Posted October 6, 2015

 

Sometime while I was high above the Fruited Plain Monday, it was announced that the U.S. and 11 Pacific Rim nations had struck a tentative landmark trade agreement after years of negotiation. I learned the news just after touchdown in Anaheim.

 

And took a deep breath.

 

Thoughts began to race as it hit me: the Trans-Pacific Partnership (TPP) is a reality, on paper at least. What does this mean for a U.S. textile industry just beginning to regain its competitive footing? How does the industry feel about it? And does it include provisions urged by the industry’s national lobbying group?

 

Jet lag and insomnia kept me up late last night, with those questions bouncing around in my head. So I reached out to several industry thought leaders, insiders and watchers for their feedback. Details of the agreement haven’t been released, but Auggie Tantillo, president of the National Council of Textile Organizations (NCTO), seemed pleased with initial briefings he received during the Atlanta TPP round, he told me in a phone call today. Apparently, the deal will include yarn-forward rules and multi-year tariff phase-outs on sensitive textile and apparel products, for which the council has argued vociferously for years.

 

TPP still must be ratified by Congress to take effect, so brace for an intense fight. And, unlike most legislative battles, you can throw political jerseys out the window on this one. This trade pact has certainly caused many in the U.S. textile industry to bristle at the unknown. Our history with trade deals over the last quarter century hasn’t been particularly favorable, save for the Central American Free Trade Agreement (CAFTA), which has helped keep textile and apparel business in this hemisphere. In fact, the potential effect TPP may have on that legislation is “most worrying” for one industry trend watcher.

 

“If Vietnam apparel has the same duty-free access to the U.S., it is going to be difficult for CAFTA to compete,” said Alasdair Carmichael, president PCI Fibres-Americas. “Even with full duty Vietnam apparel exports to the U.S. are greater than the CAFTA region combined. Vietnam is second only to China and, year to date through August, their apparel exports to the U.S. are up by 15.75 percent in dollar terms over August 2014 and CAFTA is up 3.1 percent. The fact that Vietnam will not be able to use Chinese origin inputs for their apparel will limit the damage to an extent, but I would expect further significant Chinese investment in Vietnam to increase domestic manufacturing capacities to meet TPP opportunities.”

 

Another industry leader who requested anonymity said he agrees with NCTO’s tack in choosing to work with trade negotiators and the White House to try to forge a “reasonable” TPP with as little impact on the industry as possible. “We always lose jobs in any trade deal,” he wrote in an email. “Most come not just from lower wages but the unmitigated wildcat ramp-up of production that uses government money and creates a casino environment for locals who essentially have nothing to lose. This happened in China as they overproduce everything and kill off the world’s industry in the process as pricing gets below the cost of production. NCTO has tried to be at the table to minimize the damage but there will be damage. The irony here is that some groups outside of textiles that are opposed seem to be new at the anti-trade table. Watch very closely because their opposition is not like ours. They are fighting for more favorable terms, not to minimize damage.”

 

An industry supplier said the major source of his angst over TPP is with the United States’ ability to enforce the rules. “Even if yarn-forward rules of origin are embedded in the negotiated draft, we will all be very wary of the ability of U.S. Customs to properly enforce the provisions,” he wrote. “Chinese ex-pat companies have a huge influence over the textile business in the region and will find very crafty ways to circumvent the printed agreement, without a strong watchdog. Vietnam is poised to have a large expansion of government-owned and foreign investment-owned textile capacity. India, Bangladesh and Pakistan, who have spent the last decade modernizing, have a legitimate concern about TPP violations, as well.”