Textile and Apparel in the 2015 US Trade Policy Agenda

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Two hearings were held on January 27 where US Trade Representative Michael Froman testified before the Senate Finance Committee and the House Ways & Means Committee on the 2015 US Trade Policy Agenda. During the Senate hearing, two questions were directly related to the textile and apparel (T&A) industry:

Senator Robert Menendez (D-NJ) expressed concerns that inclusion of several concessions requested by Vietnam regarding rule of origin and short supply list for T&A in the Trans-Pacific Partnership (TPP) will result in severe job losses and potentially hurt the T&A industry in the Western Hemisphere. In response, Froman said that:

“We worked in the textile area through the yarn forward rule, the short supply list, rules of origin and customer enforcement and corporation to take these things into consideration. We’ve worked very closely with textile manufacturers in the US who are part of this supply chain with Central America to get the best of our understanding of what are the sensitivities are and take that into account in our negotiations.”

John Isakson (R-GA) raised the question about China’s recent cotton reserve & subsidy policy and its negative impact on the world cotton price which “has declined from 83-85 cents/pound not a long ago to 55-57 cents/pound recently.” Isakson wondered if anything USTR would do to address the problem, such as bringing the case to the World Trade Organization (WTO) Dispute Settlement Body (DSB). In response, Froman said that:

“The whole pattern of agriculture subsidies has changed a lot over the last ten to fifteen years. When (WTO) Doha Round was first started, focus on the subsidy was really the United States and the European Union. But in both of those areas subsidies have come down, while subsidies from China and India in the agriculture area have been increased. By some measures, China is now the largest subsidizer of cotton. We are engaging with them. We have conversations in the last couple of days also about that, about taking a fresh look at where subsidies have been provided, how it distorted the market and how that should play into the global trading negotiations. It is important to update our views on where the subsidies come from and what impact it has. For poor farmers in Africa, it doesn’t matter whether the subsidies come from the US or from China. It matters that the subsidy exists and so we will be engaged with China on this and create some disciplines around us. We are looking at all options out there. We are not yet determined whether there will be a (WTO DSB) case brought in that area.”

Other hot topics covered by the hearing include passing Trade Promotion Authority (TPA) bill, creating jobs through trade, addressing agriculture, digital trade & data flow, State owned enterprises (SOE), currency manipulation, transparency and Intellectual property right (IPR) protection issues in TPP, strengthening trade enforcement, renewing African Growth and Opportunity Act (AGOA), and making further progress of Trade in Service Agreement (TiSA) and Information Technology Agreement (ITA) at WTO.

The followings are some personal comments on the overall atmosphere in the Senate hearing:

  • It doesn’t seem possible to be able to conclude TPP without TPA, for at least two reasons: 1) Congress doesn’t want to give up its authority on trade policy. If TPP negotiation were concluded before the passage of TPA, Congress would feel it had little influence on shaping TPP through the mechanism of TPA trade negotiating objectives. This will add to the difficulty of potentially passing the TPP implementing bill under expedited legislative procedures. 2) Other TPP members, such as Japan, are unlikely to put the final offer on the negotiation table, especially for politically sensitive issues, without having the assurance provided by TPA.
  • There is a growing call for “strong” labor and environmental provisions in TPP. This is not surprising given the fact that the general public is attaching greater importance to labor and environmental impact of international trade. NGOs, such as labor and environmental groups have become more critical players in trade politics nowadays as well. Practically, strong labor and environmental provisions are regarded as important means to create “a level playing field” for US products competing in the world marketplace. These provisions can also be used as leverages to push for better human right practices in some foreign countries. That being said, as noted by many trade experts, trade policy shall not be expected to solve environmental and labor problems.
  • Currency manipulation becomes a hot discussion topic again, but USTR doesn’t seem to be interested in including the currency provision in TPP. Many senators raised the currency issue during the hearing, however, it shall be noted that: 1) Free trade agreement (FTA) and even WTO is not an appropriate venue to deal with currency issues; 2) the business community actually does not see currency as a priority issue to address. They care more about things like market access, IPR protection, national treatment and dealing with SOEs. 3) Currency manipulation provision is not an effective way to solve currency concerns. For example, it would be impossible to determine what shall be the “right” exchange rate–ten economists may give twelve different answers. 4) It will be interesting to see what language the potential TPA bill will use to define currency issue as a  trade negotiating objective.
  • Benefit of trade is still largely misunderstood. During the hearing, almost all support for TPA & TPP came from the export side: “export is good for the US economy”, “export can create higher-paid middle class jobs”, “US runs trade surplus with all FTA partners and all trade deficits came from those non-FTA partners”…However, nobody in the hearing talked about the benefits of imports and the global nature of supply chain in the 21st Mercantilism is still a popular view in Congress.

Sheng Lu

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Author: Sheng Lu

Professor @ University of Delaware

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