TPP will “change apparel sourcing drastically;” Vietnam could have 35% share of U.S. market

While issues such as the continued rising cost of labor in China and fabric availability (or lack thereof) in certain apparel-producing regions remain major drivers in deciding where to source product, the big X-factor that stands to make the greatest impact on today’s ever-shifting apparel sourcing landscape is the Trans-Pacific Partnership (TPP) Free Trade Agreement (FTA), currently under negotiation.

Speaking at Apparel’s Executive Forum, Mary O’Rourke of O’Rourke Group Partners, said she expects the TPP to “change the sourcing landscape drastically;” and Vietnam’s share of the U.S. apparel import market could go from 10% to 35% very quickly.”

Key  points

Duties likely will be eliminated over a five- to eight-year period, with some duties eliminated immediately.

The “yarn-forward rule” will apply, and  current “short-supply” designations will carry over to the TPP, while new short supply designations for both fabric and garment HS codes will be added.

The TPP could give Vietnam, which already has a 10 percent share of U.S. apparel imports, a significant advantage over China and the Western Hemisphere, depending on how rules of origin and duty phaseouts are implemented. “Its share could go from 10 percent to 35 percent very quickly.”

The U.S. textile community, partnered with many apparel manufacturers south of the border, is in favor of stricter measures that would limit Vietnam’s ability to ramp up exports, while apparel importers are supporting a “much more aggressive FTA” for market access and rule of origin (i.e. single transformation vs. yarn forward). O’Rourke expects the USTR team to push for the yarn-forward rule of origin.

“Vietnam’s government wants single transformation. We believe that for geopolitical reasons, Vietnam remains very important, and while we don’t believe will give in on yarn-forward, we do think they will be very generous on duty reductions,” she says, adding that she expects there to be a significant number of items, “more so than we’ve had in previous negotiations,”  that will see immediate duty elimination. Still, she expects the U.S. to be able to “hold the line” on some categories that most impact U.S. textile suppliers.

The other parties to the TPP do not offer much in the way of fabrics, says O’Rourke, although she expects to see some of them kick it into gear quickly, particularly Malaysia, which could become a more important knit fabric supplier to Vietnam.

The duty reduction that TPP may cause could trigger a significant shift in sourcing to Vietnam from other countries, particularly China. In a slide she shared with the audience, “Minimum Apparel Cost Reduction Potentials Given a 25 Percent Duty Reduction,” O’Rourke shows the cost reduction tipping point, for various apparel items, at which brand owners/retail importers would be expected to consider a sourcing shift to Vietnam:

  • Cotton Tank: 3.5%
  • Cotton Bottoms: 3.6%
  • Cotton Knit Shirt: 4.1%
  • MMF Swim: 5.0%
  • MMF Bottoms: 5.6%
  • MMF Knit Tops: 6.1%

Read more …

O’Rourke Group Partners: TPP poised to create shift in apparel sourcing landscape, Apparel, Oct 23, 2013

TPP poised to create shift in apparel sourcing, alloftextiles: fibre to fashion, Oct 2013

TPP: High Stakes for U.S. Textiles, May 2013

U.S. Textile Manufacturing and the TPP Negotiations, Congressional Research Service, Nov 20, 2013

Posted: Nov 4, 2013; Updated: Apr 28, 2015.