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    Capitol Comments

    New Report Assesses Impacts of TPP Implementation on the U.S. Economy

    Trade agreement bodes well for nonwovens, would reduce tariffs on exports to Vietnam and Japan

    Peter Mayberry, Contributing Editor07.15.16
    In accordance with section 105(c) of the Trade Priorities and Accountability Act of 2015, the U.S. International Trade Commission has issued a report assessing likely effects of the Trans-Pacific Partnership Agreement (TPP) on the U.S. economy as well as specific sectors–including textiles and nonwovens.

    TPP is a Free Trade Agreement (FTA) between the United States and 11 mostly Pacific Rim countries:  Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.  These countries reportedly accounted for 36 percent of global Gross Domestic Product (GDP) in 2014, and the U.S. already has FTAs in force with Australia, Canada, Chile, Mexico, Peru, and Singapore.

    After years of negotiation, parties to the TPP agreed late last year on a comprehensive deal that must be ratified by any participating nations—including the U.S.—before it can take effect. In the U.S., this means TPP must gain congressional approval before it can be implemented. The ITC report was mandated by Congress as a means to best understand how TPP will most likely impact the U.S. economy before members are asked to vote on it. 

    To that end, the report examines TPP’s expected impact on GDP; exports and imports; U.S. aggregate employment and employment opportunities; the production, employment, and competitive position of U.S. industries likely to be significantly affected by TPP and the interests of U.S. consumers.

    The report also reviews other assessments of TPP’s economic effects available “in the literature,” and discusses areas of consensus and divergence between the ITC’s conclusions and those found in the literature that was reviewed by ITC. 

    The executive summary gives an overview of the agreement; presents the Commission’s principal findings as to likely economy-wide effects of TPP; summarizes specific sectoral effects and the expected effects of TPP’s cross-cutting rules; and provides a brief overview of “relevant economic literature.”

    With regard to textiles overall, the report finds:
    U.S. [textile and apparel] exporters already have duty-free market access to six of the TPP parties under existing U.S. FTAs.  For the non-FTA TPP countries, most of the duties would go to zero [once the Agreement is fully implemented]. For example, Japan would eliminate nearly all of its duties on imports of textiles and apparel upon. For some apparel items, Japan would phase out the duties in 11 equal annual stages. Similarly, virtually all of Malaysia’s tariffs would be eliminated, with tariffs on the remaining few items eliminated in six equal annual stages. With a few exceptions, nearly all of Vietnam’s tariffs on textiles and apparel would also go to zero upon.  The most notable exception is used clothing classified under [Harmonized Tariff Schedule (HTS)] category number 6309.00, for which duties would be phased out over 16 years. For Brunei, most textile and apparel products would be free.

    Impact on U.S. Exports
    The Commission’s modeling results estimate that TPP would result in a 1.3% ($257 million) increase in U.S. exports of textiles to the world over the 2032 baseline. According to the model, U.S. exports of textiles to new FTA partners would experience the largest increase (48.9 percent or $291 million).  The model also indicates that U.S. exports of textiles to non-TPP countries would decline 3.1% overall ($295 million) compared with the 2032 baseline. 

    The report finds that certain textile subsectors, including nonwovens, would likely benefit more than others, and cites conclusions by the National Council of Textile Organizations that there “…may be some opportunities to increase exports of certain textiles on a limited scale to new FTA partner countries, including technical textiles and cotton and specialty yarns.”

    In the short term, the report notes that U.S. yarn producers might increase exports of cotton spun yarn to Vietnam to allow local apparel producers to meet the yarn-forward rule of origin for apparel.

    Currently, ITC states, U.S. exports of cotton yarn to Vietnam are small but these exports more than doubled to $1.7 million in 2015 over 2014 levels. There is a warning, however, that U.S. exports of cotton yarns to Vietnam may be short-lived due to “…significant investment in short-staple spinning in Vietnam.” 

    For Nonwovens ITC Predicts:
    There may also be opportunities to increase U.S. exports of nonwovens to TPP member countries, especially fabrics under HTS heading 5603 (often referred to in the industry as “rolled goods”).  U.S. imports under heading 5603 are currently duty free on an NTR basis. The TPP would give the U.S. industry reciprocal market access in TPP countries. For example, Japan’s and Vietnam’s ad valorem duties on nonwoven fabrics are 4.3% and 12%, respectively; both would be free of duty on EIF.  Currently such nonwoven fabrics are among the top textile products that the U.S. ships to Japan and Vietnam.

    Rules of Origin
    Similar to most other U.S. agreements, TPP would apply yarn-forward “tariff shift” Rules of Origin (ROOs) to most textile and apparel goods, including nonwovens.  This means that products which are eligible for duty-free trade between the signatory countries must be made from primary materials that were produced in one of the TPP countries. With nonwovens, for example, production of specified fibers, binders and other materials needed to make roll goods must occur in the U.S. and/or one of the other TPP countries for the roll good to qualify for duty free treatment under the agreement. 

    ITC points out that notable exceptions to these rules apply to brassieres and certain baby garments. For these products, fabrics must be cut or knit to shape and sewn in the TPP countries in order to qualify. In addition, there is a cut-and-sew tariff shift rule for apparel made from certain fabrics, including coated or impregnated fabrics.  According to ITC, the agreement also requires that cotton, manmade fiber filament and manmade staple fiber sewing thread used in all apparel and made-up textile articles (HTS chapters 61–63) and narrow elastic fabrics (from the yarn stage forward) used in all apparel (HTS chapters 61 and 62) be formed and finished in one of the TPP countries. 

    There is some flexibility to the yarn-forward rule available through the “short supply” list which allows use of certain primary products needed to produce duty-free textile and apparel products if those inputs are deemed to be in short supply..

    Safeguard Mechanism and Customs Cooperation
    According to ITC the agreement contains a textiles and apparel-specific safeguard mechanism through which a party may temporarily re-impose duties on a good. In such case, the party has an avenue to take action if increased imports of a good that benefits from preferential treatment under TPP results in serious damage or threatens to cause serious damage, to U.S. industry (TPP Chapter 4, Articles 4.3–4.9). 

    ITC notes that the agreement also includes detailed Customs measures to ensure accuracy of the claims of origin to prevent circumvention of the agreement and to enforce measures affecting trade in textiles and apparel.  In addition to Customs cooperation, the agreement includes bilateral side letters between the U.S. and Brunei, Malaysia, and Vietnam that set up additional requirements for textiles and apparel
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