The Trans-Pacific Partnership (TPP), concluded on Oct 5 in Atlanta, is dubbed as the biggest trade agreement in history struck by the US and 11 other Pacific nations – the U.S., Canada, Japan, Australia, Brunei, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Together these twelve countries make up about 40 percent of the global economy with economic output of almost $30 trillion. The TPP aims to free 40% of world trade from tariffs and quotas, and elevate protection for the environment and worker rights, among other objectives. The dismantling of trade barriers across the TPP countries is bound to reduce transaction costs and speed up procedures, increase ease of doing business for their companies and possibly benefit consumers with lower prices and more choice. With the implementation of the TPP agreement there will be a lot of mergers and acquisitions (M&A) activity, both within and outside the TPP countries to take advantage of the new business environment.
Under the TPP, the US will eliminate 18,000 tariffs on U.S.-manufactured goods. The agreement will come into force once it is ratified by lawmakers in the TPP nations which may take another 2 to 3 months. The final deal is expected to be a positive for the U.S. apparel industry, which stands to gain from reduced or eliminated tariffs on certain materials up the supply chain. The National Council of Textile Organizations also expressed his satisfaction saying that “U.S. negotiators were able to achieve a well-balanced and reasonable outcome for U.S. textile manufacturers and our partners within the Western hemisphere.”
It is universally believed that the biggest winner will be Vietnam in view of tariff-free access to U.S. markets for apparel and footwear – Vietnam’s top exports – compared to the current 17-32% tax range. That’s expected to further boost exports to the U.S. and dramatically increase foreign direct investment inflows as foreign investors start to flood Vietnam, which has the lowest per capita income among TPP members. Vietnam will get an opportunity to boost GDP by 11% by 2025, with exports growing 28% in the period as companies move factories to the low-wage country. Reduced import duties in the U.S. and Japan will benefit country’s apparel manufacturers, whose low labor costs have enabled them to grab business from China. Still, impact may be limited as Vietnam will still face strict rules-of-origin on materials.
However, other Asian exporters of textiles and clothing -like Bangladesh, India, Cambodia, Pakistan, and Sri Lanka- are likely to be adversely impacted from the negative effects of trade and investment diversion in theT&C industry towards TPP members, especially Vietnam. China may be among the biggest losers as it decided to remain out of the deal mainly due to the fact that TPP has stringent global trade rules and social objectives. But China may possibly join in the future as it did with the WTO.
The TPP aims to advance workers’ rights in the TPP countries with measures including a ban on child and forced labor; a minimum wage; a ban on workplace discrimination; the right to collective bargaining and workplace safety standards. It aims to help the environment by combating illegal wildlife trafficking and logging; preventing overfishing; and protecting the oceans. It will seek to protect a free and open Internet; protect consumers from fraud and deception; require comprehensive anti-corruption and transparency measures; and help simplify export rules for small businesses.
Whether India can think of joining the US-led TPP agreement has to be seen in light of the above facts. Any strategy to have investments in TPP countries for setting up manufacturing units will be in direct conflict with our PM Modi’s “Make-In-India” dream project.