NAFTA Renegotiation and Textile-Specific Rules of Origin in Free Trade Agreements: Discussion Questions from FASH455

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(Photo credit: Steve Lamar, AAFA)

#1 The US textile industry and the fashion retailers/brands/importers have very different priorities regarding modernizing and updating NAFTA. Do you believe that a compromise acceptable to both sides can be found? If so, what do you believe that compromise can be?

#2 Overall, why or why not do you think the U.S. textile and apparel industry is a beneficiary of NAFTA over the past decade? From the perspective of the U.S. textile and apparel industry, should or should not reducing the U.S. trade deficit be a prioritized objective in the NAFTA renegotiation?

#3 What will happen to the U.S. textile and apparel industry if NAFTA is gone? How should U.S.-based textile and apparel companies respond to NAFTA’s termination?

#4 In your view, why or why not the “yarn-forward” rules of origin are outdated in today’s global-based textile and apparel supply chain?

#5 Why do you think the “yarn-forward” rules of origin vary from free trade agreement (FTA) to FTA? Do you think there’s a way to make a universal “yarn-forward” rule for all U.S. FTAs?

#6 Why are the textile-specific rules of origin under free trade agreements so complex? What potential issues do you think can arise because of the complexity of these rules?

(Please feel free to join our online discussion. In your comment, please mention the question #)

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USTR Lighthizer Discusses Philosophies behind Trump Administration’s Trade Policy

At an event hosted by the Center for Strategic and International Studies (CSIS) on September 18, U.S. Trade Representative Robert Lighthizer addressed the U.S. trade policy in the Trump Administration, particularly Trump’s beliefs on trade:

Philosophy 1: The reason why some Americans oppose free trade is NOT that they were “ill-informed.” Rather, it is because the U.S. trade policy for decades has failed to create a “level playing field.” The Trump Administration will proactively use all instruments to “make it expensive” for U.S. trading partners to engage in the non-economic behavior, convince U.S. trading partners to treat U.S. workers, farmers, and ranchers fairly and demand “reciprocity” both in the home and international markets.

Philosophy2: Trade deficits matter. Although trade policy is not the only cause for the trade deficit, it can be a major contributor, such as high tariffs that deny the market access for U.S. products, not imposing the border adjustment tax and currency manipulation.

Philosophy 3: China is the top challenge. According to Lighthizer, “the sheer scale of China’s coordinated efforts to develop their economy, to subsidize, to create national champions, to force technology transfer, and to distort markets in China and throughout the world is a threat to the world trading system that is unprecedented.”

Philosophy 4: The Trump Administrations will exam all existing trade agreements to make sure they provide “roughly equivalent” measured by trade deficits. “Where there the numbers and other factors indicate a disequilibrium, one should renegotiate.”

During the Q&A session, Lighthizer further shared his views on some cutting-edge trade issues:

  1. Regarding the NAFTA renegotiation, Lightlizher said that the negotiation is “moving at warp speed, but we don’t know whether we’re going to get to a conclusion, that’s the problem.” The consultation process with U.S. Congress is complicated and time-consuming, but it is unavoidable.
  2. The Trump Administration prefers bilateral trade deal over regional and multilateral ones. Given the size of the U.S. economy, Lighthizer believes that bilateral trade agreement will provide more negotiation leverages and ensure better enforcement.
  3. The Trump Administration will still stay very much engaged in Asia.
  4. The WTO Dispute-Settlement mechanism doesn’t work well—it has both imposed new obligations for the U.S. and reduced a lot of U.S. benefits.
  5. Regarding the outlook for the Trans-Atlantic Trade and Investment Partnership (T-TIP) negotiation, Lighthizer stressed the importance of the US-EU trade relations. He said that the series of elections in EU is a reason why the negotiation of the agreement hasn’t moved forward.
  6. Regarding TISA (Trade in services agreement), the U.S. objective is to open markets and eliminate market access barriers for U.S. companies.

USTR Hearings on the Renegotiation of NAFTA: Textile and Apparel Industry

Panel:

  • Augustine Tantillo, President, and CEO, National Council of Textile Organizations
  • David Spooner, Counsel representing the U.S. Fashion Industry Association
  • Stephen Lamar, Executive Vice President, American Apparel and Footwear Association
  • Randy Price, VP, Managing Director Product Supply—Americas, VF Corporation
  • Marc Fleischaker, Trade Counsel, Rubber and Plastic Footwear Manufacturers Association
  • Reece Langley, VP of Washington Operations, National Cotton Council
  • Richard Gottuso, Vice President and General Counsel, Bracewell, LLP-Hunter Douglas

Tariff Phaseout Schedule for Apparel in the EU-Vietnam Free Trade Agreement

The EU-Vietnam Free Trade Agreement was concluded in December 2015. The agreement is EU’s second free trade agreement with a Southeast Asian country (after Singapore) and is the most ambitious and comprehensive FTA that the EU has ever concluded with a middle-income developing country.

Statistics from the Eurostat show that Vietnam was EU’s sixth largest extra-region apparel supplier in 2015 (after China, Bangladesh, Turkey, India and Cambodia), accounting for 3.5% of imports in value (or €28.0 billion) and 2.8% in volume.

The EU-Vietnam free trade agreement is expected to substantially expand Vietnam’s textile and apparel exports to the EU market. On the one hand, EU’s import duties on textile and apparel from Vietnam will be eliminated through a seven-year phaseout period once the agreement comes into force (see below). On the other hand, a garment made in Vietnam which contains fabrics made in South Korea or other ASEAN countries with which the EU has a free trade agreement in force will still be qualified for duty-free treatment under the agreement.

EVFTA tariff phaseout

EVFTA table

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Complied based on the EU-Vietnam Free Trade Agreement: Agreed text as of January 2016.

The legal review of the negotiated text is currently on-going and will be followed by translation into the EU’s official languages and Vietnamese. The EU Commission will then present a proposal to the Council of Ministers for approval of the agreement and ratification by the European Parliament. The agreement is expected to come into force in 2018.

Are US Textile and Apparel Imports Using Free Trade Agreements? (Updated February 2017)

Free trade agreements (FTAs) are arrangement among two or more countries under which they agree to eliminate tariffs and non-tariff (NTB) barriers on trade among themselves (Cooper, 2014). Theoretically, companies shall be interested in increasing imports from FTA regions because of the duty free treatment (i.e. trade creation effect). Particularly not paying import tariff duty can be a great cost advantage for textile and apparel (T&A) companies given the fact that the average US import tariff rate was still as high as 8% for textiles and 11.6% for apparel in 2016 (WTO, 2017).

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Despite the potential benefit of using FTAs, data from the Office of Textiles and Apparel show that 85.7% of US T&A imports came from non-FTA regions in 2016. Interesting enough, although more FTAs have taken effect in the United States, T&A imported under FTA as a percent of total T&A imports dropped from 15.1% in 2008 to 14.3% in 2016.

Among the FTAs in force, the North American Free Trade Agreement (NAFTA) and the Dominican-Republic-Central America Free Trade Agreement (CAFTA-DR) altogether accounted for 75.9% of the value of total U.S. T&A imports under FTAs in 2016.

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Statistics further reveal that sometimes companies did not claim duty free benefits of FTAs even though they imported T&A from the FTA region. For example, in 2016 about 29.9% of U.S. T&A imports from South Korea, 24.3% from CAFTA-DR and 16.3% from NAFTA and 12.9% from Columbia did not enjoy the duty free treatment granted by the respective FTAs.

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Some industry experts say the complex T&A rules of origin is a major factor why US T&A companies are not using FTAs enough. According to the Office of Textiles and Apparel (OTEXA), there are more than 20 different tariff lines dealing with various T&A rule of origin situations under respective FTAs.

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Additionally, U.S. T&A importers seem to use the “short supply list” mechanism–an exception to the yarn forward rules of origin under FTAs, more actively. For example, in 2016 around 2.4% of US T&A imports under FTAs took advantage of the “short supply list” mechanism, increased from only 1.2% in 2008. Similarly, a record high of 6.2% of U.S. T&A imports under the CAFTA-DR used the short supply list in 2016.

Sheng Lu

Made in the USA Textiles and Apparel:Facts and Future

The presentation is the outcome of Jillian Luetje‘s honor project in FASH455 (Fall 2016). In the project, Jillian explored the facts and future of “Made in USA” textile and apparel based on her research of existing literature and interviews with U.S. trade officials. The presentation intends to help the audience (especially those new to the area of textile and apparel trade and trade policy) have a basic understanding of the topic.  

Key findings:

  • Textile and apparel manufacturing in the USA is NOT totally gone.
  • The U.S. textile industry in particular relies on the Western Hemisphere supply chain and related free trade agreements
  • Made in the USA apparel is not going to increase any time soon.

Welcome for any comments and suggestions!

ILO Evaluates Trade Impact of Labor Provisions in Free Trade Agreements

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The International Labor Organization (ILO) releases a new study, which looks at how the increasing number of labor provisions in free trade agreements are impacting the world of work. According to the study:

Labor provisions in free trade agreements take into consideration any standard which addresses labor relations or minimum working terms or conditions, mechanisms for monitoring or promoting compliance, and/or a framework for cooperation.  (See appendix: evolution of labor provisions in US free trade agreements).

As of December 2015, there were 76 trade agreements in place (covering 135 economies) that include labor provisions, nearly half of which came into existence after 2008. This represents more than one-quarter (28 percent) of the trade agreements which the World Trade Organization (WTO) has been notified of, and which are currently in force. Over 80 percent of agreements that came into force since 2013 contain such provisions. Countries most active in promoting labor provisions in free trade agreements include: Canada, the European Union, the United States, Chile, New Zealand and Switzerland. Some South-South free trade agreements also include labor provisions.

The study finds that there is NO evidence to support the claim that implementation and enforcement of labor standards leads to reduced trade. The findings show that trade agreements, with or without labor provisions, boost trade between members of the agreement to a similar extent. For country-partner pairs that have a trade agreement with labor provisions in force, bilateral trade is estimated to be on average 28 percent greater than what would be expected without such an agreement.

Results further show that, on average, trade agreements that contain labor provisions impact positively on labor force participation rates, bringing larger proportions of male and female working-age populations into the labor force and, particularly, increasing the female labor force. The study assumes that labor provisions in trade agreements can raise people’s expectations of better working conditions, which in turn increases their willingness to enter the labor force.

However, the study found NO statistically significant relationship between labor provisions and labor market outcomes such as wages, share of vulnerable employment or gender gaps at the aggregate level (i.e. consider all countries). On the one hand, this implies that labor provisions at least do not lead to the deterioration of other labor standards in a country. On the other hand, it indicates that labor provisions in free trade agreements have limited impact on the outcomes of the labor market.

Additionally, the study stresses that interaction among stakeholders, capacity-building and monitoring mechanisms – with the support of social dialogue are critical to achieve positive outcomes in the labor market. In a case study on the Cambodia–US Textile Agreement specifically, the report finds strong firm-level intervention, such as monitoring and compliance, improved wages at the firm level, including a notable reduction of the gender wage gap. In another case study, it is found that capacity-building measures brought to Bangladesh after the Rana Plaza tragedy have resulted in some visible improvements with respect to the number of trade unions, building safety and amendments in labor law in the country.

Appendix: Evolution of labor provisions in US free trade agreements

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Source: http://www.thirdway.org/memo/tpp-in-brief-labor-standards