A New Free Trade Agreement In Danger

Virtually no other country in the world has changed the economic landscape as much as China. China
is the undisputed world leader when it comes to textile production.

Not only have many other countries in the Asia-Pacific region been trying to find solutions
to face the severe competition, but also, countries in the Western Hemisphere have been seeking to
find alliances to withstand the Chinese avalanche of products. One of the existing global treaties
is the World Trade Organization (WTO) Agreement.

However, among the WTO’s member states, this agreement is still very much in question with
regards to its policy, regulations and subsidies in particular. Many countries try to bypass the
WTO Agreement to take care of their own people. For example, the United States is now negotiating
the Trans-Pacific Partnership (TPP) with 11 countries – Australia, Brunei Darussalam, Canada,
Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. In November 2009, the
Obama administration announced it would “participate in the TPP negotiations to conclude an
ambitious, next-generation, Asia-Pacific trade agreement that reflects U.S. economic priorities and
values.” Fair enough – as in every other country, the administration is seeking to boost U.S.
economic growth.

However, currently, there are some doubts about the TPP. It seems that one country is trying
to change the rules of the game. Some U.S. congressmen have written a letter to the Obama
administration to “insist that the TPP follows the successful practice of previous free trade
agreements.” The issue in question is the yarn-forward rule of origin. This rule should “ensure
that only textile and apparel manufacturers in the countries that are party to the TPP agreement
enjoy the benefits of the agreement.”

The congressmen charge that “Vietnam wants to replace the ‘yarn-forward’ rule with a
‘flexible rule of origin,’ which requires that only the sewing of a garment must be done in TPP
countries. The consequences of loosening the rule could be very damaging to other countries, they
write: “Vietnam’s state-owned industry [could] export apparel duty-free to the U.S. and other
markets made from yarns and fabric imported from countries outside the TPP, particularly from
China, which is not part of the TPP.”

The latest round of TPP negotiations took place July 15-24 in Malaysia. The next chapter of
this book is not yet written.

July/August/September 2013