TRANS-PACIFIC PARTNERSHIP (TPP)
TPP Meets USIFI’s Negotiating Objectives
On October 5, 2015, the United States completed the Trans-Pacific Partnership (TPP) with eleven other Pacific Rim countries, including Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. Finalizing TPP in 2015 was a primary goal of the Obama administration, and securing congressional approval of the agreement is a top priority before the administration leaves office early next year.
USIFI’s Board of Directors decided to support TPP after a conducting a comprehensive analysis that focused on the following key areas of the agreement:
- Rules of origin;
- Market access;
- Preservation of the Berry and Kissell Amendments; and
- Additional standard textile chapter terms in U.S. FTAs, such as customs enforcement.
Rules of Origin
TPP contains a yarn-forward rule of origin for the vast majority of textile, apparel, and home furnishing products. Yarn forward is the accepted rule for the industry and is incorporated into nearly all U.S. free trade and preference arrangements dating back to NAFTA. This is a logical rule because it reserves the benefits for the agreement signatories and also aids in customs enforcement versus value-based rules.
With regard to Vietnam, the 2nd largest exporter of textiles and apparel to the United States, the U.S. government estimates that 75-90% of Vietnam’s exports to the United States will fall under the yarn-forward rule. The yarn-forward rule ensures that the agreement benefits manufacturers throughout the vertical production chain, as opposed to only rewarding those who conduct the final assembly steps.
While there are some exceptions to yarn forward that are concerning, such as a lengthy short supply list, these concessions are balanced, however, with positive aspects, including:
- The agreement does not contain a generic Tariff Preference Level (TPL). TPLs allow duty-free treatment for a designated quantity of imports that largely benefit third-party countries. The exclusion of a TPL is a key improvement over many previous FTAs.
- The agreement has fewer cut-and-sew exemptions than other key agreements, such as NAFTA and CAFTA-DR.
The final TPP agreement contains a three-tiered tariff phase-out structure for textile and apparel products.
|A Basket:||Least sensitive products selected for immediate duty-free treatment|
|B Basket:||Moderately sensitive products selected for a 5-cut linear phase-out over 4 years|
|X Basket:||Moderately sensitive products selected for a 5-cut linear phase-out over 4 years|
During the negotiations, the U.S. textile industry communicated that the X Basket should contain the majority of Vietnam’s textile and apparel exports to the United States and the majority of products critical to the Western Hemisphere textile and apparel production chain. In that regard, based on the trade data used as the official basis of the negotiations, the X Basket ultimately captured:
- $4.0 billion (52%) of U.S. imports from Vietnam
- $10.9 billion (66%) of U.S. imports from key Western Hemisphere FTA Partners (NAFTA, CAFTA-DR, Peru)
Furthermore, 93% of U.S. textile and apparel exports to the TPP countries that represent new U.S. FTA partners (Brunei, Japan, Malaysia, New Zealand, and Vietnam) will have immediate duty-free access.
TPP preserves in full the Berry and Kissell Amendments, U.S. government procurement laws mandating domestic preferences for national security purposes. Any opening of the Berry Amendment is a complete non-starter for the domestic textile sector.
Enforcement: TPP includes specific commitments to enforce each TPP country’s measures affecting trade in textile and apparel goods, ensure the accuracy of claims of origin, and prevent circumvention of the TPP rules of origin. Enhanced customs cooperation under TPP will allow information sharing between the United States and TPP partner countries to identify non-compliant traders and prevent customs offenses.
In addition, the agreement will allow U.S. Customs and Border Protection (CBP) to conduct verification activities in TPP countries, including visiting factories themselves. This will aid CBP in their efforts to ensure that textile products being imported into the United States meet applicable TPP rules and to take targeted, effective enforcement action whenever unscrupulous businesses are breaking the rules.
Safeguard: TPP includes a special textile safeguard mechanism, which will provide for temporary re-application of tariffs if imports under the agreement are shown to cause or threaten to cause serious damage to domestic industry.
The TPP textile chapter broadly meets the objectives USIFI identified as key to gaining our support from the outset of negotiations. The rules adopted under TPP keep faith with the important standards that underpin most of our previous FTAs, including a yarn-forward rule of origin, market access terms that cover the majority of the region’s sensitive products, and critical customs enforcement mechanisms. Although there are areas of concern for the industry, USIFI believes that the administration was able to strike a careful balance between concessions and benefits in the final product. As a result, USIFI will urge support for TPP when Congress considers the implementing legislation.