While reserving judgment until they can read the fine print, the sporting goods industry's major trade associations lined up in support of the Trans Pacific Partnership (TPP) agreement reached by the United States and 11 other Pacific Rim nations in Atlanta Oct. 5.
Within hours of the Obama Administration’s announcement that it had reached a deal, the Footwear Distributors and Retailers Association, the American Apparel and Footwear Association, the Outdoor Industry Association and Sports & Fitness Industries Association released statements to say they were leaning toward supporting the agreement, but would withhold a full endorsement until they can scrutinize the deal.
If ratified by Congress and the national legislatures of Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United States, the TPP will govern trade between 12 countries that account for more than 40 percent of the world's economic output. Proponents say It would reduce or eliminate tariffs on hundreds of athletic and outdoor products, set labor and environmental standards championed by the outdoor industry, establish uniform rules for protecting intellectual property and even crack down on wildlife trafficking. Opponents, including the Democratic Party’s two leading presidential candidates, the CEO of Patagonia and organized labor, say the benefits of the deal will flow overwhelmingly to investors and accelerate a global race to the bottom that will only further undermine America’s middle class.
If ratified by Congress, it will become the largest trade deal the United States has negotiated since the North American Free Trade Agreement (NAFTA) took effect in 1994. The breakthrough in talks came Oct. 5 after negotiators came to terms on remaining issues that had little to do with the athletic and outdoor industries and by no means assure its ratification by Congress.
Under a so-called “fast track agreement” reached this spring, the Administration must provide public access to the text of the TPP agreement 30 days after the President formally announces his intention to sign it. It will be open for another 60 days before the agreement is actually signed and submitted to Congress for an up or down vote without amendments.
Within the outdoor industry, support for the deal hinges on where companies are in the supply chain. Importers, including U.S. footwear and apparel brands and national retailers, overwhelmingly support the agreement, arguing it will enable them to shift millions of dollars spent on duties toward product innovation and other activities that add value and create US jobs. Nike Inc. and Adidas Group both issued statements supporting the pact last week. I U.S. footwear companies paid $2.7 billion in duties in 2014, including more than $450 million from TPP partner countries.
On the eve of a visit by President Obama to one of its factories in Portland, OR last May, Nike pledged it would accelerate investment in advanced footwear manufacturing in the United States if the TPP was ratified.
For Polartec, 'the best worst deal'
Even the country's leading domestic textile association, which has lobbied for years to ensure the TPP uses a yarn-forward system, is leaning toward supporting the agreement. The yarn forward system means fabrics, apparel and other textiles must be made from yarns manufactured in one of the TPP countries to qualify for reduced-or no-duty treatment. Vietnam strongly opposed the provision, because it has little domestic textile manufacturing and had hoped to grow its cut and sew industry by importing technical and other fabrics made only in China.
Polartec LLC CEO and NCTO board member Gary Smith called the TPP “the best, worst deal” available to the U.S. textile industry. While giving credit to the Obama Administration and US Trade Secretary Froman’s office for the level of consideration granted during the negotiation process, the deal only holds downside for US textile and yarn producer
In addition to maintaining the yarn forward rule of origin, Smith thinks US negotiators did not include any last minute Tariff Preference Levels into the TPP that have undermined provisions of prior trade agreements meant to protect US manufacturing jobs.
He cited the example of the U.S.-Central America-Dominican Republic Free Trade Agreement (CAFTA), which awarded TPLs to Nicaragua that enabled trouser producers to export one pair of woven pants made from non-U.S. fabric to the United States duty-free for every exported pair made from U.S. fabric up to an annual limit. By waiving duties of 25 to 35 percent on the pants, US policymakers hoped to spur investment in Nicaragua’s textile sector and create jobs to help stabilize the country.
Nicaragua’s TPL expired last year after the NCTO persuaded Congress not to renew the program despite heavy lobbying by the Retail Industry Leaders Association and other groups representing importers.
“It’s basically unenforceable,” Smith said of TPLs. “We fought pretty hard to make sure people understood that they don't really work in terms of actually encouraging direct investment in yarn and textile production assets, and to the best of our knowledge no TPLs are included in the Trans Pacific Partnership.”
Concerns about Vietnam
Smith remains concerned importers will use “short supply” petitions allowed under the TPP to circumvent the yarn forward rules of the pact. U.S. companies have used the provision to import apparel sewn in CAFTA from Asian fabrics into the United States duty free. While importers must convince the International Trade Commission that a fabric is not available in CAFTA to get such waivers, Smith said Polartec has been pressured by customers not to protest their petitions, even when a comparable product is available within the free trade zone.
“They all profess they want to make more in this hemisphere,” said Smith. “But they want to pay the same price they pay for it in Vietnam, Sri Lanka or Cambodia. They struggle to factor in the advantage of shorter lead times and being able to chase in-season demand, while supporting an accountable domestic and regional supply chain that invests in innovation.”
Patagonia’s lonely stand
One of the few outdoor companies to oppose TPP is Patagonia.
“We stand to gain financially from TPP and the potential duty relief on products made within the region, but the minor potential gains are not worth the social and environmental costs,” Patagonia CEO Rose Marcario wrote in a widely read entry on the company's blog, The Cleanest Line. “We have listened closely to the Administration’s assurances that TPP affords unprecedented environmental and labor protections in a trade agreement. We are not persuaded, for several reasons.”
Marcario added that the NAFTA and Generalized Agreement on Tariffs and Trade deals, which it also opposed, decimated its U.S. supply chain.
OIA, which offered a point by point rebuttal to Marcario’s screed in June, promised a thorough review of the agreement to determine how it will impact the industry’s priorities, which include creating more sustainable supply chains that pay fair wages and minimize environmental impacts.
“While there is potential for great benefits for the outdoor industry in TPP, we will work closely with our allies in Congress to ensure the agreement lives up to our standards of balanced trade and social and environmental responsibility before we support it,” said Amy Roberts, OIA's executive director.
TPP proponents have their work cut out for them. On Thursday, with public opposition to the trade pact and support for Sen. Bernie Sanders growing, Hillary Clinton came out against the trade pact, revealing a growing schism between President Obama and his party’ leading presidential contenders.