Linking about 40% of the global economy, the TPP would be the worlds largest free trade agreement

Linking about 40% of the global economy, the TPP would be the world's largest free trade agreement

After the latest round of TPP talks failed to clinch a deal last week, the race is now on to secure an agreement before the US presidential elections halt progress.

Trade ministers are scrambling to try and forge a final Trans-Pacific Partnership (TPP) agreement within two months, after a meeting of trade ministers in Hawaii failed to clinch a deal last week.

Although it was described as the "last stages" talks, the clothing and textile industry may be disappointed at another anti-climactic end to negotiations for the long-awaited deal.

A public release of draft agreements has been eagerly anticipated, following on the heels of the fast-track approval authority recently granted to the President of the United States, but unless final stumbling blocks are removed within two months, any deal may now have to wait until the upcoming US Presidential campaign is concluded next November.

This could kick a final TPP deal into 2017, with concern that conditional agreements made thus far might unravel.

A spokesperson for the department of foreign affairs and trade for Australia (a partner to the pact) told just-style that "significant progress has been achieved over the last 12 months in resolving outstanding issues", but gave no indication that a conclusion was imminent.

The New Zealand government was more optimistic, however. Trade minister Tim Groser said TPP ministers had collectively pledged to meet again as soon as possible to finalise the deal.

While admitting stumbling blocks remain, especially over intellectual property and market access for dairy products, Groser said: "I am confident that we will reach an agreement." His officials added that negotiators "will continue to work on the remaining issues in the coming weeks and ministers are planning to reconvene soon to finalise the agreement."

Sticking points

The TPP’s Investor State Dispute Settlement (ISDS) clause is one problem issue – broadly speaking, this allows companies to sue governments of member states if their policies, actions or legislation unfairly affect a company’s reasonable profits under an agreement.

If a country banned a substance used in textile processing or instituted compliance regulations that unfairly affected profits, for example, a company may have recourse to legal action and compensation under the ISDS.

Meanwhile concerns about a lack of transparency regarding the TPP talks persist. Valerie Cooper, CEO of US-based international garment consultancy Heart-Hunters Consulting, said that "most people [in the industry], apart from large corporations, are not well informed about the TPP because it has all taken place in secret".

This includes proposed details of agreed rule of origin (ROO) provisions and ‘short supply’ lists, dictating how much of a garment must be manufactured in the TPP bloc to access trade preferences, which appear far from resolved.

An open letter to US Trade Representative Michael Froman before the Hawaii talks from retailing and manufacturing associations that make up the TPP Apparel Coalition called for specific provisions to protect global supply chains and "flexibility to revisit the short supply list in the future to ensure market access as conditions evolve".

Advantages for Vietnam

If agreement is secured, Vietnam especially stands to gain. Herb Cochran, executive director of the Ho Chi Minh City, Vietnam-based American Chamber of Commerce in Vietnam, estimated Vietnam’s apparel exports to the United States alone under the TPP could be as high as US$20bn by 2020, based on a simple trend line projection.

According to AmCham sources, Le Tien Truong, deputy director of Vinatex, the state-run Vietnam National Textile and Garment Group, expects that Vietnam’s exports of textiles and apparel to the US could maintain a 15-20% growth rate during the years 2014-2017, possibly reaching as much as US$50bn by 2025 if the TPP is signed in the near future.

Furthermore, a TPP agreement with flexible rules of origin would also help Vietnam’s main raw materials supplier China, stressed Cooper, assessing a potential deal.

"Goods can be 65% made in China, then they can ship them to Vietnam, slap a ‘Made in Vietnam’ label on it and get them into the US duty-free," she said. "But because China’s not party to the agreement, we can’t get our goods in [to China]. In other words, China would get the benefits of selling its goods without tariffs, while not having to open their markets to US goods or abide by any other TPP rules."

Preferential access and a growing partnership with Vietnam could change the wool processing pipeline for Australia, the world’s largest wool exporter, according to a July 2014 analysis from Australian Wool Innovation, although if Chinese access to the TPP bloc is further facilitated through flexible rules of origin, this partnership may undergo yet another transformation.

Safety net provisions

Meanwhile, some safety net provisions have been promised. Office of the United States Trade Representative (USTR) documentation states that any agreement under the TPP will include "a textile-specific safeguard mechanism that will allow the United States and other TPP countries to re-impose tariffs on certain goods if a surge in imports causes or threatens to cause serious damage to domestic producers."

In a report on TPP trade implications for Malaysia, the United Nations Conference on Trade and Development (UNCTAD) estimates knitted and non-knitted apparel would enjoy an increased balance of trade with the US of approximately US$88m and US$51m respectively under the TPP, if Malaysia was unbound by restrictive yarn forward rules.

Linking about 40% of the global economy, or $28.1 trillion of GDP, the TPP would be the world's largest free trade agreement. The 12 countries taking part in the talks are the US, Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

The agreement is significant for textiles and apparel since it involves the US – the single largest consumer of apparel globally – and Vietnam, the third largest emerging market apparel supplier after China and Bangladesh.

For a more detailed look at what US apparel importers want in the TPP, click on the following link: US groups seek "workable apparel provisions" in TPP.