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The Trans Pacific Partnership and Bangladesh

The dynamics of the global apparel trade changes frequently with time as new players come in to play and new agreements come into existence. Hence, the global apparel business has a lot to do with the inter-regional comparative trade agreements; like Bangladesh enjoys big advantages with the GSP and other free trade agreements with trading partners. The latest in the town, when trade agreements are in concern, is the TPP, Trans Pacific Partnership. TPP, a free trade agreement between 12 trans pacific countries to improve their trade balance is presumed to have the potential to change the scenario of the global apparel trade to a good extent. Among the partner countries Vietnam and USA are two big concerns for the apparel business of Bangladesh as one is the largest export destination and the other is the strongest competitor.This article is about the possible outcomes of TPP and its effect on Bangladesh apparel trade.

TPP, ins and outs

The Trans Pacific Partnership (TPP) is a multi-lateral trade agreement decided by 12 countries till date comprising economically and politically important countries to Bangladesh.

trp The TPP agreement was signed on October 5, 2015. The 12-country Pacific Trade Partnership, agreed in Atlanta, is a broad agreement to lower trade barriers and increase investment protections.[1] The agreementis concerned as one of the major trade agreements as the contracting regions comprise around 40% of the global economy.In fact the trade deal is being studied with the highest significance as is it concerned as a secretive, multinational trade agreement that threatens to extend restrictive intellectual property (IP) laws across the globe and rewrite international rules on its enforcement.[2] Till date for the deal, the US hasnegotiated with Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.The member countries are hoping to foster a closer relationship on economic policies and regulation. In fact, the agreement could create a new single market like that in Europe.

The initiation of the agreement actually started 10 years ago when a free trade agreement between just four nations – Brunei, Chile, New Zealand and Singapore came into effect.

That deal removed tariffs on most goods traded between the countries, promised to cut more and also to co-operate on wider issues such as employment practices, intellectual property and competition policies. In 2008 US joined negotiations for a new TPP. And after 15 consecutive negotiation meetings in different countries up to 2012 the new TPP came into today’s shape. [3]Finally in October 5, 2015 the TPP came into effect with 12 member countries leaving scopes for other countries to join in the future under the scheme TPP Plus.

The most important economic insights highlighted in the TPP draft is about the Intellectual Property (IP) laws negotiated by the member countries. According to the economists the IP chapter would have extensive negative ramifications for users’ freedom of expression, right to privacy and due process, as well as hindering peoples’ abilities to innovate. [2] But for Bangladesh, as a developing country the IP laws are still of less interest rather we look for trade benefits and threats.

pacificWhen dealings of commodity goods are concerned, most goods and services seem to be involved in the TPP, but not all tariffs are going to be removed and some will take longer than others. But most importantly, on textiles and clothing, they will be removing all tariffs as a US Trade Representative says ‘most tariffs will be removed immediately after the deal is ratified’.

One of the provisions in the TPP, known as the “yarn forward” rule, requires a member country that exports apparel to other TPP markets to use textile that is either made locally or imported from other TPP member countries. While Vietnam is one of the world’s top garment manufacturers, it has until now sourced about 88 percent of its textiles from China and South Korea, with Vietnamese factories cutting and sewing the fabric in the final stage of production prior to exporting finished garments. Signing on to the TPP means that Vietnamese garment exporters will technically no longer be able to import their materials from China if they hope to benefit from lower tariffs under the TPP.[4]

The yarn forward requirement was put in place in part to protect U.S. yarn and textile producers, which have lobbied the U.S. government to maintain stringent rules of origins as part of the TPP.

The 12 member countries have a collective population of about 800 million – almost double that of the European Union’s single market; and among them 380 million (US, Canada and Australia) are direct markets for Bangladeshi made clothing and textiles. With still trading on tariff to those countries and with Vietnam in the list to enjoy zero tariff the TPP is going to be a real big concern over the clothing and textiles market for Bangladesh.

Impact of TPP on Bangladesh

As Bangladesh is not a signatory to the TPP, the country’s garments sector (RMG) is likely to suffer as it will not get preferential treatment for RMG export to the TPP member countries. Our closest competitor, Vietnam used to pay 8.38 percent duty for RMG exports, but after TPP comes into effect, it will not have to pay any duty. This is bad news for our largest export earning sector. As pointed out by local economists, Bangladesh’s competitive edge to the US, which is our single largest garment export destination, will erode gradually.

vietnamThere is no way to underestimate the importance of TPP, and being late to response will have serious ramifications for the RMG industry. As there is no prospect of reducing the duty charged on our products, it is imperative that Bangladesh reduces the cost of doing business to remain competitive.

Meanwhile, Bangladeshi factory owners are already incurring extra costs due to factory remediation and to a wage increase.To add to the pain, in the current fiscal year, government raised the tax level on the industry. This will further increase the cost of doing business.

The chart shows RMG export growth % to US from the major exporting countries. Bangladesh registered a considerable growth amid overcast political and economic conditions with US. But the major threat is from Vietnam who registered 13.21% growth in the meantime. It is easily assumable that as the TPP comes into effect Vietnam is going to be more competitive in the US market shrinking the market for Bangladeshi product.

Vietnam’s export of apparels is presumed to increase at an even faster rate than the current high rate, and it will capture an increasingly larger share of the US market. Vietnam’s apparel export to the USA increased by a massive 244 per cent during the 10-year period between 2005 and 2014, unmatched by any other substantial exporter. [4] Bangladesh did not do as well, but the growth of its apparel export to the US was 108 per cent during this period, which was the second highest among the top exporters. China with 81 per cent and Indonesia with 70 per cent were the next most dynamic exporters.

Bangladesh is the largest exporter of men’s and boy’s trousers to the US, followed by China, Mexico, Vietnam, Pakistan and Indonesia.

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Another significant issue is the gradual decrease of price of exported Bangladesh garments in the US. A research showed that the prices of Bangladeshi cotton trousers in the US market decreased by 40.89 per cent in last 14 years. The American retailers have progressively been lowering the prices they pay for Bangladeshi garment items.Unfortunately, Vietnam is the only garment-producing country that is included in the TPP; and is assumed to be benefitted heavily not only in the US market but also in the emerging markets like Australia, Singapore and Malaysia.

Bangladesh has, however, signed the Trade and Investment Framework Agreement (TIFA) which is a bilateral agreement between the US and another country. In principle, TIFA allows for treaties that are more responsive to the partners’ needs and tailor-made to their situation but till date any benefit from such agreement has not been realized.

Conclusion

The TPP is the most significant trade agreement being signed in the recent times as major economies of the world are involved. This is presumed that with the TPP the member countries are going to emerge as another trade and economic hub of the world.A strategic resolution to keep China out of the agreement clearly depicts that the US wants to safeguard their bilateral trade balance within the members to tackle the economic threats from China. China meanwhile emerged as the largest economy of the world surpassing US in the last fiscal year. It is also expected from the EU to strengthen their ties with the Asian countries so that they can safeguard their economy as the effects of TPP comes into force in the upcoming days.

References

[1] A. Mahmud, “Negative Impact pf TPP on Bangladesh,” The Financial Express, Dhaka, 2015.

[2] “The Trans Pacific Partnership,” Electronic Frontier Foundation, 2015.

[3] “Timeline of the Trans Pacific Partnership,” TPPInfo, New York, 2015.

[4] N. Cory, “Impact of TPP on Vietnam Garments Industry,” cogit ASIA, Manila, 2015.

[5] M. S. Siddique, “TPP and fate of Garments export to the USA,” The Financial Express, Dhaka, 2015.

If anyone has any feedback or input regarding the published news, please contact: info@textiletoday.com.bd

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