By Ed Zwirn, Jens Kastner 31 January 2017 (Read in WTIN.com)
As US President Donald Trump pulled America out of the Trans-Pacific Partnership (TPP) on 23 January with an executive order, he signalled he will instead ask Asian TPP members for bilateral free trade agreements (FTAs). This includes countries such as Vietnam that rely on apparel and textile exports. The TPP was also to have included Canada, Mexico, Japan, Australia, New Zealand, Chile, Peru, Malaysia, Singapore and Brunei.
But it is unclear whether there will be much enthusiasm among these former TPP partners for straight one-on-one trade deals with the US.
According to Deborah Elms, executive director of the Singapore’s Asian Trade Centre, there are tremendous prospects for bilaterals from Trump’s perspective, but less so from the perspective of the other side. Elms argues that Trump’s trade negotiators sitting down with a much smaller country than the US, such as Vietnam or the Philippines, would lead to a US position that is even tougher to deal with than the already infamously tough US negotiation style seen in past negotiations for multilateral trade agreements.
“Only a country that is desperate for an FTA would be willing to do that, and the only country I think of here is the UK – which obviously would not help in apparel sourcing,” says Elms.
She claims there will be some voices in Vietnam pushing for a bilateral FTA with the US, given that Vietnam has put much effort into TPP negotiations on the assumption that Vietnam will get weighty benefits out especially for textiles and apparel.
But it would be difficult for the US to offer the TPP’s 0% tariff treatment for Vietnamese textiles and apparel in a bilateral setting, argues Elms. “Because if you allow that US manufacturers face more competition from Vietnamese imports, you must have offsetting benefits elsewhere, eg for US agriculture or high-tech exports, which you would have in the TPP but not in a bilateral with such a small market as Vietnam,” she says.
Free traders will not draw comfort from comments made by the Trump administration. His presidential memorandum ordering the withdrawal told his trade officials “to begin pursuing, wherever possible, bilateral trade negotiations to promote American industry, protect American workers and raise American wages.”
Also, White House press secretary Sean Spicer says the new administration favours bilateral trade because it enables the US to negotiate better terms for itself, while with multilateral agreements, trade liberalisation moves at the pace of countries favouring closed economies, the “lowest common denominator,” he says. With bilateral deals, “If anyone wants to get out of an agreement, they can renegotiate it much easier.”
There is more enthusiasm within the US at the new stance, however. Lloyd Wood, the US National Council of Textile Organisations (NCTO) director of public affairs, pointed out that his group had been opposed to TPP once it emerged that the treaty would include Vietnam.
“TPP actually originated in the [George W] Bush administration, and the decision to add Vietnam was made in the Bush administration. The industry opposed adding Vietnam to the TPP largely because Vietnam is not a market economy,” he says. “Vietnamese consumers frankly have very little spending power.”
“The NCTO supports President Trump,” he says. “We feel the decision [to walk away from TPP] is also good for the industry, and we are very eager to partner with President Trump and his administration to push every effort to boost textile production.
Looking ahead to the bilateral trade agreements that Trump said would replace TPP, deals with “developed countries with consumers in theory is something the industry would welcome [as opposed to deals with] low-cost producers that we’re not going to be able to export something back. We’re much more comfortable with free-trade agreements to countries with consumer bases.
He was, however, less enthusiastic about the pledges from the Trump administration to renegotiate the North American Free Trade Agreement (NAFTA) with Canada and Mexico. “The US textile and apparel industries exported US$11bn to Mexico and Canada in the 12 months that ended 30 November 2016. We do not support any repeal of NAFTA,” he says, stressing that the deal is 25 years old.
That said, Wood argues that NAFTA would benefit from better enforcement of its terms. “We value the yarn forward rule of origin and rules on trans-shipment,” he says. “The industry was very vociferous in complaining about Asian companies entering their market through Mexico. The best way to encourage production is to encourage production in this hemisphere.”
Also, supporters of American agriculture, which includes fibre producers in the US such as cotton, have mixed feelings about the end of the TPP. “The TPP generally would have been very good for American agriculture,” says K Michael Conaway, a Texas republican, and chairman of the House of Representatives agriculture committee. “The President has committed to negotiating even better trade deals, and I am looking forward to seeing what the Administration will accomplish.”