VIEWPOINT: Why US textile groups fear Vietnam in TPP pact
The US textile industry believes the inclusion of Vietnam presents "unique challenges"
Even though ongoing talks around the Trans-Pacific Partnership (TPP) free trade agreement involve nine nations, for the US textile industry Vietnam is seen as by far the biggest threat.
The sector opposed Vietnam's inclusion even before discussions began back in March 2010, and now the negotiations are heading into their seventh round later this month, a concerted campaign is underway to negotiate strong textile and apparel rules into the pact.
Textiles is a sensitive industry for the US, and at the heart of concerns are fears that the free trade agreement will not only flood American markets with Vietnamese clothing, but also provide limited opportunities for US yarn and fabric makers.
Specifically, a group of 52 US lawmakers linked to the textile industry this week sent a letter to US Trade Representative (USTR) Ron Kirk calling for tougher rules on Vietnam until it adopts free market principles.
If mismanaged, the agreement could "dramatically shift global trading patterns, displace critical US textile, and apparel jobs and undermine important trade relationships in the western hemisphere that support nearly 2m jobs," they warn.
Nine Pacific Rim nations are formally involved in the multi-lateral trade group, which in addition to the US and Vietnam also includes Brunei, Chile, New Zealand, Singapore, Australia, Malaysia and Peru. There are also plans for ambitious expansion beyond the current participants.
Significantly, not only is the TPP the first regional agreement in which the US is participating in Asia, but its completion will also create one of the world's most important trading blocs.
That said, the US textile industry believes the inclusion of Vietnam presents "unique challenges."
After China, the country is the second largest supplier of textile and apparel to the US, with annual shipments of US$6.3bn. But it has also been expanding its reach into industrial fabrics and other higher-end textiles in recent years.
Like its near-neighbour China, "Vietnam has a large state-owned and subsidised textile sector, an undervalued currency, weak environmental rules and lax intellectual property enforcement," the lawmakers claim.
The country also depends on China for most of its yarns and fabrics, importing $2.2bn of textile components from China in 2009 - which gives rise to fears it offers only limited export opportunities for US yarn and fabric producers.
The US textile industry is campaigning to get the parameters right from the outset, particularly on rules of origin.
"A loophole-free rule of origin that encompasses fibre, yarn, fabric, dyeing and finishing, thread, pocketing and assembly is needed to make sure that any potential agreement is favourable," says Smyth McKissick, CEO of Alice Manufacturing and co-chair of the American Manufacturing Trade Action Coalition (AMTAC).
Until now, the textile and apparel sector has always been treated as an independent chapter under US free trade agreements, and up to this point USTR has given every indication that it will continue this precedent.
"Textiles and apparel account for over one-third of two-way trade between the United States and Vietnam and represent a complex area of US trade policy with unique sensitivities compared to virtually all other industrial sectors," the letter says. "As a result, these products are not suitable for treatment under a generic formula for all manufacturing products."
Suggestions include excluding certain tariff lines altogether, negotiating tariff reductions versus phase-outs, and extended duty phase-down/phase-out periods.
Rule of origin
There are also calls to adopt the basic yarn-forward rule of origin for textiles and apparel under the TPP with no loopholes, also following a precedent set in most recent US trade deals. This requires the yarn and fabrics for qualifying apparel to come from the exporting country or the United States, and that the cutting, knitting to shape and assembly must take place in that region too.
Textile groups want the yarn-forward rule to apply to all textile components in garments, including linings, narrow elastic fabrics, sewing thread and pocketing.
The letter sent to Ambassador Kirk also recommends that customs enforcement rules be strengthened well beyond past agreements, including effective tracking of yarn and fabric inputs.
It concludes: "While the TPP countries, particularly Vietnam, have substantial capability to produce finished textile and apparel goods for export, they have limited ability to consume finished textile products manufactured in the United States.
"A weak textile text could lead to an increase in the US trade deficit and cause the loss of significant textile and apparel jobs in the United States.
Congressman Mike Michaud, chairman of the House Trade Working Group, adds: "These trade negotiations give us an opportunity to address the mistakes of the past and expand economic opportunities for our workers and businesses."
As always there seems to be a conflict between the demands of the US textile industry and US retailers and apparel importers. The latter want a more liberal rule of origin, as well as a "cumulation" rule that would enable exporters in the TPP region to use inputs from any member country and still qualify for tariff benefits.
The next round of TPP negotiations is scheduled to take place in Vietnam from 20-24 June where new US proposals for textile and apparel rules are expected to be tabled.
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