The International Trade Commission's three-day marathon of hearings on the Trans-Pacific Partnership Agreement begins tomorrow, January 13, immediately following what is widely anticipated to be a strong push for TPP by President Obama in tonight's State of the Union address.  Preparations for those hearings have been going on for a while now.

Today's quote, for example, is from the pre-hearing statement that the president of the United States Fashion Industry Association (USFIA), Julia Hughes, filed on December 29.  As Ms. Hughes explains, the U.S. Fashion Industry Association represents "textile and apparel brands, retailers, importers, and wholesalers based in the United States and doing business globally."   As for where the association and its members stand on TPP, it's complicated.  Well, maybe not complicated, but certainly nuanced. 

Ms. Hughes is clear that "From the start, USFIA supported the TPP agreement" and its potential opportunities.  Her ITC statement, however, is more a lament than a hymn of praise.  Her disappointments in the TPP include its reliance on the yarn forward rule of origin, the uncertainty associated with the labor provisions, and the failure to recognize "the importance of trusted trader programs."   We'll take a brief look at each of those in a moment. 

First, though, one needs to narrow the focus just a bit.  There is one country, one TPP trading partner, that looms larger in the Fashion Industry Association's statement than any other.  That country is Vietnam.  It is the second largest exporter of apparel and footwear to the U.S. after China, and China is not in TPP.  Now for those three issues.

Yarn Forward is the big one.   Free trade agreements mean lower and usually, over time, zero tariffs, and TPP is no exception.  To get the benefit of those lower tariffs, however, the imported product has to meet the relevant rule of origin.  Everyone understands that any FTA will have such rules.  The simplest such rule for apparel would be cut and sew.  A cut and sew rule of origin ignores the source of a garment's raw materials and determines origin simply on the basis of where the cloth was cut and the garment sewn together.  TPP does have such a rule but it applies to an exceptionally small number of apparel products, two to be precise.  "For apparel - only brassieres and synthetic fiber babywear are granted cut-and-sew rule of origin," Ms. Hughes explains.  

For the rest, the basic rule is yarn forward: everything from the yarn forward must come from a TPP country.  Unfortunately, the products Vietnam is producing today could not meet that test, because much of the yarn in apparel produced in Vietnam comes from China.  The clear purpose of the yarn forward rule is to get Vietnamese factories to use U.S. textiles.  The Wall Street Journal ran a piece on this issue last summer with this prize-worthy headline: "Fabric of a Trade Deal: U.S. Asks Vietnam to Cut Out Chinese Textiles."

Labor.  There are reportedly strong labor provisions in TPP.  They may not be strong enough to win the support of the AFL-CIO, but they are strong enough to worry those who rely on Vietnamese production to meet the demands of U.S. customers.  Here is the full labor paragraph from Ms. Hughes' pre-hearing statement:

"The TPP's labor provisions are unprecedented. As the Commission knows, the TPP Agreement permits the United States to withdraw concessions from Vietnam if Vietnam fails to implement a detailed labor plan. The apparel sector will likely be the target of any U.S. retaliatory measures under the TPP labor provisions. We are particularly disappointed in this provision. USFIA member companies are among world leaders on labor and social responsibility issues, but - if the U.S. can suspend tariff concessions for Vietnam at any time - for reasons having nothing to do with conditions at the factories run by our member companies' business partners - apparel brands may hesitate to utilize the Agreement -- blunting the benefits to our sector."

Trusted Traders.  As we have noted in entries on trade facilitation, much of value of any trade agreement comes down to what happens when goods cross the border into the importing country.  Here too, the fashion industry's lament is that the TPP agreement seems not to have kept up with the times.  Ms. Hughes notes, for example, that "In recent years, CBP [Customs and Border Protection] has focused on tougher enforcement through reliance on 'trusted trader' programs.  Her disappointment is that "the TPP text does not explicitly recognize the importance of trusted trader programs."

When you read Ms. Hughe's statement yourself, you will note the declaration that "USFIA and our members applaud the conclusion of the TPP agreement."   In short, the concerns highlighted above may not be overstated but they do need to be seen in perspective.

Besides, no agreement is perfect and the textile and apparel section of TPP was bound to be difficult because the sector itself has always been a tough one for the United States.  The difference seems to be that, in TPP, U.S. negotiators were focused more on textiles than apparel.  In the end, the irony may be that, rather than opening markets for American textile producers, TPP's real effect in this sector may simply be to create new competitors for them in Vietnam.  There is certainly no dearth of press reports about textile companies from China and elsewhere setting up shop in Vietnam to meet the yarn forward rule.

More than Two Countries.  The statement Ms. Hughes submitted is also a useful reminder that TPP is not about two countries.  It is about twelve (and potentially more).  "USFIA members," she writes, "expect to benefit from the opportunities that the TPP will create in markets outside the United States. ...Japan, for example, is the second largest retail market in the world," with high apparel tariffs that will come down under TPP.

Finally, for a glimpse into one portion of Japan's clothing market - ladies' lingerie - you might tune in to the charming Netflix series from Japan, Atelier, perhaps after the State of the Union. 

From the U.S. Fashion Industry is a link to the Pre-Hearing Statement submitted by USFIA's president Julia Hughes.  This document is available on the site of the U.S. International Trade Commission through the ITC's Electronic Data Information System.  For ease of reference, however, we have also posted it on the GBD website.

Fabric of a Trade Deal takes you to the Wall Street Journal article cited above.

This Week's Hearings is a link to the page on the USITC website regarding this week's hearings on TPP, including the witness list for each of the three days.