Because Vietnamese manufacturers make little use of US-made textiles, the TPP could reduce demand for US textile exports

Because Vietnamese manufacturers make little use of US-made textiles, the TPP could reduce demand for US textile exports

With anti-TPP rhetoric flying thick and fast in the run-up to the US election, a new report suggests the Trans-Pacific Partnership trade deal could shift global trading patterns for textiles and lower demand for some US textile exports.

The analysis, 'US Textile Manufacturing and the Proposed Trans-Pacific Partnership Agreement', published by the Congressional Research Service, notes that textiles are a sensitive sector in the TPP, an agreement that would establish a free-trade zone across the Pacific if it is approved by Congress and foreign governments.

The pact involves 12 nations and covers 40% of the world economy. And because it includes Vietnam, a major apparel producer that now mainly sources yarns and fabrics from China and other Asian nations, it could shift global trading patterns for textiles and demand for US textile exports.

Canada and Mexico, both significant regional textile markets for the United States, and Japan, a major manufacturer of high-end textiles and industrial fabrics, are also TPP members.

US textile manufacturers produce yarn, thread and fabric for apparel, home furnishings, and various industrial applications. In 2015, the US textile industry generated some $55bn in shipments and directly employed about 232,000 Americans, accounting for around 2% of all US factory jobs.

More than a third of US textile production is exported, with the bulk of the exports going to Western Hemisphere nations that are members of the North American Free Trade Agreement (NAFTA), the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA), and the Caribbean Basin Initiative (CBI).

These free-trade agreements provide that certain exports from member countries may enter the US market duty-free only if they are made from textiles produced in the region. This has encouraged manufacturers in Mexico and Central America to use US-made yarns and fabrics in apparel, home furnishings, and other products.

Exports to the NAFTA and DR-CAFTA countries contributed to a US trade surplus of $1.6bn in yarns and fabrics in 2015.

The proposed TPP would eliminate some tariffs on textiles and apparel immediately, and phase out others over a decade or more. The agreement has the potential to affect US textile exporters in at least three ways, the report says:

  • It could enable some Asian apparel producers, principally Vietnam, to export clothing to the United States duty-free. This would eliminate much of the advantage now enjoyed by Western Hemisphere apparel producers in the US market and, because Vietnamese manufacturers make little use of US-made textiles, could reduce demand for US textile exports.
  • The TPP would allow Western Hemisphere apparel manufacturers to use yarn and fabric made anywhere in the TPP region and still enjoy preferential access to the US market. Thus, an enlarged Vietnamese textile industry could, at some future time, compete with US exporters in Mexico and Central America.
  • The US manufacturers of industrial textiles may experience more direct competition from Japan, also a leading producer of industrial textiles. On the upside, US exports of these products could increase because the agreement would eliminate tariffs on industrial fabrics that are currently as high as 20% in some TPP countries.

Responding to concerns from domestic textile manufacturers, the proposed TPP agreement includes a "yarn-forward" rule of origin that would allow a garment to enter the United States duty-free only if yarn production, fabric production, and cutting and sewing of the finished garment all occur within the TPP region.

However, nearly 190 fibres, yarns, and fabrics in short supply in TPP member countries could be sourced from outside the region, including China. This provision was a concession to US retailers and apparel brands that wanted maximum flexibility to source yarns and fabrics from non-TPP countries.

While Congress leaders have repeatedly said they would not consider the trade deal before the US general election in November, officials are likely to try to push the agreement through during the lame-duck session of Congress in November or December. 'Fast track' trade legislation that passed last year allows for trade agreements to pass with a simple majority vote, with no amendments or procedural delays.

To take effect, the deal has to be ratified by February 2018 by at least six countries that account for 85% of the group's economic output – which means Japan and the US must be on board.

A deep-dive analysis of the likely impact of TPP's tariff phase-out schedule on US textile and apparel imports from Vietnam was published on just-style earlier this year to help guide retailers, fashion brands and importers on their sourcing decisions and investment strategies in the years ahead

TPP tariff phase-out can steer Vietnam sourcing plans