How the TPP could change where your clothes come from

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Vox | 11 November 2015

How the TPP could change where your clothes come from

by Libby Nelson

There’s a reason President Obama made the case for the Trans-Pacific Partnership at Nike’s headquarters: American clothing companies that want to manufacture their clothes in Vietnam are big winners in the massive trade deal.

If the deal takes effect, clothes and, eventually, shoes made abroad in TPP countries will become much cheaper to bring into the United States. That’s potentially good news for Nike’s bottom line — it makes more shoes in Vietnam than anywhere else — and theoretically for consumers, if companies pass along the savings on import duties.

The deal could be particularly good for Vietnam, one of the world’s biggest garment exporters, which trades more with the US than any other country.

So while some of the biggest fights over TPP have had little to do with the garment industry, the reality is that this piece of the deal could have big ramifications for everyday consumers. It could mean better business for American companies, including textile exporters. And the Obama administration argues it will improve working conditions for workers in countries like Vietnam — but labor and human rights experts don’t necessarily agree.

1) It’s going to get cheaper to import most clothes from Vietnam and Malaysia

Vietnam exports more clothing than any other country but China, and most of it ends up in the United States: 18 percent of women’s suits, blouses, and shirts imported to the US came from Vietnam in 2013. Nike manufactures 43 percent of all the shoes it makes in Vietnam, a higher share than it makes in China.

And the average tariff, the tax companies must pay to import goods into the US, is higher for clothing than for other products. Right now Nike pays $1.65 for each pair of shoes it imports; tariffs on clothing can be as high as 32 percent, as they are for T-shirts made from manmade fibers such as polyester.

The TPP will get rid of those tariffs for countries that have agreed to the trade deal. Some will vanish as soon as it goes into effect — women’s skirts and dresses, for example, can be imported for free right away. Others will fade out more slowly, over a longer period of time. The tariff on polyester T-shirts will be reduced by 35 percent from its current level when the agreement goes into effect, but the T-shirts won’t be fully duty-free for 11 more years.

Many analysts argue that Vietnam stands to benefit most from the trade agreement, in large part due to its garment industry. One forecast suggests the country’s exports could increase as much as 28 percent, as duty-free imports to the US and Japan encourage companies to manufacture their clothes there.

But a rule defining what has to happen in order for clothing to count as originating in a TPP country could make it more difficult for Vietnamese manufacturers to qualify.

2) "Clothing" means everything from the yarn on up

Negotiating the TPP meant balancing two important parts of the American garment industry against each other: the people who make the cloth versus the people who sell the clothes.

Where a T-shirt assembled in Vietnam from Chinese cloth made from American cotton is determined to originate determines whether importers have to pay a tariff under the new trade deal.

Historically, the default for US trade agreements is a "yarn forward" rule of origin, which means everything from the yarn through the final garment has to be made a country that’s part of the trade agreement in order to enter the US without import duties.

Fashion brands and department stores, interested in cutting the price of manufacturing their products, wanted a looser a rule of origin that counts only where the garment is cut and sewn. That would mean they can buy cheaper fibers and fabric from China and other countries outside the TPP agreement, assemble the clothes in Vietnam or Malaysia, then import the finished clothing to the US duty-free.

The American textile industry, on the other hand, wanted a bigger market for its own products, so a rule of origin that started earlier stood to benefit it.

The TPP ended up with a yarn-forward rule, although there are some exceptions — some temporary and some permanent — for textiles such as cashmere that aren’t generally commercially available in treaty countries.

Most leading textile producers — China, the European Union, India, Turkey, Korea, and Pakistan — aren’t part of TPP, and Vietnam gets most of its yarn and textiles from China. In theory, Vietnamese and Malaysian manufacturers will have an incentive to purchase American or Japanese fabric, or develop their own textile industries, in order to avoid import duties in the US.

But American and Japanese yarns and textiles are more expensive than similar products from China, so it’s possible they’ll decide the savings aren’t worth it and simply buy Chinese fabric and keep paying import duties.

Vietnam also cut a side deal meant to encourage the use of American denim for cotton pants and jeans. The tariff on those items won’t fully disappear for a decade, but Vietnamese-manufactured jeans that use American denim can be imported duty-free right away. In exchange, Vietnamese manufacturers can also use fabric from anywhere and import those clothes duty-free as well.

Both textile manufacturers and US retailers ended up endorsing the final agreement. Supporters of both free trade and better global development have criticized the yarn-forward rule.

Requiring manufacturers to buy yarn and fabric from other countries in the TPP pact could hurt even poorer nations, such as Bangladesh, that aren’t part of the treaty, Kim Elliott, a senior fellow at the Center for Global Development, said.

And free trade advocates argue this isn’t free trade at all, but protectionism for an American industry. "Rather than compete on quality and price with the world’s few textile producers for the business of the world’s multitude of apparel producers, the U.S. textile industry has convinced the U.S. government to do its bidding," wrote Daniel Ikenson, director of the Herbert A. Stiefel Center for Trade Policy Studies at the Cato Institute, in 2013.

3) The US should be able to force better working conditions

One reason Obama calls TPP the "most progressive trade deal in history" — a designation many progressives don’t agree with — is it’s supposed to include stronger protections for workers’ rights in the countries that are party to the treaty. That’s particularly relevant to the garment industry in Vietnam.

Vietnamese workers are legally prohibited from unionizing independently. In 2011, Human Rights Watch reported that the country operates state-run drug "treatment centers" where Vietnamese people accused of illegal drug use are forced to work for low pay or no pay at all. Underage workers are common in Vietnamese factories.

All this put Vietnamese garments, along with those manufactured in Malaysia, another TPP country, on the US Department of Labor’s list of goods produced by child labor or forced labor.

Every country that’s a party to TPP is required to allow freedom of association and collective bargaining, establish a minimum wage, eliminate forced and child labor, and end employment discrimination. A side agreement between the US and Vietnam would reinforce this, requiring Vietnam to allow independent labor unions and grant them to right to strike. Vietnam isn’t allowed to fully benefit from TPP until those changes are made to the US’s satisfaction.

Caroline Freund, a senior fellow at the Peterson Institute for International Economics, argued that if labor abuses are publicized after the agreement goes into effect, it will put pressure on the US to take action.

"If it happens in a TPP country, after we’ve said we have this high-standard agreement, we’re going to have to back that up," she said.

Provisions on workers’ rights in previous trade deals have proven hard to enforce. Five complaints have been filed since 2008 under a previous free trade agreement with the Dominican Republic and Central American countries, and four are still open. Workers in other countries often weren’t aware of the process for filing a complaint. "Enforcement weaknesses and problematic labor conditions persist," the Government Accountability Office concluded in a November 2014 report.

That’s why advocates for workers’ rights argue that the TPP doesn’t do enough to change labor conditions. "The labor standards contained in the agreement look nice on paper, but they are unlikely to ever be enforced in practice," Eric Gottwald, the legal and policy director of the International Labor Rights Forum, wrote in an email to Vox.

source: Vox