FDRA President Outlines What TPP Will Mean for Footwear Industry

FDRA President Outlines What TPP Will Mean for Footwear Industry

Negotiations for the Trans-Pacific Partnership (TPP) have been dragging on since 2010, though on Tuesday U.S. Trade Representative Michael Froman said the talks involving 12 Pacific Rim countries will conclude in “a small number of months.”

The proposed trade agreement between the United States, Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam, is designed with the goal of enhancing trade and investment among the partner countries and promoting economic growth and development.

Following President Obama’s State of the Union Address last week, Footwear Distributors & Retailers of America (FDRA) Matt Priest touted the president’s comments on trade, noting namely how the TPP could benefit the footwear industry.

“For years now our leaders have been negotiating a Pacific free trade agreement that would greatly benefit American consumers and the footwear industry by providing nearly half a billion dollars in duty savings. I am encouraged that tonight the President strongly outlined in his State of the Union speech the need to pass the Trans-Pacific Partnership (TPP) in 2015. I was impressed he spoke so passionately about trade and is working to convince the public of its benefits and the Congress of the need to pass Trade Promotion Authority (TPA) – the same authority given to every President since Nixon. He will not be alone,” he said. “The footwear industry is committed to telling its story and how TPA and TPP will help create and strengthen footwear design, marketing, logistics and retail jobs across America.”

Sourcing Journal spoke to Priest about just how TPP stands to affect the footwear industry and what stakeholders can expect once the agreement is settled.

SJ: Can you give us a brief overview of the footwear industry with regard to the nations that are part of the TPP?

MP: From a global perspective, China is the largest manufacturer of footwear in the world and supplies 80 percent of all footwear to the U.S. Vietnam is a distant second at 10 percent of the U.S. market, but is growing. Of the 12 nations involved in the Trans-Pacific Partnership, only Vietnam is a major footwear manufacturer. In fact, of the $364 million in duties paid on TPP footwear imports in 2013, Vietnam imports accounted for $361 million or 99 percent of that total. For 2014, U.S. footwear import duties on Vietnamese shoes will total roughly $450 million.

SJ: What will the passage of TPP mean for the footwear industry?

MP: While it is hard to know the exact immediate impact the passage of TPP will have on the footwear industry without knowing the final negotiated outcomes of the agreement, we are fairly confident that significant duty savings will be realized soon after passage. Free Trade Agreements (FTAs) often have phase-in periods that can last upwards of a decade, as duties on certain products are phased out. That being said, this is a once in a generation opportunity to eliminate the more than $2.5 billion in duties collected on U.S. footwear imports and we’re already starting to see sourcing shifts to Vietnam take place in anticipation of the passage of TPP. This will mean a more diversified supply chain for our industry and more cost competitive footwear for our consumers.

SJ: How much is presently being spent on footwear duties?

MP: Year to date November 2014, almost $408 million in duties have been paid on TPP footwear imports, with Vietnam accounting for $405 million of that total.  Full 2014 data is not released until February, but we anticipate that duties will approach $450 million for the year and continue to dramatically increase in 2015.

SJ: Do you anticipate the agreement being passed in the near future?

In a general sense, we keep hearing positive things about the progress of the TPP negotiations. The Obama Administration is working around the clock with our trading partners to finalize the remaining issues yet to be concluded. This is a very complex agreement with a lot of moving parts, so it should come as no surprise that it has taken so long to complete.

It is vitally important that Congress grant President Obama Trade Promotion Authority (TPA) which will provide Congressional negotiating goals for the president in return for authority to negotiate an agreement and send it to Capitol Hill for final consideration. If this occurs in the first quarter of 2015 as hoped for by the White House and Congressional Leadership, then it will be easier for negotiators to finalize the TPP negotiations. Once that occurs, we are hopeful that the requisite legal scrubs of the text can take place and the agreement can be sent to Congress later in 2015.