FASH455 case study: Should the U.S. rejoin the Trans-Pacific Partnership (TPP)?

Background

  • The Trans-Pacific Partnership (TPP) was a proposed free trade agreement between the United States and other eleven countries in the Asia-Pacific region, including Malaysia, Peru, Australia, Vietnam, Mexico, Canada, Japan, Singapore, Brunei, Chile, and New Zealand.
  • Once TPP is implemented, tariffs for textiles and apparel traded between TPP members would be reduced to zero from their current rate (around 5%-10% for textiles and 10-30% for apparel). The tariff rate for trade between TPP members and non-TPP members (such as China) will remain unchanged. However, TPP would NOT provide additional import duty saving benefits for textile and apparel products traded between Mexico, Canada, and the United States because tariffs are already reduced to zero under the U.S.-Mexico-Canada Trade Agreement (USMCA or commonly called NAFTA 2.0).
  • TPP adopts the strict “yarn-forward” rules of origin for apparel items. This means that fibers may be produced anywhere, but each component starting with the yarn used to make the apparel garments must be formed within the TPP area so that the finished apparel can be qualified for the preferential duty-treatment provided by TPP.
  • Among the TPP members, Vietnam is already the second-largest apparel exporter to the United States. Despite the high tariff rate, the value of U.S. apparel imports from Vietnam increased by 131% between 2010 and 2019, much higher than 17% of the world average. Vietnam’s shares in the U.S. apparel import market also quickly increased from only 4.0% in 2005 to 16.8% in 2019 (and 20.2% from Jan to August 2020).
  • As a developing country, Vietnam relies on imported yarns and fabrics heavily for its apparel production. Over 97% of Vietnam’s textile imports come from Asian countries, including China, South Korea, Taiwan, and Japan. Less than 1% of Vietnam’s textile imports came from the United States in 2019. 
  • Meanwhile, thanks to foreign investments (mostly also from Asia), Vietnam is quickly building its local textile manufacturing capacity. Notably, data from the World Trade Organization (WTO) shows that for the first time in history, Vietnam ranked the world’s seventh-largest textile exporter in 2019, climbing 8.3% from a year earlier to reach $8.8billion. If it can maintain this momentum, Vietnam is likely to surpass South Korea and become the world’s sixth-largest textile exporter in 1-2 years.   
  • President Trump announced to withdrawal the United States from TPP in January 2017. However, the rest of the 11 members decided to move on the agreement without the United States. The so-called Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP or TPP without the U.S.) was reached in March 2018 and officially took into effect in December 2018. Much of the original TPP provisions remain intact in CPTPP.
  • China’s, one of the world’s largest apparel exporters and textile exporters, is actively exploring the possibility of joining CPTPP. Meanwhile, China plays an increasingly important role as a textile supplier for apparel-exporting countries in Asia over the past decade. In 2019, China supplied 57% of Vietnam’s textile imports, up from 26% in 2010.
  • Since CPTPP goes into effect, there have been growing calls for the United States to consider rejoining the agreement. However, debates remain regarding the specific economic benefits and costs of doing so.  

Discussion question: from the perspective of the U.S. textile industry and U.S. fashion brands and retailers, why or why not the United States should rejoin TPP?

Author: Sheng Lu

Professor @ University of Delaware

6 thoughts on “FASH455 case study: Should the U.S. rejoin the Trans-Pacific Partnership (TPP)?”

  1. I believe the United States should rejoin the TPP. The biggest influencing factor in my opinion is the idea that 1/3 of the United States’ T&A imports come from the TPP region. By joining the TPP, tariff rates would be reduced to zero, which would benefit many U.S. companies. However, the idea of the TPP enforcing the yarn-forward rule is more complicated. This makes it difficult for U.S. apparel manufacturers to have more freedom, but it benefits the textile manufacturers. I believe that the yarn-forward rule could be renegotiated, being that there were exceptions to NAFTA and the yarn forward rule as well.

  2. Looking at the perspective of the U.S. textile industry, fashion brands, and retailers, I do think that the U.S. should rejoin the TPP because of the amount of mutual benefits for everyone involved. With how many imports the U.S. brings in from the TPP region, it would benefit many American companies to have a trade agreement with those countries. Even though the yarn-forward rule of origin is rather restricting, it’s still beneficial to U.S. textile companies. Furthermore, if the U.S. were to rejoin the TPP it could boost their textile exports since Vietnam relies so heavily on Asian textile imports. While the yarn-forward rule is seen as a complicated obstacle for the U.S. apparel industry, I think it would still benefit greatly from the reduced import tariffs. In addition, piggybacking off what the previous comment said, there is always the possibility of the yarn-forward rule being re-negotiated if it was deemed too complicated for U.S. apparel industries to abide by. Overall, I think that re-joining the TPP would be very beneficial to both the U.S. and the countries within the TPP region.

  3. From the perspective of the US textile industry, the US should not rejoin the TPP. If the TPP had adopted yarn-forward rules of origin, the US textile industry would have seen short-term benefits by being the only country in the TPP capable of producing and exporting large amounts of textiles. However, this would have only been a short-term benefit because there has been an influx of international investments into Vietnam to build textile factories there within the next decade. If Vietnam is able to produce their own textiles as a member of the TPP, then the US would lose their advantage as being the only major textile manufacturer. Additionally, joining the TPP would have also meant disrupting the Western Hemisphere supply chain, where the US textile industry exports yarns and fabrics to Mexico & Central American countries to have them cut and sewn into apparel and then imported back to the US. Under NAFTA and CAFTA-DR, the US textile industry has a guaranteed export market; however, rejoining the TPP would mean that the US would rely more heavily on TPP members for apparel sourcing, leading to less apparel being imported from Mexico and Central American countries, and therefore significantly less textiles exported by the US to these regions.

    From the perspective of the US apparel industry, the US should rejoin the TPP. Rejoining the TPP would mean that fashion brands & retailers could enjoy the benefits of tariff-free trade with a number of countries, such as Vietnam, that the US relies on heavily for apparel imports. This would significantly reduce sourcing costs, allowing fashion brands & retailers the opportunity for greater profits.

    In my own opinion, it is extremely near-sighted that Trump withdrew from the TPP, and the US should rejoin as soon as possible (which it appears will happen with the incoming Biden administration). Being a member of the TPP is amazing for fashion brands and retailers, and it would have at least provided short-term security for the US textile industry. Importantly, it also would have signaled to other countries that the US is open and friendly towards trading with them. Instead, the US is left appearing hostile towards other countries and excessively arrogant & isolationist, as the rest of the world works together towards trade and development. Joining the TPP was the US T&A industry’s chance to remain relevant in non-Chinese Asian markets, which will now be an even bigger hurdle due to RCEP. China’s political strategies to strengthen its ties within Asia and lessen its dependence on the West are paying off, and it is becoming increasingly clear that the US market is becoming less and less of an integral component for the success of Asian economies. Based on China’s investments in their allies and their willingness to cooperate with their neighbors, they have now positioned themselves as the favorable trading partners, and the US has a lot of work to do to ameliorate its relationships with these countries. Now that the US has backed itself into this corner, I do not think it is too far-fetched to postulate that the country will be unable to remain competitive in Asian markets long into the future. If this happens, the US may be forced to rely on Western Hemisphere supply chains for the majority of their goods, which would not be ideal under current conditions.

  4. I agree with the comments that rejoining the TPP can cause many benefits for the U.S. apparel industry and may cause headaches for the U.S. Textile Industry. When reviewing this content, I kept thinking about how the future of the fashion industry may be more clustered. As consumer demands and trends are changing quickly, apparel brands and retailers may be moving toward a system of keeping suppliers close to shorten lead times and speed to market for these trends. By utilizing the TPP and sourcing from overseas, this places more stress on suppliers as the U.S. apparel industry is demanding quicker production–and not all suppliers have the means to keep up without sacrificing health and safety standards. It would be ideal to keep production close to brands and retailers and build up the NAFTA and CAFTA-DR regions as a strong fashion industry supply chain, however I agree with Eli that this would be seen as selfish and hostile to other countries. Imposing the yarn-forward rule makes this decision harder, as we see apparel brands and retailers trying to find and use loopholes/exceptions to get around that restriction. There is no guarantee that this will stop when rejoining the TPP.

    Despite my comments, I do believe that the U.S. should rejoin the TPP and build relationships with more countries as, after all, the fashion industry is globally connected. The TPP provides many benefits for brands and retailers who frequently source from these countries to receive duty-free benefits, and also creates opportunities for growth, such as exporting U.S. textiles to Vietnam. Although the TPP does have its downfalls, I agree with Claire and Laurett that these systems are not set in stone and that they can be adjusted and renegotiated in due time.

  5. There are benefits to rejoining the TPP like the zero-percentage tariff, which would be great to have because if textiles did not they would be paying around 5-10% and apparel would be 10-30%. Also, with joining the TPP they have a huge market with a lot of countries which creates good opportunity. Another benefit is that Vietnam is a huge exporter of apparel for the U.S. and the no tariff rule would be a great opportunity in this case. Vietnam though is a problem for the textile industry though, which is definitely a downside to rejoining the TPP. From the perspective of textiles rejoining the TPP does not sound like a good idea. The problem is that the U.S. would benefit from getting apparel from Vietnam but, then they cannot rely on Mexico to import textiles, because the U.S. and then have a cycle where you give and you get. U.S. textiles are also struggling to get yarn forward rules implemented back into the TPP, because this would benefit them and protect them a lot. Also in the long run, the U.S. textile industry would have competition with Vietnam’s textile industry if the U.S. were to rejoin the TPP. So in conclusion, rejoining the TPP would be bad for the U.S. textile industry but would actually benefit the apparel industry. I am not really sure if they should join back yet until things are put in place to help protect the textile industry.

  6. I do think that the United States should rejoin the TPP as it seems that the pros outweigh the cons. By rejoining, tariff rates would drop from 10-30% to zero which would be very beneficial for many US fashion brands and retailers as these brands already import a lot from the TPP region. I think that building relationships with these countries would be very beneficial and would allow the US to be seen in more of a positive way. While there are concerns with yarn forward rules of origin for the US textile industry, these rules have the potential to change eventually. Vietnam also is a country who currently does not make their own textiles, rather they import them from other Asian countries. This would probably be easier said than done, but there may be a possibility here for US textile manufacturers to export their textiles to Vietnam if we rejoin. While I believe there should be more done in order to protect US textile manufacturers if we do rejoin, I still believe that overall rejoining would have a very big positive impact for the US fashion industry.

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