TPP Textile Negotiation Updates (March 2015)

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According to Inside US Trade, negotiators continued their work on the technical details of the textile chapter under the Trans-Pacific Partnership (TPP) during the latest round of negotiation in Hawaii. Although progress has been achieved, key issues remain unsolved.   Exceptions to Yarn-Forward Rule of Origin Since the 807A program under the Caribbean Basin Imitative (CBI) enacted in 1998, the so called “yarn-forward” rule of origin has been adopted in almost all free trade agreement (FTA) and trade preference program (TPA) reached between the United States and its trading partners. “Yarn forward” rule requires that each step of apparel production from spinning of the yarn must take place in one of the FTA countries. At the same time, FTA/TPA often adopt exceptions in addition to “yarn-forward” rule so as to provide flexibility to importers, especially in the case when certain textile and apparel products are not available in commercial quantities from the FTA/TPA region. It is almost certain at this point that TPP will continue to adopt the “yarn forward” rules of origin. However, what kind of exceptions to the yarn forward rule will be allowed in TPP remain unclear: 1) How long will be the “short supply” list in TPP? Short supply list is a mechanism which allows fibers, yarns, and fabrics determined not to be available in commercial quantities in a timely manner from within the FTA partner countries to be sourced from outside the countries for use in qualifying textile and apparel products. According to Inside US Trade, some TPP countries want to declare the short-supply list complete as soon as possible so that they can shift the discussion to other possible exceptions to the yarn-forward rule. However, others doubt that the U.S. would be willing to contemplate additional exceptions and therefore believe that the best approach is to keep the short-supply list open and try to add as many products as possible. 2) Whether there will be other exception mechanisms in TPP in addition to the “short supply” list? According to Inside US Trade, there were some discussions on creating a separate mechanism such as the tariff-preference levels (TPL) in TPP. TPL allows for a certain quantity of textile and apparel goods (usually yarns, fabrics and cut pieces) from a third-country (a country who is not a party to the agreement) to qualify for the FTA benefits. Additionally, it is more than just Vietnam that is seeking more exceptions to the “yarn forward” rule in TPP. For example, Australia and New Zealand are also doing so, which may be in large part for tactical reasons — essentially holding up the textile talks as leverage to secure acceptable outcomes in other areas that are more important to them, for instance, agricultural market access or intellectual property. Tariff Phrase-out Mechanism Inside US Trade says that U.S. is sticking to the framework that it laid out in its initial tariff offer, which put products into three categories subject to different phrase-out schedule:

  • X-basket, which covers the most sensitive products that would be subject to an initial cut upon entry into force, but then remain in place until they are eliminated in the tenth year for knit apparel and fifteenth year for woven apparel
  • B-basket, which consists of slightly more sensitive apparel items that would be subject to a linear tariff phase-out over five years
  • A-basket, which consists of least sensitive items whose tariff rate would go to zero immediately upon TPP entries into force

Key questions remain as to which items the United States will place into what basket. Other issues in the textile chapter The TPP textile chapter may also include languages on the following two issues: 1) a special safeguard mechanism under which the importing country can raise tariffs up to the most-favored nation (MFN) level in the case of an import surge; 2) customs language on the inspection mechanism.

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Author: Sheng Lu

Professor @ University of Delaware

15 thoughts on “TPP Textile Negotiation Updates (March 2015)”

  1. The “Yarn-Forward” rule is a heavily debated and influential rule to adopt in current trade agreement policies, such as the Trans-Pacific Partnership (TPP). In a world of immense globalization product production is not so black and white with its creation. No longer is one country solely responsible for the creation of products with the international division of labor, which allow components of production to be sourced from other countries. “Yarn-Forward” rule is used in the textile industry to control the sourcing of the yarn components to within the FTA members to eliminate competition outside of trade agreement members and to promote and benefit all the trade agreement members. By implementing a “short supply” list you are literally bypassing the “yarn-forward” rule and enjoying the benefits of lowered trade tariffs. If the “short supply” list or tariff-preference level is enacted there should be tariffs on the products (not as high as normal) to not promote the use of these outside of trade agreement member sources. The apparel exporters members of the trade agreement benefit greatly from these exceptions with better price sources and less barriers of trade ensuring market control/capture with its members, while the textile exporters members suffer from competition. One way to balance these exceptions would to places limits or quotas on importing of apparel with lowered trade barriers to stop the market from being overrun and one way capture.

    1. good thinking. as you said, there has been some concerns, especially from the us textile industry, that the short supply list mechanism will erode the yarn forward system. This is why what products will be included in the short supply list remains an unsolved issue in the TPP negotiation. in terms of quota, as a matter of fact, it is not an option–but we will mention the history of quota in our class very soon.

  2. I agree with the above comment, but I think that having this “short supply” list will be beneficial. It would definitely need quotas with importing these apparel goods, but we could definitely benefit from Australia and New Zealand being an exception to the “yarn forward” rule in TPP. Australia and New Zealand are first world countries and would be an additional step up that North America could take to be more successful than its competitors.

    1. good thinking. however, if Australia and New Zealand are allowed to adopt more flexible rule of origin, why Vietnam couldn’t? you can see how complicated is the negotiation which involves a comprehensive consideration of economic, legal and political factors.

  3. I agree with what each of you are saying but we either have to leave the short supply list open or don’t have it at all. You cannot only pick and choose which countries you want in it because it will leave bad blood with other countries. No matter what you do people are going to be unhappy that is why I think the TPP should get rid of the list all together. If you are going to have the yarn forward rule, stick to it and don’t make any exceptions. I also believe that the TPL (tariff preference levels) is not a good idea because its making exceptions once again. These organizations are making rules and then changing them. This seems very wishy washy and makes them seem unreliable. These changed and exceptions are going to cause issues and fights between the T&A industry. The FTA counties should stick to being yarn forward and only that because it is what they agreed to in the first place. They can possibly add more countries into what they consider “FTA” countries, but making a short supply list just makes them look bad.

    1. I agree with what you’re saying It should be all or nothing. I don’t like the different “baskets” for similar reasons

    2. glad to see the interesting discussion here. A quick comment on your suggestion that “If you are going to have the yarn forward rule, stick to it and don’t make any exceptions.” If there is only yarn-forward rule in TPP, retailers and fashion brands will strongly oppose the passage of the agreement. If the goal is to get as many support as possible for passing TPP, you have to make a balanced deal (i.e. balancing the interests of all stakeholders, rather than just favor one specific party). This is also why T&A trade issue is very very complicated.

  4. I completely agree with the above comment, that the “short supply” list either needs to be applied to every country or none. It is not fair to select a few countries to apply the rule to and ignore others. It is true that some countries could be more beneficial than others, but by cutting out countries like Vietnam and letting Australia get by, certain countries are being limited and therefore cannot grow in the industry. I think that rules need to be set and then kept too, making small changes as the industry changes, but as Savage said, it can become confusing and cause feuds between countries if the rules are constantly changing.

    1. I understand why you feel the rules are confusing and complicated. But this is how policymakers try to creatively balance interests of various parties and make things moving forward. We will discuss T&A trade policy in a few weeks and after the session you will have a fresh view on these issues~

  5. I agree with Kimberly! Its not fair to pick and chose the places that can be involved with this. It should be all or nothing! The people above are right when they say this could potentially create bad relationships with countries that are not involved.

  6. I can see both sides of this story and how it can be beneficial to “bend” the rules on limited resources in a countrry that aren’t part of the policy. But I agree with the past few comments, you either need to stick with the one policy that everyone follows. The mention of getting as much support as possible for passing TTP, but I don’t find picking and choosing as a way to find a balance but a way to divid and pick favorites. If this is the case then why even have organizations and policies?

  7. The TPP is setting the rules of the playing field that will be our careers in the T&A industry. While I definitely understand the diplomatic approach that is being suggested by the class to apply to trade policy, the actual world is not one of ideals but realities. Trade policy is a complex landscape to navigate, and at this point the realistic goal is freer trade and not 100% free trade. The nations involved in the agreement have been chosen based on standing relationships, and mutually beneficial agendas. We can’t simply open up an agreement to all nations, due to the threat of untested trade partners that could potentially undermine global standards and create unnecessary conflict. If nations feel left out, it may be beneficial to them to adopt TPP standards or open their markets to encourage access and amenable conditions for foreign investment.

  8. I agree very much with the previous comments. It is highly unfair to have some places get involved and not others. As a policy, it needs to involve everyone or none. Limiting who is involved can cause bad relationships between each other and bad business.

  9. I also see both sides and why it is so controversial wether or not to bend the rules on limited resources with countries not part of the TPP however I do agree that they need to stick to one way or the other. I also think excluding certain countries could definitely cause problems in the future and result in bad relationships as other students have stated previously.

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