Regional Comprehensive Economic Partnership (RCEP): What Does it Mean for US Apparel Sourcing from Asia?

This event is part of the 2021 Winter Texworld USA Educational Program

Panelists

  • Dr. Deborah Elms – Founder and Executive Director, Asian Trade Center
  • Beth Hughes – Vice President, Trade & Customs Policy, American Apparel and Footwear Association
  • Dr. Sheng Lu (Moderator), Associate Professor, Department of Fashion & Apparel Studies, University of Delaware

About the session

The Regional Comprehensive Economic Partnership (RCEP), signed in November 2020, is the world’s largest free trade agreement. Nearly half of the world’s textile and apparel exports currently come from the fifteen RCEP members. How will the new “rules of the game” in RCEP shape the future landscape of the textile and apparel supply chain in Asia? Who are the winners and losers of the agreement? Why US fashion brands and retailers also need to care about RCEP? The panel will interpret the key textile and apparel provisions in RCEP and share insights about the agreement’s broad implications on the textile and apparel sector.

Author: Sheng Lu

Professor @ University of Delaware

5 thoughts on “Regional Comprehensive Economic Partnership (RCEP): What Does it Mean for US Apparel Sourcing from Asia?”

  1. Beth Hughes provided the in-depth description contrasting RCEP with USMCA that I needed in order to wrap my mind around why the fashion industry is losing touch with the yarn-forward rules of origin. It was a lot more palatable for me to learn there was another option besides the USMCA’s yarn-forward rules of origin for determining garment origins. Hughes elaborated upon the notion that it’s difficult for competitors to use USMCA agreements when sourcing from FTA countries due to the restrictive guidelines surrounding this agreement whereas RCEP offers the flexibility and freedom needed to maximize productivity within the industry. Dr. Sheng Lu then said “the devil is in the details” and that truly speaks volumes about FTAs and the matters of international trade because as a student I’m struggling to keep all the acronyms and their corresponding information separate, yet concise, in my head. In saying that, however, it’s a reminder to investigate all opportunities when dealing in trade endeavors because the sneakiest of details could make or break productivity. Later in the video, Dr. Deborah Elms discussed that Bangladesh and other developing countries are able to experience little to no tariffs because of their status in the industry which warrants them benefits that help them engage in international trade. I found this interesting as well because I have been curious about how “poorer” countries are able to keep up in globalization when they don’t have the capital advantage that their competitors do. For this reason, I just want to make sure I’m understanding this correctly, so: Developing countries might not have to pay tariffs because they’re a valuable resource for other countries?

    1. I am so glad you watched the webinar 🙂

      And your summary captures some of the very important topics covered by the session. A few follow-up comments/explanations:

      First, regarding the usage of free trade agreement—you may refer to Part III in the 2020 Fashion Industry Benchmarking Study (http://www.usfashionindustry.com/pdf_files/20200731-fashion-industry-benchmarking-study.pdf), we find that some U.S. fashion companies, for whatever reason, do not always claim the duty-free benefits even when sourcing from member countries of a free trade agreement or trade preference program. For example, in 2020, around 10 percent of surveyed companies, which source from the CAFTA-DR or NAFTA region, say they chose to forgo the duty-free benefits under the agreements. This result matches the national trend—respectively, about 20.4 percent and 10.1 percent of U.S. apparel imports under CAFTA-DR and NAFTA in 2019 did not claim the FTA duty-free benefits. Further, the restrictive rules of origin (ROO) remains the most cited reason why U.S. fashion companies do not use FTAs more often for apparel sourcing purposes. Related, the difficulty of finding price-competitive textile raw material in sufficient quantity within the FTA region is another major obstacle that discourages companies from using the FTAs. As one respondent commented, “our raw materials and trims are sourced from non-eligible countries… this disqualifies us (for enjoying the FTA benefits).”

      Second, many developed economies provide duty-free market access to products from least developed countries (LDCs), i.e. trade preference programs. It is hopeful that through expanded exports under these trade preference program, these least developed countries could achieve faster economic growth and other social-economic developments. One example of such a trade preference program is the African Growth and Opportunity Act (AGOA), which we will examine later in the course. You may also check this blog post for example: https://shenglufashion.com/2020/05/01/usitc-report-u-s-apparel-sourcing-under-african-growth-and-opportunity-act-agoa/

      That being said, trade preference programs alone is far from sufficient to guarantee success for these LDCs. For example, despite the duty-free benefits, the production cost in these LDCs still can be very high due to poor infrastructure, lack of raw textile material (all have to be imported), and political instability. This is why middle-income countries, such as China and Vietnam, remain the world’s top apparel exporting countries. Also, with the reaching of more free trade agreements, the tariff benefits enjoyed by these LDCs are disappearing—for example, although Japan provides duty-free access to LDCs, because of RCEP, China’s exports to Japan now can enjoy the same benefits. So how to help LDCs improve their genuine export competitiveness remains a key challenge, yet a very important issue to address.

  2. The RCEP partnership within Asia is something that the US and non-Asian markets will have to monitor very closely. Since the RCEP partnership is so closely geographically aligned, it means that the supply chain within the region will be easier and cheaper to manage and maintain. This also means that there will be an entire region that is self sufficient in producing apparel and the textiles needed. This sufficiency will come from the many countries in the region that are each at different stages of economic maturity. The one downside for the region, and maybe one that the region itself does not care so much about is worker safety and worker rights.
    The challenge also comes for the US region because much of the apparel is off-shored to Asia. This fact could severely impact the US and NAFTA region by undercutting products and textiles, which could prove to be economically harmful for the strong textile industry that exists in the USA.

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