EU Commission Releases Negotiating Positions for Textile and Apparel in T-TIP

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The EU Commission released its negotiating positions for the textile and apparel sector in the Trans-Atlantic Trade and Investment Partnership (T-TIP) on May 14, 2014.  The position paper outlines a few areas that the EU Commission says it would include in the T-TIP negotiation with the United States:

  • Labeling requirements for textile & apparel and footwear products
  • convergence and/or harmonization of approaches to guarantee product safety and consumer protection
  • standards approximation

Earlier this year, USTR also released its negotiating objectives for the T-TIP. Specifically for the textile and apparel sector, USTR will “seek to obtain fully reciprocal access to the EU market for U.S. textile and apparel products, supported by effective and efficient customs cooperation and other rules to facilitate U.S.-EU trade in textiles and apparel.” USTR holds the positive view that “eliminating the remaining duties on our exports will create new opportunities for integration into European supply chains and to sell high-quality “made-in-USA” garments to European consumers.  Enhanced U.S.-EU customs cooperation will also help ensure that non-qualifying textiles and apparel from third countries are not being imported into the United States under T-TIP.

However, T-TIP negotiation somehow is under the shadow of the Trans-Pacific Partnership (TPP), another free trade agreement currently under negotiation among the United States and other eleven countries in the Asia Pacific region. As reported by the Inside US Trade, the National Council of Textile Organizations (NCTO) holds the view that TTP and T-TIP negotiation should be dealt with “sequentially”. NCTO would like to avoid a situation where the US makes a concession on textiles and apparel to the EU in T-TIP that goes beyond the US offer to Vietnam in TPP, causing Vietnam to demand the same concession in the TPP talks.

One of the most difficult issues on textiles and apparel in T-TIP will be the rule of origin, given that the U.S. and EU have taken vastly different approaches on this issue in their existing preferential trade agreements. The EU rule of origin for apparel essentially consists of two different rules — one that applies generally and one that can be used as an exception. Under the general rule, an apparel item qualifies as originating if it has undergone at least two “substantial processes” in the EU. In general, weaving the yarn into fabric and finishing the fabric are considered substantial operations. Under this scheme, EU manufacturers can use non-originating yarn to make qualifying apparel as long as that yarn is woven into fabric in the EU and also finished there. As a result, this part of the EU rule is sometimes referred to in the United States as the equivalent of a “fabric-forward” rule, since it usually requires all components of the item, starting with the fabric, to be made in the region.

The second part of the EU rule — which functions as an exception — essentially applies a more liberal rule for certain apparel and textile items. These items can qualify for tariff benefits even if only the printing or other downstream operations occur in the EU. Specifically, under this exception, a textile or apparel item that is made from non-originating fabric but for which the printing occurs in the EU can qualify for tariff benefits if the non-originating part of the item is no more than 47.5 percent of the value of the final product. EU manufacturers of printed bed sheets often take advantage of this printing exception (Inside US Trade).

Latest data from OTEXA shows that in 2013, U.S. textile and apparel imports from EU(28) totaled $4 billion, among which 52% were apparel products and 48% were textiles. Top product categories of U.S. textile and apparel imports from EU include non-woven fabrics, men&boys’ suits, dresses, floor coverings, other man-made fiber apparel, special purpose fabrics and women & girls’ coats. In comparison, U.S. textile and apparel exports to EU(28) reached $2.5 billion in 2013, among which only 29% were apparel products and 71% were textiles. Top product categories of U.S. textile and apparel exports to EU include specialty & industrial fabrics, felts & other non-woven fabrics, filament yarns, other made-up textile articles, waste & tow staples, women & girls slacks, shorts and pants as well as spun yarns & thread.

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CAFTA-DR Fixes

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In 2011, the US Trade Representative Office announced a number of changes to the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR), or called “CAFTA-DR fixes”. The changes intend to expand export opportunities for the U.S. textile industry under the CAFTA-DR and encourage a vibrant textile and apparel supply chain in the Western Hemisphere. Among the changes of particular significance is the change clarifying that certain monofilament sewing thread is now required to originate or be produced in the United States or the CAFTA-DR region in order for goods to qualify for preferential tariff treatment.  [You may think about within the territory of the CAFTA, which country actually has the capacity of making “thread”?] Before the fixes, some CAFTA-DR countries used cheaper threads from Asia which raised grave concerns by the textile manufacturers.

More technical details about the CAFTA-DR fixes can be found here.

PS–The Difference between Yarn and Thread:

yarn and thread

  • A thread is a type of yarn
  • A thread is used for sewing while a yarn can be used for many purposes such as knitting, weaving, embroidering, and crocheting, and so on
  • A thread is lighter in weight than a yarn in general
  • While a thread is used to sew pieces of fabrics together, yarn is used to weave an altogether new fabric

The TPP would actually benefit whom?: The local Vietnamese companies or rather the global capitals which invest in Vietnam ?

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Outcomes of many studies suggest that Vietnam would become one of the largest beneficiaries of the Trans-Pacific Partnership (TPP) by substantially expanding its apparel exports to the United States. However, the news report below raises another interesting question to consider: who actually would benefit from the TPP: The local Vietnamese companies or rather the global capitals which invest in Vietnam because of the agreement? This question is important because the answer reflects many debates nowadays about the impact of globalization; particularly, the impact is suggested to be unequally felt by different stakeholders.

From thanhniennews

The US-led TPP trade pact that will include Vietnam among its signatories is expected to be wrapped up this year, but Vietnamese firms are unsure if they will benefit.

Many are anxious since foreign investors with deep pockets are planning to set up operations in the country to take advantage of the lowering of import taxes by many large economies that will sign up for the trade deal.

For instance, import tariffs in the US, the biggest customer for Vietnam’s leading export, textiles, will be cut from 17-32 percent now to zero.

Many textile and garment companies in the region have already begun to move to Vietnam.

Texhong Corporation of Hong Kong, which set up a dyeing factory in the southern province of Dong Nai in 2006, recently opened another one in the northern province of Quang Ninh with an investment of US$300 million.

One of Hong Kong’s leading textile companies, TAL Apparel, has plans to set up a second textile-dyeing -apparel factory worth hundreds of millions of dollars. It has eight factories worldwide, including one in Vietnam’s northern province of Thai Binh since 2004.

Unisoll Vina, owned by South Korean Hansoll Textile Ltd, has also got a license to build a $50-million factory to make fur and leather clothing and accessories.

According to the Ho Chi Minh City Association of Garment, Textile, Embroidery and Knitting, Japanese companies Toray International and Mitsui, Austria’s Lenzing, and China’s Sunrise are also exploring investment opportunities in the country.

Vietnamese companies are meanwhile trying to enlarge their limited feedstock production capacity to comply with TPP’s regulations on origins – for instance apparel has to be made using yarn and other materials produced in member countries.

The Vietnam National Textile and Garment Group (Vinatex) has opened three yarn factories this year in Hanoi and the central provinces of Ha Tinh and Thua Thien-Hue with an annual capacity of 1,270 tons.

It started work on 11 others in the first half of the year.

Figures from the Vietnam Textile and Apparel Association (Vitas) showed that 70 percent of more than 3,700 textile factories in the country make apparel; only 6 percent produce yarn and 17 percent make cloth while 4 percent dye.

Local producers depend largely on fabric imported from China.

Insiders said a yarn factory costs tens of millions of dollars, a sum most Vietnamese businesses cannot afford.

Pham Xuan Hong, deputy chairman of Vitas, said unless the government helps by making cheap loans available for yarn projects, the industry would not benefit from the TPP at all.

The government also needs to zone certain areas for dyeing plants since they are shunned everywhere due to pollution concerns, Hong said.

China’s chair left unoccupied at Obama’s free trade party

Yesterday in class, some of you asked why did the U.S. decide to join the TPP negotiation at the very beginning? The following report from the Financial Times (UK) may provide some insightful views. To put it simply, it is a big game involving national interests. You can also rethink about those points I mentioned in the class regarding the “strategic importance of Asia to the US”.

From Financial Times April 2, 2013

With the rise of China in its sights, the Obama administration has posted marines in Darwin, Australia, and increased the number of warships visiting Subic Bay in the Philippines. The “pivot” to Asia now has a new stopover: Brussels.

After years of discussing the idea, the US and the EU are finally starting to negotiate a free-trade agreement which would form an economic zone covering 40 per cent of the world’s gross domestic product.

At the same time, momentum is building on another important trade initiative, the Trans-Pacific Partnership, which brings together the US with several of the Asia-Pacific region’s most dynamic economies: Singapore, Australia, Vietnam and – since two weeks ago – Japan. It will come as a surprise to anyone who spent a lot of time on the campaign trail last year, but free-trade agreements have emerged as one of the biggest priorities of Barack Obama’s second term as US president.

The striking feature of this burst of free trading is who is absent. The agreements are one of the fresh ways Washington is developing to deal with China, the world’s biggest exporter of manufactured goods. After urging China to behave as “a responsible stakeholder” and after the brief flirtation with a G2 arrangement in Mr Obama’s first year, the latest trade approach might be characterised as ABC – Anyone But China.

Supporters of the US-EU trade pact complain that it is about more than China. They point to the boost to growth that could flow from a deal between two partners which already have a two-way annual trade in goods and services of $1tn.

However, much of the substance of the EU talks and of TPP points to China. The agenda includes state subsidies for business and protecting intellectual property – the sorts of issues that are huge bones of contention with Beijing.

If the US can get enough important countries to sign up, it hopes to establish global trading standards that China would feel obliged to respect.

On Capitol Hill, where free trade is not an easy sell in an era of unemployment of more than 7.5 per cent, the China angle helps to rally support.

“This is very much part of our China strategy,” an aide to a leading Republican senator puts it, talking of the discussions with the EU.

More broadly, the two negotiations reflect a different approach to global governance. Prolonged deadlock over the Doha trade round, with similar stalemates about climate change, small arms and other issues, has led to deep scepticism about the idea of achieving global agreements on important issues.

TPP and the US-EU trade talks represent an alternative strategy, an attempt to forge fresh rules by appealing to smaller groups of like-minded nations, in this case working around China rather than with Beijing. Supporters say this is not an abandonment of global institutions like the World Trade Organisation, but simply a realistic assessment of how to get things done.

The big question, of course, is how China will react. Ever since it joined the WTO more than a decade ago, China has had one foot inside the global trading system and one outside it.

On most of the occasions that China has lost legal challenges at the WTO, it has implemented the rulings and made its trade laws compliant. But Beijing has yet to open up government procurement, an important factor in an economy like China’s. At the same time, allegations of Chinese hacking of trade secrets from other countries are seen by many as an affront to the very idea of free trade.

Beijing has strong views about what is really going on.

“The US is trying to rewrite global trade rules behind our backs,” says a senior Chinese official.

The risk of the US approach is that it could encourage China to turn its back even further on the global trading system, diminishing the incentive to comply rather than intensifying it.

If that were to happen, the US-EU trade talks would not herald a new era of economic integration but rather another nail in the coffin of globalisation.

 

Trans-Atlantic Trade and Investment Partnership

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From Just Style, March 2013

Textile and clothing industry groups on both sides of the Atlantic have welcomed the news that the EU and the US are to commence talks on the biggest bilateral trade deal ever negotiated.

European Union (EU) clothing and textile industry association Euratex has hailed the launch of talks between the United States and the EU to forge what the European Commission calls the “biggest bilateral trade deal ever,” saying EU exporters will benefit.

A deal, once sealed, could eliminate American duties as high as 19%, says Euratex.

The EU’s textile and clothing industry already has a positive trade balance with the US. “Tariffs are still high in the US” for textile and clothing, Euratex president Alberto Paccanelli has stressed.

And it is worse when it comes to exporting products containing wool where the “duties are generally higher, sometimes above 19%,” Luisa Santos, head of international trade at Euratex, told just-style.

So “we expect to have duty-free access from the entry into force of the agreement and we are willing to give the same benefit to the US,” Ms Santos noted. With exports being highly price-sensitive, an elimination of the duties could “help substantially our competitiveness in the market.”

The EU’s textile and clothing exports to the US have been steadily increasing and are already substantial. In 2009, these exports stood at EUR2.8bn (US$3.7bn) and in 2010, they rose to EUR3.3bn, while they reached EUR3.7bn in 2011.

In negotiations, the EU would have a “forward looking approach” in terms of tariff and duty-free access from day one, according to Santos.

US sees opportunity

There was also optimism from American importers and retailers. Julie Hughes, president of the United States Association of Importers of Textiles & Apparel (USA-ITA), said a free trade agreement “presents a terrific opportunity” to remove duties and resolve regulatory issues that hold back trade between the US and the EU.

“We are especially enthusiastic about the launch of the US-EU trade negotiations,” Hughes told just-style adding: “Many people don’t realise that the EU is actually one of the top destinations for US exports of yarns, fabrics, and apparel” or that US brands import yarns and fabrics from the EU to manufacture ‘Made in the USA’ garments.

However some US groups are concerned because of different tax and regulatory regimes between the two regions.

“We are eagerly watching how the US government is going to engage with the EU,” said David Trumbull, vice president of the USA’s National Textile Association.

He is concerned about the fact that the US does not have the comprehensive sales tax systems in place in Europe, which do not apply for exports. Meanwhile, American producers can pay more through income tax or corporate tax: so US exporters could be placed at a comparative tax disadvantage, also having to pay VAT in Europe.

He said: “We do not want to get subjected to double taxation when exporting to the EU while EU producers get away with paying import duties to the US.”

Other issues to discuss

Meanwhile, back in Europe, the European Commission is compiling an impact study on “which sector benefits how”, said Helene Banner, EU trade spokesperson. The study will be released in two months.

An earlier report from the EU-US High-Level Working Group on Jobs and Growth (HLWG) had, noted Banner, recommended “eliminating all duties on bilateral trade, with a substantial elimination of tariffs upon entry into force, and a phasing out of all but the most sensitive tariffs in a short time frame.”

But there are host of other issues to discuss, notably, labelling, safety and consumer protection, during clothing and textile talks.

One issue is that “the information that has to be included on the label is more extensive in the US than in the EU,” Ms Santos stressed. For instance, the US has mandatory origin labelling – which is currently only a (recent) proposal in the EU.

And when it comes to safety and consumer protection, the US has its own legislation that varies from the EU. – for example requirements in terms of testing.

Santos said it is important to focus on “harmonisation to reduce costs for companies, especially small-and-medium enterprises in both sides of the Atlantic”.

Brussels and Washington aim to conclude the talks “ideally in about two years from now,” said EU trade Commissioner Karel De Gucht: “But more paramount than speed is achieving an ambitious deal.”

The European Commission will present draft negotiating directives to the EU Council of Ministers for approval in March and similar proposals are being sent to the US Congress. “Both sides aim to advance fast once negotiations are started,” added Banner.

TPP and the U.S. Textile Manufacturing Industry

The Congressional Research Service just released its most recent study on the U.S. textile manufacturing industry and the Trans-Pacific Partnership (TPP) Negotiation. This is also one of the limited reference available so far that specifically addresses the sectoral impacts of TPP.

Overall, this report did a good job of compiling latest statistics showing the operation of the regional trade & production network between the United States and those developing countries in central and south America. It also discusses why the U.S. textile industry appears to be very nervous about Vietnam.

However, the study wasn’t able to quantify the impact of TPP, which leaves potential for future studies. On the other hand, although debates over TPP centers upon the rules of origin, we shall not forget about foreign investment–especially when geographically Vietnam is very close to China, Japan and South Korea. Even yarn-forward is adopted, why cannot Chinese factories move their factories to Vietnam? It shall be noted that China’s economy is undergoing structural change and it’s the time for some Chinese factories to “go offshore”. 

Full text of the report can be found here.

 

The Importance of CAFTA-DR and NAFTA to the U.S. Textile Industry

A recent study of the United States International Trade Commission reaffirms the special roles played by free trade agreements in supporting the regional trade-production network (RTN) for textile and apparel products in America and promoting the export of U.S.-made textile to developing countries in the region in particular. However, also as mentioned in the report, the influence of such RTN has sustantially declined since the full elimination of quota system in 2005. The implementation of the new FTAs established between US and countries in Asia-Pacific pose new uncertanties to the RTN in America, given the trade diversion effect commonly seen in FTAs.