First KORUS, Now TPP - Yes Or Yikes! (?)
James M. Borneman, Editor In Chief
On March 15, 2012, KORUS — the Korea-United States Free Trade Agreement — was enacted. Expect
increased imports of automotive, chemical and steel products — and don't forget textiles — from
As "Korea's Global TV" Arirang News reported: "Most Koreans will notice the difference when buying groceries. A 15 percent tariff on wine, 24 percent tariff on cherries and an 8 percent tariff on almonds will be lifted [March 15], along with tariffs on many more basic food items. In department stores, popular American jeans should come down in price with a 13 percent tariff lifted under the deal [Good news - Ed.]. In restaurants, Koreans' favorite menu on the grill — pork belly will drop around 25 percent to 9 dollars a kilogram by 2022.
"Seasonal tariffs on Californian oranges will also be cleared dropping the price to 9 dollars for 20 oranges from the current 14 dollars. Imported beer from the U.S. will drop by 30 percent to just 60 cents a can from the current 80 cents. With these reductions, Korean consumers are expected to save up to 32 billion U.S. dollars over the next 10 years."
This is pretty interesting news from the Korean perspective, but in the U.S., consumers are less likely to feel such a direct impact — unless you work in one of the negatively affected industries. And no, beer won't be cheaper, either.
So what comes next? The Trans-Pacific Partnership (TPP). According to the Office of the United States Trade Representative, "On November 12, 2011, the Leaders of the nine Trans-Pacific Partnership countries — Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam, and the United States — announced the achievement of the broad outlines of an ambitious, 21st-century Trans-Pacific Partnership (TPP) agreement that will enhance trade and investment among the TPP partner countries, promote innovation, economic growth and development, and support the creation and retention of jobs [italics added]." Canada, Mexico and Japan also want into the TPP.
The huge issue here is the somewhat arcane topic of rules of origin. The yarn forward rule has been the foundation of designating an aspect of whether or not a textile or apparel product can enter the U.S. duty-free. It is really a cornerstone of NAFTA and CAFTA-DR and other free trade agreements (FTAs). If U.S.-made yarn is knit into a fabric that is made into a T-shirt in a NAFTA or CAFTA-DR country, the shirt comes in duty-free.
Well, as you can see in Textile World 's news section in this issue, Vietnam wants "flexible" rules of origin. This is the "Yikes!" part — and don't start yelling "Protectionist!" just yet. In the supposed spirit of FTAs, everybody wins — the pie grows, and everybody's slice gets bigger. In a perfect world, that may be so, but in the real world, it may not be a zero-sum game, but trade agreements, if done incorrectly, definitely create winners and losers.
Keep your eye on TPP for textiles, and also for the last U.S. manufacturer of athletic shoes - New Balance. That company produces some 7 million pairs of shoes in five U.S. factories and employs 1,300 U.S. workers. If TPP is done incorrectly, there is a strong possibility those $10-per-hour U.S. jobs will become 46 cents-per-hour jobs in Vietnam.
"And support the creation and retention of jobs" — Really?