Impact of the Trans-Pacific Partnership (TPP) on US textile and apparel manufacturing. A quantitative evaluation

• Published date: 20 June 2016
• DOI: https://doi.org/10.1108/JITLP-02-2016-0009
• Pages: 134-152
• Date: 20 June 2016
• Author: Sheng Lu
• Subject Matter: Strategy,International business,International business law,Economics,International economics,International trade

Impact of the Trans-Pacic

Partnership (TPP) on US textile

and apparel manufacturing

A quantitative evaluation

Sheng Lu

Fashion and Apparel Studies, University of Delaware,

Newark, Delaware, USA

Abstract

Purpose – This study aims to empirically investigate the potential impact of the Trans-Pacic

Partnership (TPP) on US textile and apparel manufacturing.

Design/methodology/approach – This study adopts the Global Trade Analysis Project (GTAP)

computable general equilibrium model based on the latest GTAP9 database.

Findings – The ndings of the study suggest that: the “yarn-forward” rule will not work effectively in

the context of TPP; and the development of Vietnam’s local textile industry is a critical threat to the

survival of US textile and apparel (T&A) manufacturing in the long run.

Originality/value – The ndings of the study augment the understanding of the T&A-specic

sectoral impact of TPP and address the particular concerns of the US T&A manufacturers with regard

to the new business environment and the possible scenarios after the implementation of the agreement.

Keywords USA, TPP, Textile and apparel, Yarn-forward

Paper type Research paper

1. Introduction

The Trans-Pacic Partnership (TPP) is a high-standard free trade agreement (FTA)

reached in October 2015 between the USA and other 11 countries in the Asia-Pacic

region (USTR, 2016). The 12 TPP members altogether accounted for about 40 per cent of

global gross domestic product (GDP) and a third of world trade in 2013, making TPP one

of the most inuential FTAs whose implementation will have a profound economic,

social and political impact on the world economy (Fergusson et al., 2015).

Textile and apparel (T&A) is a major sector covered by TPP. Statistics show that the

12 TPP members altogether exported $34bn worth of textiles and $37bn worth of

apparel in 2013, which accounted for a world export share of 11 and 8 per cent,

respectively (WTO, 2015a). Meanwhile, as much as $65bn worth of textiles and $154bn

worth of apparel were imported by the 12 TPP members in 2013, which accounted for a

world import share of 20 and 32 per cent, respectively (WTO, 2015a). From tariff

elimination scheme to rules of origin, the T&A chapter under TPP is also of particular

complexity because of the unique T&A market structure and historical rules that

governed the global T&A trade (Platzer, 2014).

The US T&A industry in particular has a high stake in TPP. In 2014, around 55 per

cent of US T&A exports (or $13.3bn) went to the other 11 TPP partners, and around 17

per cent of US T&A imports (or $17.8bn) came from the TPP region (OTEXA, 2015a,

The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/1477-0024.htm

JITLP

15,2/3

134

Received 27 February 2016

Revised 27 February 2016

Accepted 6 April 2016

Journalof International Trade Law

andPolicy

Vol.15 No. 2/3, 2016

pp.134-152

©Emerald Group Publishing Limited

1477-0024

DOI 10.1108/JITLP-02-2016-0009

2015b). Although most studies believe that TPP will benet the US economy as a whole

(such as Petri et al., 2011;Schott et al., 2013), the potential impact of TPP on the US T&A

industry, especially the manufacturing aspect, is far from clear. On the one hand, TPP

may create additional market access opportunities for the US T&A industry when other

TPP members increase import demand for “Made in USA” products as result of lowered

tariff and non-tariff barriers (NTBs) (Fergusson et al., 2015). On the other hand, it is of

grave concerns that TPP may also result in a substantial increase of T&A imports to the

US market and negatively affect US domestic T&A manufacturing, especially the

survival of those small- and medium-sized factories (Bergman, 2015). To further add to

the uncertainty, TPP has the potential to disrupt the current Western-hemisphere T&A

supply chain, within which the USA is playing a critical role (Frederick et al., 2015;Lu,

2015a).

The main purpose of this study is to quantitatively evaluate the potential impact of

the implementation of TPP on US T&A manufacturing. Although some studies have

provided assessments of the economic impact of TPP, most of them were conducted at

the macroeconomic level (Petri et al., 2011;Schott et al., 2013;Li and Whalley, 2014). A

few studies have started to specically look at the impact of TPP on the T&A sector

(Nguyen, 2014;Lu, 2015a,2015b); however, the scope of these studies was limited to

related trade ows only. The results of this study instead will deepen our understanding

of the impact of TPP further down to the manufacturing activity in the T&A sector,

which has seldom been studied. For the academia and the T&A business community,

ndings of this study will address their particular concerns about the new market

environment and the possible scenarios after the implementation of TPP. For

policymakers, results of this study will provide valuable inputs that could support the

T&A sectoral negotiation under TPP and related trade policy-making.

The paper is composed of four parts. The second part provides an overview of related

theories and literatures that suggest the potential impact of TPP on US T&A

manufacturing. The third part is a detailed description of the research methods and data

source of this study. The fourth part presents empirical results and discussion of them.

The last part includes key ndings and discussion of future research agendas.

2. Literature review

To holistically evaluate how TPP might affect US T&A manufacturing, the following

three aspects need to be critically reviewed: rst, what are the key provisions under TPP

that are related to the T&A sector. Second, what is the state of the US T&A industry and

its current trade pattern in the TPP region, both with TPP members and other

non-member stakeholders. Third, how will “rules of the game” under TPP shift current

trade pattern in the TPP region, and consequentially affect US T&A manufacturing.

The following sections will address each of the above three aspects accordingly.

2.1 Key TPP provisions for the textile and apparel sector

T&A is one of the most complex chapters under TPP and involves several unique trade

policy issues that apply to the sector only (Fergusson et al., 2015). Specically, the T&A

chapter under TPP concentrates on the following two issues.

One is tariff elimination. According to the released text of TPP, import tariffs on

manufactured products, including T&A, among its members will be gradually

eliminated through a 13-year phase-out period (USTR, 2016). In general, T&A products

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Trans-Pacic

Partnership