TPP agreement likely to impact on Bangladeshi apparel sector

Under the Trans-Pacific Partnership (TPP) agreement which concluded recently although the textiles and apparel chapter of the agreement is programmed with a strict yarn-forward rule of origin (ROO), it is certain that the 12 TPP countries will have the privilege of lower or zero tariff for exporting goods to member countries which is likely to impact the garments and textile sector in Bangladesh.

Mostly the high-duty items under the current import duty structure will come under risk against the preferential duty advantage to be enjoyed by other TPP countries exporting to the USA.

Upon implementation of the TPP, apparel, the most import sensitive item, may receive immediate duty reduction of minimum 35 percent; lesser import sensitive items will be subject to a 50 percent reduction and will enjoy the facility for a lengthy period of time.

A complete duty phase-out period will be effective at some point of time among the TPP countries but it is not clear if it will be in effect for 10 years for all apparel or will be different for knit and woven apparels.

Infants’ wear, bra, outwear, suits and dresses could be excluded from the yarn-forward ROO and instead are subject to a cut-and-sew ROO. This means an importer will get the duty-free benefit even if he just imports yarn and makes the clothes. Women’s woven cotton trousers that are cut and sewn in Vietnam were provided a special one-for-one rule with no quantitative limit, meaning that for every square metre of US originating fabric, one square metre of non-TPP sourced fabric can be used.

Products such as T-shirts, fleece, socks and denim that are largely produced in the Western Hemisphere and were deemed sensitive will remain subject to the strict yarn-forward ROO.

The structure of duty phase-outs for footwear will be similar to apparel, although some items may have no duty reductions until eight years after implementation, and then phased out over the next four years. Duties on non-sensitive footwear will be eliminated on day one.

Vietnam which is the second largest exporter of readymade garments to the USA has reportedly agreed to a labur “consistency plan” that will require it to make a wide range of improvements to bring its labour regime into compliance with TPP requirements. Some changes must be completed before entry into force, specifically for freedom of association, while others must be implemented within a five-year time frame.

After this time is up, the US has an additional two years to assess whether Vietnam has successfully implemented all changes and is in full compliance with the agreement. If the US finds that they have not done so, preferential market access benefits on all products exported from Vietnam to the US could be unilaterally suspended.

It is high time for Bangladesh to assess the risk and volatility in the garment and apparel sector due to the final implementation of the TPP agreement.

The 2016 Presidential and Congressional elections will impact timing of implementation of the TPP agreement. It is now unlikely this can be accomplished until after the November 2016 elections or in the first half of 2017.