From The Editor: TPP Effect Hinges On Yarn-Forward Rule

By Jim Borneman, Editor In Chief

If you are in the textile business and you haven’t paid much attention to the Trans-Pacific Partnership (TPP) negotiations, it might be worth a moment of your time to get familiar with what could be a serious blow to U.S. textiles. The pact includes the U.S. and 10 trading partners — Australia, Brunei Darussalam, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam — and grants  duty-free access to the U.S. economy.

The major sticking point for U.S. textiles is a move by Vietnam to insert new rules of origin and abandon the historic use of the yarn-forward rule, a basic policy that has been part of every
U.S. textile trade agreement. The Vietnamese rules would allow Vietnam to buy Chinese fabrics, transform them into garments and ship them into the U.S. duty-free. This isn’t allowed in any
current U.S. free trade agreement. CAFTA-DR members who are buying U.S.-made yarn to comply with CAFTA-DR yarn-forward rules should be outraged.

A recent article in The Hill reports that 167 House lawmakers recently signed a letter that “expresses concerns about positions taken by the Vietnamese government in the textile negotiations that could have significant negative effects on the textile industry here and its export partners.” The article goes on to say, “Vietnam predicts that under the new rule, its market share in the U.S. would rapidly increase from 7 to nearly 30 percent.”

Another concern is the level of secrecy under which the negotiations have taken place. There is much more concern reported in the foreign press than has been reported in the U.S. — but maybe that is the intent. Rumor has it that there is much more to the agreement than duty-free access,
but time will tell. The National Council of Textile Organizations (NCTO) has been very vocal in support of the yarn-forward rule. Recently, Smyth McKissick, CEO of Alice Manufacturing Co. Inc., testified on behalf of NCTO in front of the U.S. House Committee on Small Business’s Economic
Growth, Tax and Capital Access Subcommittee. His testimony paints a clear picture of the state of the industry and potential damage that changing the rules would cause.

One has to wonder how a capital-intensive business like textiles is so easily bandied about. Walmart has come out with a commitment to buy more U.S.-made textiles. There has been significant investment and modernization in the U.S. industry.  Trading partners like TexOps in El Salvador and the other investors in that country’s “Environmental Valley” are investing in a very special supply chain with solutions for synthetic-yarn-based high-end performance apparel. This takes courage when, in a far-flung country, behind closed doors, the rules may change and have a negative impact on those investments.

You don’t need a master’s degree in economics to understand the primary drivers of business and jobs. It’s simple: Promote an environment of fair competition and provide a level of certainty for investors, focus on innovation, and bring quality products to market. If  Vietnamese goods surge from 7 to 30 percent — who really wins, and who really loses? U.S. textiles?

July/August 2013