Trans-Pacific Trade Pact Moving Forward

Battle lines are being drawn between textile manufacturers and importers as the United States and
seven other nations move forward

with negotiation of a Trans-Pacific Strategic Economic Partnership Agreement (TPP) that the
U.S. government says is intended to “dramatically increase” U.S. exports to the Asia-Pacific area.
The Obama administration is seeking to develop what it calls a “high standard 21st Century regional
trade agreement” with Australia, Brunei, Chile, New Zealand, Peru, Singapore and Vietnam.

As the second round of negotiations was concluded in mid-June in San Francisco, government
officials, importers and textile manufacturers saw the agreement in an entirely different light.
With much of the preliminary discussions out of the way, the participating countries expected to
get down to serious negotiations this fall. They have created nine issue negotiating groups
including one on textiles.

It is apparent that stakeholders in the United States believe the pact presents both
opportunities and pitfalls, and they are working with the U.S. Trade Representative (USTR) and
members of Congress to address their issues.

The National Textile Association (NTA), for example, has told the USTR it does not think the
agreement will result in a significant increase in market access for U.S. textile products; and, in
fact, it believes the pact could result in severe disruptions in the U.S. industry. NTA is
concerned that the TPP will undermine a two-decades-long consensus on textile rules of origin in
preferential trade agreements in which the United States is a partner. It views the pact as a
“continuation of failed trade policies tilted in favor of foreign partners at the expense of
domestic interests.”

While saying it is difficult to gauge the impact of the agreement at this time because key
details have not yet been negotiated, the National Council of Textile Organizations (NCTO) is
particularly concerned about including Vietnam in the agreement, claiming that because of its
non-market economy, Vietnam will become “another China.” In a filing with the USTR, NCTO President
Cass Johnson said including Vietnam is “a bad policy move” that encourages the “China model” of
export dependency that will lead to higher trade deficits for the United States and more U.S.
textile job losses, as well as apparel job losses in other Western Hemisphere nations. At the
moment, Vietnam is participating in the negotiations as an “associate member,” and there reportedly
are some concerns about whether it wants to participate fully, as it would be forced to meet labor
and other requirements that it may not be willing to adopt.

In addition, Vietnam is on the U.S. watch list of countries that the United States does not
feel have acceptable safeguards against violations of intellectual property rights.

Apart from the Vietnam issue, Johnson also made an appeal for a strong yarn forward rule of
origin and effective Customs enforcement.

On the other hand, the National Retail Federation (NRF), whose members are among the largest
importers of textiles and apparel, certainly wants to include Vietnam along with the other
countries, as  it sees “significant market access opportunities.” NRF says Vietnam has become
an important supplier to the U.S. market, and in some cases, its members see Vietnam as an
alternative to sourcing in China. The federation also says that including Vietnam in the agreement
would assist in moving Vietnam away from a centrally planned economy to a market economy.

In addition, NRF sees the TPP as an opportunity to change the textile rules of origin, which
it has long opposed for being so complicated and restrictive as to negate the benefits of
preferential trade agreements.

The retailers group also sees an opportunity to solve problems with anti-dumping and other
trade remedies in the United States and other countries – problems that it says constitute barriers
to developing viable retail operations. NRF suggests that one good start would be to exempt free
trade agreement (FTA) partners from anti-dumping laws.

The American Apparel and Footwear Association (AAFA) says the TPP can present new market
opportunities, particularly in Vietnam, Brunei and New Zealand, with which the United States
currently does not have FTAs, as U.S. branded products would qualify for duty-free status in what
it says are some of the fastest-growing and richest nations in Asia and the Pacific. AAFA says the
agreement would “foster alternative sourcing opportunities” for U.S. clothing and footwear for
companies that are interested in developing new supplier opportunities.

It also believes the TPP would promote business certainty and investment predictability in
the participating countries.

All in all, importers see some positive opportunities, while textile manufacturers are wary
of the final outcome.

What About Chinese Currency?

Although China made a bunch of headlines with its recent announcement that it plans to move
forward with what it says will be “reforms” in its currency exchange rate, no one expected anything
very significant to happen soon.  Although President Barack Obama and Treasury Secretary
Timothy Geithner praised the announcement as “a constructive step,” industry and congressional
critics of China’s currency policies were not very impressed.

Sen. Charles Schumer, D-N.Y. — who, along with 18 other senators, is sponsoring legislation
that would impose stiff tariffs on Chinese imports if China does not reform its exchange rate in a
meaningful way – described the Chinese announcement as “a vague and limited statement of

House sponsors of currency reform legislation held a rally on Capitol Hill and called on
China to “immediately end its currency manipulation.” Rep. Tim Murphy, R-Pa., one of the lead
sponsors of currency reform legislation in the House, said: “Exports from China are artificially
cheaper than products from international competitors because of currency manipulation. The
manipulation of currency and subsidizing of industry by China has put American workers at a
competitive disadvantage. We cannot just take China’s word that its policies will change. It is
time for America to act.”

Charles Blum, executive director of the Fair Currency Coalition, which includes textile
industry members, said at the rally that “a persistently undervalued renminbi acts as both an
export subsidy and trade barrier by making Chinese goods less expensive than their American
counterparts.” He dismissed China’s move to make its currency more flexible as falling far short of
what is needed, saying that if China permits the renminbi to rise by 3 to 5 percent over the next
few months, “it would come nowhere near close to eliminating the renminbi’s estimated 35 to 40
percent undervaluation relative to the U.S. dollar.”

Despite all the sound and fury, the Obama administration and China are most likely to
continue pursuing a diplomatic solution to the problem.

Textile Manufacturers See Hope For Customs Reform

U.S. textile manufacturers are optimistic that Congress will enact legislation that would
give government trade officials new authority, direction and resources to do a better job of
attacking illegal imports of textiles and apparel. The first-ever textile-specific Customs
legislation has the backing of a strong bipartisan coalition in the House, and the idea is gaining
support in the Senate.


The legislation would give Customs expanded authority to seize illegal imports; provide ways
to attack undervalued imports that escape their true tariff assessments; direct the appointment of
textile specialists at high-traffic ports of entry; establish a system for electronic verification
of shipments; create an Office of Textile and Apparel Trade Enforcement within the Department of
Justice to carry out enforcement cases; and mandate the government to publish the names of
companies that intentionally violate the rules of trade agreements. The textile trade bill also
allows the Department of Homeland Security to use fines and penalties to help pay for additional
investigating and training.

The United States is the world’s third-largest exporter of textile products, with such
exports valued at more than $13 billion last year. With the majority of these exports going to free
trade agreement and other preference program participants, the industry relies heavily on strong
Customs enforcement for its livelihood. The National Council of Textile Organizations (NCTO) claims
that during the past decade, the industry has seen “a disturbing increase in fraudulent activity”
in which mislabeled goods slip by Customs and mistakenly are permitted to qualify for the duty-free
treatment accorded participants in preferential programs. NCTO believes the Textile Enforcement and
Security Act of 2010 will close many of the loopholes that permit fraudulent textile trade.

July/August 2010