This week, fast-track passage of the Trans-Pacific Partnership (TPP), a trade pact with Asia that is a major undertaking of President Barack Obama’s second term, seemed doomed. A mere day later, though, tweaks to the trade agreement breathed new life into the possibility that the Senate would ultimately sanction it in an up or down vote (or fast-track vote) in June.
Objections raised by the likes of Sen. Elizabeth Warren (D-MA), who’ve criticized the deal, as Rolling Stone puts it, as “NAFTA on steroids,” have received the most attention. But it’s worth noting that at least the potential for victory was snatched from the jaws of defeat this week thanks to concessions wrangled by Democrats who, unlike Warren and others, are actually partial to free trade agreements in general.
NAFTA, the North American Free Trade Agreement, is no doubt haunting this process. That agreement, signed by the U.S., Canada, and Mexico in 1994, is popularly seen as having bled jobs from the U.S. in the decades since its passage. Meanwhile, though, Obama and others say the TPP would actually help mitigate some of detrimental effects that NAFTA has had on American jobs and manufacturing.
It’s not clear how much of that is NAFTA’s doing, really. While the U.S. has no formal trade agreement with India, the Economist notes, imports from there have doubled over the past 10 years.
So the trade deal makes many politicians nervous, and the rhetoric and deal-making in the Senate have been tense. But what might it mean for retail?
What the TPP is
If indeed it’s ultimately approved, the TPP will be an agreement among the U.S. and Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam to gradually reduce and in some cases eliminate tariffs, and otherwise promote trade. Those countries are also members of the Asia-Pacific Economic Cooperation (Apec). Early discussions on such an agreement began years ago in various venues at various times, but began in earnest in 2010.
President Obama and other proponents of the TPP argue that opening these markets in Asia — some 40% of the world economy — which is home to a significant portion of the world’s population and an increasingly growing middle class, will benefit American companies by opening new markets for American goods. Of course, the U.S. alone accounts for some 22% of the world economy, so many have called that much-touted statistic misleading. Still, no one, pro or con, disputes the idea that Asia is an area of growing importance to trade.
Note that the list of countries doesn’t include China; indeed the agreement is seen by many as an antidote to China’s dominance in Asia.
What the TPP could mean for retail
Because of its Asia focus, the TPP will have a significant impact on apparel retailers and others that source and manufacture merchandise there. But it could affect all retailers that hope to increase sales to Asia.
Some of the effects on retail involve somewhat arcane shifts. “Yarn forward” and “cut and sew” provisions, for example, could require that signatories to the agreement must have a certain percentage of raw materials sourced within the country where they’re made. Vietnam is one country that mostly has “cut and sew” operations, with fabric manufactured elsewhere. Some companies have already begun to move their yarn and fabric manufacturing to Vietnam in anticipation of new rules, even though they haven’t yet passed.
In fact, by some accounts, Vietnam would do especially well under the TPP, with its current 17% tariff rates shrinking to near zero. Some studies have found that Vietnam’s apparel and footwear exports could reach $165 billion by 2025, compared to $113 billion in absence of any agreement, according to the Center for Strategic and International Studies.
And U.S. apparel and footwear companies sourcing their merchandise from countries that benefit that way from the TPP could in turn benefit, analysts say, by cutting costs and speeding up the supply chain.
Nike — which stands to benefit from the TPP because it not only depends on sourcing from Asia but also would like to sell more shoes to Asians — threw its weight behind the deal last week. The retailer, which went so far as to host the president at its Beaverton, OR, headquarters during his campaign to garner support for the deal, says the TPP would help return some 10,000 jobs to the United States via Nike, factoring in jobs brought back by its suppliers and other related businesses.
And Nike CEO Mark Parker told CNBC's "Squawk on the Street” that the agreement would also help bolster innovation, which he said is key to Nike’s future. Parker says he believes that mass customization, which he said Nike is increasingly pursuing “to give the customer more choice,” would get a boost from the TPP.
Details, details
Still, many observers worry that the deal could ultimately quash innovation by overprotecting corporate investors. And some economists, including Joseph E. Stiglitz, call TPP a “managed trade agreement” rather than a “free trade agreement,” which he says could impede basic rights of health, safety, and intellectual property.
But, really, it’s difficult to find many details on the TPP because the negotiations have been conducted largely in secret (something that is also fodder for its critics), though some pieces have been leaked.
What is understood is that the deal is an ambitious one, says Mireya Solís, an Asia policy expert at the Brookings Institution.
“We have hundreds of trade agreements that have been notified through the World Trade Organization, but none has come close to the level of ambition of the Trans-Pacific Partnership,” Solís told Wisconsin Public Radio. “But I think what’s really striking about the Trans-Pacific Partnership is that first of all it aims to create an Asia-Pacific platform for integration. So we’re trying to avoid a world of divided self-contained regions. The world actually has crisscrossing economic relations, and Asia is the most dynamic region in the world. And therefore the United States has a core interest in being part and parcel of that growth dynamo.”
