The deal may be done on paper, but it’s just the beginning of the fight for passage of the Trans-Pacific Partnership in the U.S.
President Obama and the Office of U.S. Trade Representative have set an unprecedented tone for passage, forging ahead at a fast pace on the historic trade deal, which ties up 40 percent of the global economy.
After releasing the full text of the agreement just a month after negotiators in Atlanta came to a deal, the President has announced his intent to support the legislation and is gearing up as it heads to Congress. The administration’s urgency — aimed at getting the deal signed, sealed and delivered in the U.S. before the Presidential elections take all the attention — is quite the change compared to the five-years of extended talks between the 12 member nations.
“The administration has been very aggressive about getting this done,” said Matt Priest, president of the Footwear Distributors & Retailers of America. “This is really as big as advertised. We’re looking at about half a billion in tariff savings in year one alone. It really is as historic for our industry as we thought.”
While the agreement text may be done, the dogfight for approval in the U.S. — and possibly in other nations — is just gearing up, with names like Republican Senator Orrin Hatch and Democrat Senator Bob Casey coming out against the bill, and Presidential candidates using the deal to show their support of middle class economics and job security.
Insiders seem confident the bill will be presented early in 2016. It will likely have big support from the Speaker of the House of Representatives, Paul Ryan, who helped orchestrate this summer’s trade powers deal for the President, and Kevin Brady on the House Ways & Means Committee.
In the interim, there are a few things that are important to know about the TPP and its immediate impact on footwear.
1. Tariff savings in the first year of the agreement will reach $450 million.
2. Tariffs are phased out in member nations but with new specific requirements.
- Shoes produced entirely in Vietnam or TPP countries and imported to the U.S. will be duty-free or have a reduced duty based on the tariff phase-outs.
- Shoes produced in a TPP country using imported materials from other TPP members (i.e., nations outside the country where brands are making the footwear) are duty-free or have reduced duties based on the tariff phase-out schedule.
- Shoes that are produced in Vietnam or other TPP nations using specific components from outside the TPP-agreed companies must provide documentation that at least 55 percent of the shoe is made in a TPP country (labor and upper materials will count toward the 55 percent).
3. Tariffs for footwear produced in Vietnam will be zero by the 12th year of the deal.
4. A TPP deal could quicken the pace for the TTIP (Trans Atlantic Trade & Investment Partnership) talks, which have been under way with Europe for about two years. More resources and attention focused on that deal could increase pressure on negotiators to speed up talks.
5. Expect a shift in innovation and sourcing patterns. Vietnam is arguably the second-most-important footwear producer next to China, and with a tariff reduction, more companies are likely to shift their attention there and possibly to other TPP nations, such as Mexico. Expect innovation in how shoes are created as well now that the categories and tariff structure have changed, freeing up brands to try new things.