The passage of the Trans-Pacific Partnership (TPP) trade deal would benefit US apparel companies by eliminating textile tariffs between 12 participating countries, says Moody's Investors Service.
According to a research paper, the trade agreement would allow US apparel and footwear retailers to shift production to lower-tariff countries, create leaner and more cost-effective global supply chains and accelerate the time-to-market for their products.
The passage of the trade deal would also allow companies to consolidate and localize their manufacturing footprint and tighten supply chains. According to Moody's, the deal would provide the most benefit to large-scale global companies that are best able to leverage their size to streamline operations.
By expanding their footprint in Asia Pacific, apparel companies are also cutting down on time-to-market and increasing their responsiveness to quickly changing fashion trends, according to the report, "If Trade Deal Flies, Large Apparel Companies Could Cut Supply Chain Costs, Improve Efficiencies."
The trade deal would also benefit apparel companies by providing them greater access to the Asia-Pacific region, through the inclusion of countries such as Vietnam in the trade deal, and by providing easier and faster access to countries outside of the deal such as China.
"US apparel companies are looking to China as a key market where increasing demand for goods ranging up the scale to luxury brands can help increase profitability and provide growth opportunities outside of the mature and crowded domestic market," said Scott Tuhy, a Moody's vice president and senior credit officer.
"An increased presence in Vietnam in particular will save these companies a significant amount of money, since tariffs there currently range from 5 per cent to 30 per cent of the total cost, insurance and freight value," Tuhy added.
Although few details of the deal have been publicly disclosed, the TPP proposes the elimination of textile tariffs between 12 participating countries: Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the US. These countries represent roughly 17 per cent of total apparel and footwear imports into the US and around 55 per cent of total apparel and footwear exports out of the US.
