Comment: TPP trade talks need a Plan B for garments
By David Birnbaum | 3 May 2012
The multi-lateral Trans-Pacific Partnership (TPP) trade talks between the US and eight Pacific Rim nations provides the perfect opportunity to change the way US garment-related free trade agreements are negotiated, writes David Birnbaum.
For over 20 years all negotiations for US garment-related free trade agreements have been governed by two assumptions.
1: Without the support of the textile industry, the US Congress will reject any proposed garment free trade agreement.
As a result, all negotiations between the US and garment exporting countries have been based on a never-ending series of compromises in an effort to achieve some consensus with the US textile industry.
Through these compromises, we have reached the point where most of the clauses of the free trade agreement exist to limit free trade.
Here are but a few:
- To qualify for duty-free access the garment must be produced in the free trade area, from fabric woven (or knitted) in the free trade area which, in turn, was produced from yarn spun in the free trade area - the yarn forward rule.
- To qualify for duty-free access, the garment must be produced using US-made thread.
- To qualify for duty-free access, the garment must be produced using US-made pocket lining.
2: The benefit of free trade agreements is that they increase trade liberalisation, which directly benefits the US.
The assumption is that more liberal trade leads directly to reduced retail garment prices, saving money for consumers while reducing inflation.
Here comes the good news: the Trans-Pacific Partnership (TPP) has brought us to the end of the line, where these assumptions no longer make any sense.
Compromise to build consensus with the US textile industry is out window. TPP includes Vietnam, the US's second largest supplier of garment imports, after China. No-one believes that the US textile industry will support a trade agreement granting duty- free access to made-in-Vietnam garments.
- Regional free trade agreements as a source of trade liberalisation leading to lower prices is flushed down the toilet. Imports account for 97% of all garments sold in the US. As a result, regional free trade agreements are now zero-sum, where exporters in the free trade zone take market share from exporters outside the zone - which has no effect on FOB prices or inflation.
Once we accept that the textile industry will not support TPP under any circumstances, and that TPP has nothing to do with trade liberalisation, we are finally free to look at the challenges facing the TPP negotiations, rationally.
Here is something worth considering. Free trade agreements exist to bring benefit to the insiders, at the expense of the outsiders. The problem is that the traditional negotiating strategy on both sides - TPP Plan A - will benefit every member, with the exception of the US.
It is for this reason that the US Congress has zero interest in supporting duty-free access for TPP garments. Why should they support an agreement where the big winner will be Vietnam while the US is the big loser.
The TPP negotiators on both sides must come to terms with the new reality. They must recognise arguing about the yarn forward rule versus the fabric forward rule is as irrational as standing on the deck of the sinking Titanic, watching your fellow passengers fighting to get on the life-boats and feeling happy because if they leave, you stand a better chance to win tomorrow's shuffle-board tournament.
Instead, TPP provides the perfect opportunity for change. This is because, of the nine original members, eight (Brunei has little to gain from free-trade in garment exports) have enough in common to benefit from the same free trade agreement, and the greatest beneficiary will be the US.
For the first time in 20 years we are in a position to create a new strategy which will change forever the way the US Government views garment free trade agreements.
I have spent a lifetime creating and implementing garment industry strategies for companies, governments and regions. I am certain that working together, we can create a new workable strategy for TPP which can be replicated for virtually all future garment free trade initiatives.
Our industry has more than its fair share of original creative and innovative minds. The time has come to work together to create a new Plan B, which will benefit everyone.
This would allow the USTR representative to return to the administration and say, "Here is a free trade agreement agreeable to all TPP members that will provide real quantifiable benefit to the US economy, and bring Republicans and Democrats - liberals and conservatives - to a consensus, at little or no cost to us."
Why argue to achieve failure, when we can all agree to achieve success?
The US and eight Pacific Rim nations including Vietnam, Brunei, Chile, New Zealand, Singapore, Australia, Malaysia and Peru are currently involved in the multi-lateral TPP trade talks. The next round of negotiations is being held from 8-18 May in Dallas, Texas.
David Birnbaum is the author of The Birnbaum Report, a monthly newsletter for garment industry professionals. Each issue analyses in-depth US garment imports of four major products from 21 countries, as well as ancillary data such as currency fluctuations, China quota premiums and clearance rates. Click here to visit David's website.
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Comment: TPP trade talks need a Plan B for garments