From The Editor: The Ever-Changing Rules Of International Trade

By Jim Borneman, Editor In Chief

Once again, international trade deals — deals that would change the rules and opportunities for U.S. textiles and current trading partners are on the table. Whether you support or oppose these agreements — the real challenge for textiles is change — new incentives and disincentives for business and investment.

Are you old enough to remember the Multi Fibre Arrangement (MFA) and quota system that was in place for 30 years or so? How about the rise of the World Trade Organization (WTO), and the fast tracking of China into the WTO? The WTO Agreement on Textiles and Clothing (ATC) that smashed the quota system and led to the often predicted incredible expansion of Chinese textiles into the U.S. market?

What about the North American Free Trade Agreement (NAFTA) — an agreement that still raises questions on both sides of the issue. And don’t forget the Dominican Republic-Central American Free Trade Agreement (CAFTA-DR) and the supply chain it incentivized.

New York Times Op-Ed columnist Joe Nocera recently penned a piece titled “Don’t Blame NAFTA.” In it he highlighted some of the sentiment on Capitol Hill regarding the potential for Republicans and some Democrats to work with president Obama to give the president Trade Promotion Authority (TPA), which will allow the president to negotiate and bring to congress a trade agreement for an “up or down” vote with no amendments from congress.

This will allow the President to pursue the Trans-Pacific Partnership (TPP), which already is in motion. Please see Jonathan Fee’s article “High Hopes, Low Expectations For U.S. Textile Trade Agenda,Textile World, this issue, for more details on this topic.

Nocera quotes Representative Louise Slaughter, a Democrat representing the Rochester area of New York for 28 years. Slaughter interestingly states, “Since I’ve been in congress, I’ve never seen a trade bill that in any way benefited U.S. manufacturers and workers.”

Slaughter also points out that Kodak — a major employer in her district — shrank from 39,900 employees in 1994 when NAFTA went into effect to 2,300 today. Nocera later rebuffs this observation as not a NAFTA issue, but rather the impact of the rise of the digital camera. “She is blaming NAFTA for Kodak’s self inflicted wounds,” Nocera said. But keep in mind trade law and trade law stability matter.

The nuances of trade agreements create a set of conditions. Those conditions are baked into the planning of strategic investment. Continually altering those conditions has an impact — positive or negative — on the success of those investments.

The yarn forward rule of CAFTA is a perfect example. The final good to be imported duty free into the U.S. market has to be made from U.S. or indigenous-country-made yarn to qualify. This has led to serious investment in U.S. spinning and investment in yarn production in Central America.

Trade law is all about governments picking winners and losers — feeling lucky?

January/February 2015