile, New Zealand, Pakistan, Singapore and Peru. It also signed the Asia-Pacific Trade Agreement — a preferential trade pact — in 2001, with Bangladesh, India, South Korea, Sri Lanka, Thailand and the Philippines.
A lot is at stake in the TPP for the fashion industry, which sees more apparel production opportunities, as well as export potential in the regional deal. In 2010, apparel and textile imports from the eight combined countries totaled $7.5 billion, according to the U.S. Commerce Department’s Office of Textiles & Apparel. Combined imports from Canada, Mexico and Japan were $6.1 billion in 2010.
On the flip side, the U.S. exported $750.4 million in apparel and textiles to the eight TPP countries in 2010. If Canada, Mexico and Japan formally join the negotiations, those markets would represent another $9.36 billion in U.S. textile and apparel exports, according to OTEXA.
“Adding Canada, Mexico, and Japan — the top three markets for U.S.-made apparel, turns the TPP into an entirely different agreement,” said Stephen Lamar, executive vice president at the American Apparel & Footwear Association. “Although Canada and Mexico are already FTA partners with the U.S., stitching them together with Japan and the other Trans-Pacific partners to create a harmonized free trade region creates enormous opportunities far exceeding those that companies were already exploring.”
Importers and apparel brands see Vietnam as the big win if there are flexible rules of origin, while textile producers argue that Vietnam poses a threat to their businesses without strict rules of origin, primarily because it subsidizes its private sector.
“Vietnam is the biggie,” said Erik Autor, vice president and international trade counsel at the National Retail Federation. “It is already the second-largest supplier of apparel to the U.S. market and it is still dwarfed by China. But we see the TPP as an opportunity to build out that business and generate textile investment that could supply the apparel industry and provide a good alternative sourcing location. There is business already migrating there from China because costs are getting too high there.”
But U.S. trade negotiators have proposed a strict yarn-forward rule of origin, which requires that apparel be made of fabric and yarns supplied by the U.S. or other TPP partner countries to qualify for duty free benefits when shipped back to the U.S. So companies cannot use Chinese yarns and fabrics — a big source for U.S. firms — and qualify for duty free benefits.
Julia Hughes, president of the U.S. Association of Importers of Textiles & Apparel, said a yarn-forward rule of origin is a disincentive for importers.
“It is too difficult and complicated to be guaranteed that you will have qualifying inputs [for duty free treatment],” said Hughes. “No one wants to place an order and have it be denied duty free status at the end of the day. That is the worst-case scenario for companies.”
Cass Johnson, president of the National Council of Textile Organizations, said a yarn-forward rule of origin is essential because it will force companies to use more U.S. yarns and fabrics in the region.
“We’re already a major exporter to Asia,” Johnson said. “With the right rules in TPP, we could see increases in industrial fabrics, apparel yarns and high-end apparel fabrics to Vietnam, in particular. The other countries are not big apparel producers, but Vietnam is a growing apparel producer and under the rules that encourage regional yarn and fabrics, we certainly see opportunities.”