Why TPP implementation is far from a done deal
The legislatures of all 12 member nations still need to ratify the TPP pact
The Trans-Pacific Partnership (TPP) might have been agreed this week after more than five years of negotiations – but the pact's implementation is still far from assured.
First and foremost, there’s the fact that no details on the agreed trade pact have yet been published and that the legislatures of all 12 member nations – the US, Japan, Vietnam, Australia, Brunei Darussalam, Canada, Chile, Malaysia, Mexico, New Zealand, Peru and Singapore – still need to ratify the deal.
“It might happen in three months. It might happen in three years. It might not happen at all,” says Chris Walker, marketing manager at Thai Son SP Garment Factory in Ho Chi Minh City, Vietnam, who greets the TPP’s completion with reservation.
US Congressional passage of TPP, while likely, appears far from assured. Congress gave prospects for TPP and other trade deals a boost in June with the passage of fast-track Trade Promotion Authority (TPA) allowing President Obama to submit negotiated deals for a yes or no vote.
But Congress has 90 days to complete the process, meaning that it will not have the opportunity to review and vote on the TPP agreement until sometime in 2016, and that is after the final text is released, which may happen in two or three weeks’ time.
The American Apparel & Footwear Association (AAFA) suggests that if approved by Congress and the legislatures of the 11 other TPP countries, the TPP agreement could potentially go into effect by late 2018 or early 2019.
But writing on just-style, Mike Flanagan, CEO at industry consultancy Clothesource, says he still believes it is unlikely to take effect this decade: The Flanarant: TPP – now the real fight starts.
Extended implementation timeframe
Meanwhile, US trade law firm Sandler, Travis & Rosenberg has set out more details of the protracted process of securing Congressional approval for the free trade agreement, which it says “could be a tough job.”
In addition, timeframes within US law and the TPP itself could delay full implementation for years, the legal firm says.
“Under the trade promotion authority law passed by Congress this summer, the first step in implementing a trade agreement is for the president to notify lawmakers of his intent to sign it. For TPP, that could take place in a matter of weeks, once the Office of the US Trade Representative has completed a thorough legal review of the text.
“Once the notification is submitted, the president must wait 90 days to sign the agreement; for TPP, that would put signing as early as mid-January.
“During this time several other requirements are likely to be met, including publishing the text of the agreement (which must be done at least 60 days before the agreement is signed) on the USTR website and submitting reports and reviews on topics such as the agreement’s environmental and labour impacts.
“After the agreement is signed there will be at least another 30 days before the president can submit legislation to implement it, which must occur on a date when both the House of Representatives and the Senate are in session. For TPP, this could be as early as mid-February.
“A number of supporting documents must be submitted with the draft bill, including an explanation of how it will change existing law and statements on how the agreement meets TPA objectives and serves the interests of US commerce.
“One additional consideration is a report on the anticipated economic impact of the TPP from the International Trade Commission, which will have 105 days from the date the agreement is signed to submit the report to Congress. If the ITC takes the full allotted time, Congress would not be able to begin consideration of the TPP legislation until mid-March.
“The House and Senate would then have up to 90 legislative (not calendar) days to either approve or reject that bill. This means a final congressional vote could come as early as April or as late as December of 2016.”
On top of all this, the presidential and congressional elections next November could also further affect the timing.
“Finally, assuming the implementing legislation is approved – which, given initial reactions from a wide range of lawmakers from both parties concerned about specific provisions that did or did not make it into the final agreement, is not assured – it would likely be another year or two before TPP provisions start taking effect,” Sandler, Travis & Rosenberg says.
While some tariffs would be eliminated right away, others will only be phased out over time. Details on this process are expected to be made public in the coming weeks and could further affect lawmakers’ decisions on whether or not to support the agreement.
Textile and apparel provisions
An initial summary of the agreement says the TPP will eliminate tariffs on textiles and apparel, with most tariffs eliminated immediately, but those on some sensitive products phased out over longer timeframes.
There will also be specific rules of origin that require use of yarns and fabrics from the TPP region, which will promote regional supply chains and investment in this sector, with a “short supply list” mechanism that allows use of certain yarns and fabrics not widely available in the region.
In addition, there are commitments on customs cooperation and enforcement to prevent duty evasion, smuggling and fraud, as well as a textile-specific special safeguard to respond to serious damage or the threat of serious damage to domestic industry in the event of a sudden surge in imports.
But US brands and retailers are awaiting more details, especially on its final yarn-forward provisions.
“I'm not sure that I would say we're celebrating, because there are some questions that we still have,” says Julia Hughes, president of the United States Fashion Industry Association (USFIA).
“We understand the final agreement contains a yarn-forward rule of origin and limited short supply list, though we remain hopeful it also will include many opportunities for fashion brands, retailers, importers and wholesalers to expand their global businesses.”
The USFIA says that most of its members already source from five of the 12 TPP member countries (Vietnam, Peru, Mexico, Malaysia and the US), and that nearly 80% of respondents to a member survey said they expect TPP to affect their business practices going forward. At the same time, 83% called for the abandonment of the yarn-forward rule, which would increase the cost of imports having components produced outside the TPP zone.
Among the groups pushing for a non-yarn-forward deal has been the American Apparel & Footwear Association, which represents major importers such as the VF Corp, Gap Inc and Levi Strauss & Co. “We look forward to reviewing the details of the agreement when they are released,” the association said in a statement following the conclusion of TPP talks.
The completion of the TPP is unsurprisingly believed to be good news for garment makers in Vietnam, as the agreement will slash US duties on many of Vietnam’s exports of garments and shoes to zero, from current rates of between 7% and 32%. However, while it is clear that there will be yarn-forward rule, there are numerous unknowns remaining in the absence of a fully published TPP text.
“In general, I think that it is positive that the trade barriers are being lifted. However, I am not aware of the details yet,” says Michael Grosbøl, CEO of Mascot International A/S, a Denmark-based garment manufacturer with three production facilities in Vietnam.
Grosbøl adds that a strict yarn-forward rule would prove problematic, as it is still not possible for Mascot to source high-quality raw materials in Vietnam owing to the country’s notoriously weak backward linkage for textiles.
“The main showstopper has been the quality standard; for example, we dye everything outside Vietnam [in non-TPP countries] because of this,” he explains.
Click on the following links for earlier just-style coverage on the pact and what it might mean for the textile and apparel industry.
- Update: Negotiators agree landmark TPP trade deal
- The Flanarant: TPP – now the real fight starts
- What clothing could the TPP X-basket contain?
- SOURCING: Taking stock of TPP in apparel supply chains
- ANALYSIS: The potential impact of TPP on the US textile industry
With additional reporting by Ed Zwirn and Jens Kastner.
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