A week after the Obama Administration released the full text for the Trans Pacific Partnership, industry trade groups say they’ve discovered no surprises.

While the text is still being vetted by attorneys worldwide and could change, the version released Nov. 4 provides for: hundreds of millions of dollars in duty relief on hundreds of apparel, footwear and other products in its first year of implementation; protection for U.S. textile manufacturers; and unprecedented enforcement tools for its environmental and labor provisions.

The Footwear Distributors and Retailers of America (FDRA), which claims to represent 80 percent of the country’s footwear industry, estimates the TPP will save the domestic footwear industry $5.7 billion over the next decade even if trade with the 11 other signatory countries remains flat.

“We think for footwear it will save $450 million a year,” said FDRA President Matt Priest.

TPP member Vietnam is already the second largest supplier of footwear to FDRA members after the People’s Republic of China. While the vast majority of that is athletic footwear, the industry aggressively expanding product of virtually all types of footwear in Vietnam. Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru and Singapore make up the remaining 10 TPP signatories.

Outdoor Industry Associate Trade Policy Advisor Rich Harper said implementation could occur as early as January, 2017 and will hinge largely on when the United States and Japan, which account for 60 and 18 percent of TPP trade, respectively, ratify the agreement. If after two years of signing the agreement, six countries representing 85 percent of the region’s combined trade adopt the agreement, it goes into effect. 

“There has never been a trade agreement negotiated by a U.S. president that was not approved by Congress and I don't think this will be the first,” said Ron Sorini, a former apparel executive and U.S. trade negotiator who advises OIA on trade policy.

Despite the oncoming presidential election, Sorini sees an opportunity
for TPP supporters to push ratification through Congress between
mid-May, 2016, when the International Trade Commission is expected to
deliver its analysis of the TPP on U.S. industry, and August, when
Congress will suspend operations for its annual August recess. 

Hundreds of garments to become duty-free on day one
In the apparel sector seven of OIA’s nine priority products that meet TPP rules of origin will see duty-free treatment immediately upon implementation. Those include knit sweaters and pullovers of acrylic fibers and pants made from water-resistant synthetic fibers. The remainder will see duties drop from 35 to 50 percent and then phase out in the eleventh year.

Sorini said those are the longest phase-outs periods reached in a U.S. trade agreement. The North American Free Trade Agreement (NAFTA), for instance, phased out duties on apparel made from cotton and man-made fibers over 10 years.

Under the yarn-forward rule, apparel must be made using yarns sourced from member countries to qualify for duty relief granted by TPP. Generally speaking a garment may still be made with trimmings and filler, including down and synthetic down, from outside the region.

To secure the support of U.S. textile interests, TPP includes tougher rules of origin than previous trade agreement and does not allow companies to add new fabrics to the so-called “short supply list.” Under the Central American Free Trade Agreement (CAFTA) and NAFTA, companies can request apparel made from Asian or European fabrics be granted preferential access to the U.S. market as long as they can prove the fabrics are not commercially available from suppliers within those trading areas. Polartec LLC and other domestic textile producers say U.S. retailers and brands have abused the process to pad their profits. Sorini said there are mechanisms in TPP to allow for the inclusion of new fabrics, but did not elaborate.

Designing footwear for humans rather than tariff codes
In the footwear category, 102 of 120 product classifications will be duty free on the first day of implementation, including two of OIA’s six priority classifications. The rest will phase out by the twelfth year. 

This will greatly free up footwear design, which has been overly influenced by a tariff schedule that assigns duty rates of 12 to 37.5 percent across 436 different classifications of footwear depending on a shoe's features.

“Now you are incentivized not to add features to your shoes to save money,” said FDRA’s Priest. “That disincentive goes away. There will be a move away from designing footwear to fit certain tariff classifications.”

Exporters could benefit, too
On the export side of the equation, benefits for the outdoor industry are concentrated in Japan, where U.S. exports are subject to tariff quotas and duties ranging from 21.6 to 30 percent.

“The Made in USA label is very popular and outdoor enthusiasts are growing,” said OIA’s Harper. “They have tariffs on leather footwear that priced U.S. product out of the market. Those will be eliminated immediately.”

Harper also sees new opportunities for Made in USA sleeping bags, tents, coolers, water bottles and bladders, lanterns, fishing gear and snow shoes, where duties will drop from 5.6 to zero immediately.

“This is really just the beginning,”  Harper said.  “Once it comes into force there is the possibility it will attract other countries.”

Among eight countries most likely to join TPP are South Korea, Asia’s second-largest market for outdoor gear after Japan, and the Philippines, which is alaready a significant manufacturer of packs and bags.

Threats to regional supply chain
Some in the textile industry fear TPP will undermine decades of investment in the cut and sew sector in Central America, which now enjoys duty-free access to U.S. markets under the yarn-forward provisions of the CAFTA.

Vietnam’s apparel and footwear exports to the United States are already surging, due in large part to rising labor rates in the People's Republic of China (PRC). Others counter that Vietnam's apparel and footwear sector has relied on cheap textiles imported from the PRC, which is excluded from the TPP. Vietnam’s textile workers are also as much as 30 percent less productive than their mainland Chinese counterparts, according to some experts. Because it will take billions of dollars in foreign investment to replace Chinese fabric capacity and expertise, Sorini said the NAFTA and CAFTA regions have ample time to adjust.

Unprecedented environmental and labor sanctions
In response to labor and environmental advocates, TPP is the first trade
agreement negotiated by the United States that makes sanctions used to
enforce commercial provisions of the treaty available for enforcing the
labor and environmental standards stipulated in the treat. In NAFTA,
labor and environmental issues were addressed under separate side
agreements with ineffective enforcement tools.

TPP is also the
first trade agreement requiring signatories to recognize labor standards set by the
International Labor Organization and commit to passing laws that set minimum
wage, place limits of hours worked per day and enforce occupational safety and health.

Particularly critical for footwear, apparel, pack and bag makers is a
bilateral plan the Obama Administration developed with Vietnam to help
the nominally communist country transform its labor law in a way that
allows for independent unions. Vietnam had agreed to enter the program
as well as a dispute resolution program that the U.S. could use to suspend
Vietnam’s TPP access to U.S. markets if it fails to live up to its its
commitments.

“We have come a long way between NAFTA and this agreement,” said FDRA’s Priest.

TPP
also allows parties to use commercial sanctions to compel compliance
with labor and environmental standards for the first time. This is at
the core of the TPP’s unprecedented environmental provisions, which
require signatory countries enforce their own environmental laws,
forbids them from weakening those laws to attract investment, requires
they protect endangered species and halt subsidies of commercial fishing
practices which endanger sharks, sea turtles and sea mammals. All
duties on environmental goods are also eliminated.

Priest said
opposition to labor and environmental provisions among U.S. companies
has largely faded and predicted opposition to TPP from labor and
environmental groups will fade as they become more familiar with the
deal.

“If they are not happy with these kinds of things they may
never be happy,” said Priest, who noted that Vietnam’s concessions of
independent labor unions are unprecedented. The business community has
come to appreciate some of the certainty this will provide. They have
gotten over their opposition and welcome the opportunity to drive
changes the supply chain.”

–Charlie Lunan