The Effect of the TPP on the U.S. Textile Industry: Q&A with the NCTO’s Auggie Tantillo

In January, Vapor Apparel, a performance apparel manufacturer and digital print-on-demand service provider, announced it would invest $1.3 million to open a 30,000-square-foot manufacturing facility in Union County, creating 114 new jobs in Upstate South Carolina. The facility will house the company’s domestic cut and sew division, which is a rapidly expanding part of the company’s product line.  Beyond a reason for celebration in the Upstate, the announcement marked yet another victory for the U.S. textile industry, as yet another manufacturer chose to keep operations at home.

(“Made by China in America” turns a cinematic lens on the interconnected narratives of everyday workers, leaders and business executives, and local community members in Upstate South Carolina, providing a nuanced perspective on China’s economic boom, version 2.0, and its promising impact on the U.S. economy.) 

As the U.S., and specifically the Carolinas, works to regain market share in the global textiles industry, manufacturers need to understand the impact of foreign trade agreements that would significantly impact their business. Among those include the Trans-Pacific Partnership (TPP), a free trade agreement between the U.S., Canada and a dozen countries throughout the Asia-Pacific region, including Vietnam. The agreement is designed to break down non-tariff barriers and eliminate tariffs on goods and services, but not without concern throughout the industry. To gain a better understanding of the current state of the U.S. textile industry and implications of the TPP, we spoke with Augustine “Auggie” Tantillo, president and CEO of the National Council of Textile Organizations (NCTO).

Can you give us a quick overview of the U.S. textile industry?

“The U.S. textile industry is a major contributor to the U.S. economy. In 2013, U.S. textile shipments totaled $56.6 billion, an increase of more than 5% over 2012. As the third largest exporter of textile products in the world, exports of U.S. textile products were nearly 18 billion in 2013, an increase of nearly 5% over the previous year (Q4 data for 2014 has not yet been released). A substantial employer of American workers, the U.S. fiber, textile, and apparel production chain supplied nearly 499,000 jobs in 2013. Additionally, the U.S. government estimates that every textile job in this country supports and creates three additional jobs.”
For those who don’t know, what is the function of the National Council of Textile Organizations?

“The NCTO is a unique association representing the entire spectrum of the U.S. textile industry in Washington, DC. From fibers to finished products, machinery manufacturers to power suppliers, NCTO is the voice of the U.S. textile industry in the Federal policy area.”

“NCTO’s mission is focused on creating powerful national and international alliances to advance the interests of the U.S. textile sector.  As a lobbying group, NCTO is harnessing the influence of an array of associations and business groups that have a stake in the survival and prosperity of the U.S. textile sector to leverage our impact in the halls of our nation’s capital.”

What impact could the TPP have on other trade areas (NAFTA/CAFTA)?

“The TPP will be the most significant free trade agreement (FTA) developed in over 20 years in terms of how it impacts U.S. textile and apparel manufacturing jobs, production, and exports. The TPP could also have a major impact on existing U.S. free trade partners such as those that produce apparel in the Western Hemisphere.  This is mainly due to the inclusion of Vietnam in this arrangement and the potential impact Vietnam poses to manufacturers that make up the textile and apparel supply chain in the Western Hemisphere.  These concerns are principally driven by the size of Vietnam’s apparel industry, extensive government subsidies, and the government’s ownership of VINATEX, the largest apparel exporter in Vietnam.”

“Over the past 25 years, U.S. trade policies have developed large — and growing — export markets with nations around the world and have established important supply chains.  These supply chains have allowed developing nations to build manufacturing platforms that were granted duty free access to the U.S. market.  These export markets have been sustained by thousands of small and medium-sized companies in the free trade areas that have used private capital to invest and to create nearly two million jobs.  It is critical that the provisions of any new trade agreement, such as the TPP, not undermine the valuable and growing U.S. and Western Hemisphere textile and apparel production chains.”

“The U.S. textile industry has supported free trade agreements, such as NAFTA, CAFTA, and Andean Trade Preferences Act, as well as the Colombia, Chile, Peru, and Panama agreements. These agreements have created $25 billion in two-way textile trade which is due, in large part, to the strong textile rules included in these agreements.  U.S. textile and apparel exports hit an all-time record of $23.7 billion in 2013.”

What rules and regulations would you consider necessary for the TPP to be successful for the US textile industry?

“NCTO believes there are three key components to a fair and successful TPP agreement: Yarn-Forward Rule of Origin; Fair Market Access Rules and Tariff Elimination Formulas; and Strong and Effective Customs Enforcement Rules”

Why is it necessary for the TPP to include a yarn-forward rule of origin?

“Over the past 25 years, the U.S. completed a series of free-trade agreements that include a yarn forward rule-of-origin for textile and apparel products. This rule has served as a catalyst for the record breaking exports of U.S. yarns and fabrics that we are seeing today.  In fact, over the past 10 years textile exports have grown dramatically from $12.7 billion in 2003 to $17.9 billion in 2013, a 40% increase during that period.”

“As the name implies, the yarn forward rule requires that yarn, fabric, and assembly production steps be completed in a free trade region in order to qualify for duty-free preference into the U.S. This rule has created an integrated Western Hemisphere production chain between the U.S. and its NAFTA and CAFTA trade partners. The U.S. is exporting record levels of yarns and fabrics to these partners, which are then processed into finished apparel and textile home furnishings products that are shipped back to U.S. duty-free for purchase by consumers. Nearly two-thirds of U.S. textile exports during 2013 went to our Western Hemisphere free-trade partners.”

“The charts below demonstrate the dramatic growth of two way trade between the U.S. and our NAFTA/CAFTA trading partners since the yarn forward rule was first introduced.”

“As exemplified in the charts above, due to positive U.S. trade policy, the U.S. and its Western Hemisphere trading partners have created a prosperous and sustainable integrated manufacturing platform.  This partnership provides millions of manufacturing jobs throughout the Western Hemisphere and billions of dollars in two way trade. “

Why should fair market access rules apply to the TPP?

“Market access rules define how quickly tariffs under a TPP agreement will phase-out.  In past agreements, tariff phase-outs have been extended for longer periods of time if products like textiles were import-sensitive, either because of significant production or due to foreign government subsidies.  The ability of Vietnam to rapidly surge into the U.S. market along with the depth and range of the Government of Vietnam’s support for its textile and apparel sector are primary reasons that reasonable phase-out terms for sensitive textile and apparel products are necessary. “

Do you see any concerns about the ability to enforce the rules of a potential TPP agreement?

“The U.S. textile industry depends on strong customs enforcement for its livelihood.  The industry is the third largest exporter of textile products in the world with over $22 billion in exports in 2013.  Three quarters of the industry’s exports go to trade preference countries, notably CAFTA, NAFTA and the ANDEAN regions.  Due to the high-risk nature and the prevalence of fraud, CBP designated the textile industry as a Priority Trade Issue — yet the industry continues to witness serious fraud.”

“As is the case with any trade agreement, there are serious concerns about the ability to enforce the negotiated principles of the agreement regarding the treatment of textile products.  U.S. Customs and Border Protection (CBP) has identified instances of illegal transshipment of Chinese origin textile products through the majority of the participating countries.”

“Negotiators should include an electronic customs enforcement system that tracks textile components and which eliminates potential for fraud and errors that accompany paper-based record keeping systems.  In addition, TPP partners should provide sufficient resources for enforcement of the textile and apparel chapter.”

“NCTO believes that customs textile enforcement could be considerably enhanced by addressing some of the issues impacting the industry through the customs reauthorization bill which is expected to be considered during the 113th Congress.  NCTO believes that this can be done in a way that increases enforcement as well as trade facilitation. This is accomplished through improved targeting, increased resources, and enhanced authority.  This new approach will reduce the need for Customs to conduct broad investigations that can hamper legitimate producers while targeting high risk imports.”

Why are currency provisions important in the TPP?

“Export-oriented countries such as China and Vietnam have been shown to purposefully devalue their currency in order to promote their exports and to block imports into their markets.  This practice places the entire U.S. manufacturing base at a considerable disadvantage when it comes to international trade.”

“These illegal currency policies hurt American job creation and economic growth.  According to a 2014 study by the Economic Policy Institute, ending unfair currency policies can create as many as 2.3 million new manufacturing jobs in the United States by leveling the playing field in global markets.”

“Currency manipulation creates an uneven playing field and puts American manufacturing and workers at a disadvantage. NCTO supports legislative initiatives that create tangible remedies for U.S. manufacturers that have been damaged by unfair currency practice and believes we need a bipartisan solution that involves both the Legislative and Executive Branches of our government.”

For more information on how the TPP could impact South Carolina’s economy, visit https://www.upstatescalliance.com/sites/default/files/BRT_TPP_SC_1.PDF

For more information on business in the Upstate, visit https://www.upstatescalliance.com/about-upstate.