Building on a resurgence

Free trade agreements (FTAs), by their nature, are designed to stimulate consumption through the elimination of trade barriers. Good trade agreements also ensure that they incentivize manufacturing production, investment, and employment within the free trade region. This helps to frame the critical question confronting U.S. negotiators as they press for closure of the Trans-Pacific Partnership (TPP) agreement: Can the U.S. reach a final deal that is not only good for  consumers but also fuels U.S. manufacturing?  The answer for the domestic textile sector is a definite yes, assuming the final agreement includes a yarn forward rule of origin. 

The U.S. textile industry is experiencing a significant resurgence with expansion in practically every key economic indicator, including output, investment, and exports. An important factor in this resurgence is the inclusion of the yarn forward rule of origin in all of America’s FTAs over the past 20 years. 

{mosads}As the name implies, the yarn forward rule requires that yarn, fabric, and assembly production steps be completed in a free trade region in order to qualify for duty preferences among FTA partners. This policy ensures that manufacturers in the countries party to the agreement benefit versus free riders that are not opening their own markets.  As a result, the yarn forward rule has served as a catalyst for record breaking exports of U.S. yarns and fabrics. Over the past 10 years, textile exports have grown sharply from $12.7 billion in 2003 to $17.9 billion in 2013, a 40 percent increase during that period. 

Moreover, the yarn forward rule has helped to attract dramatic levels of new investment in the U.S. textile sector. From 2001 to 2011 the domestic textile industry invested $17.7 billion in new plants and equipment. During the past 12 months alone, the industry has seen a sharp increase in both domestic expansion projects and foreign direct investment. Investors from China, Canada, India, Japan, Korea, and Mexico have all have announced new textile capital expenditures. Over this time, we have seen no fewer than 7 foreign and 5 domestic companies make public announcements to invest more than $1.9 billion in new textile facilities and equipment. These investments are projected to provide approximately 3,000 new jobs in North Carolina, South Carolina, Georgia, and Louisiana. 

When noting these positive developments, it is important to understand that the yarn forward rule has yielded significant benefits well beyond our own national borders. This essential rule has led to the creation of an integrated Western Hemisphere production chain encompassing the United States and its NAFTA, CAFTA, and Andean FTA partners.  

Today, 63 percent of all U.S. textile exports go to our Western Hemisphere free-trade partners and our two-way textile and apparel trade with these countries was nearly $32 billion in 2013. Above all else, this massive two-way trade provides nearly 2 million textile and apparel jobs throughout the Western Hemisphere and millions of additional jobs in support industries, such as machinery, information technology, and transportation. 

The growth of manufacturing, investment, jobs, and overall trade in this “yarn forward zone” offers overwhelming validation that balanced trade policy can benefit all parties involved.    Nonetheless, importing and retailing groups are working diligently to undermine the yarn forward concept as part of the TPP. Their position, that yarn forward inhibits trade, is at direct odds with the proven track record of this valuable provision, as shown in the data above. To the contrary, yarn forward has transformed the Western Hemisphere into a vibrant and globally competitive textile and apparel production chain, strengthened U.S. exports, and created jobs both in the U.S. and Western Hemisphere.  Noting that the TPP will cover nearly 40% of the world’s economy, it is critical that the agreement does not abandon tested policies that clearly bolster manufacturing jobs and exports among FTA partners. 

For all these reasons, we applaud the Obama administration’s decision to insist on a yarn forward rule in the TPP.  Inclusion of this critical rule will strike the proper balance between stimulating demand and consumption while also incentivizing domestic manufacturing and American job creation.  

Tantillo is president & CEO of the National Council of Textile Organizations.