The answer may depend on whom you ask. Indeed, against the background of the recent TPP negotiation this particular origin rule offers a unique lens through which one can investigate a complex relationship of free trade, political economy and trade regionalism.
According to Lien Hoang of the Bloomberg BNA, amid the TPP negotiation a Vietnamese official has urged the United States to drop the yarn-forward rule in the former’s market access to the latter market. (Lien Hoang, Vietnam Official Pushes U.S. to Drop ‘Yarn-Forward’ Rule from TPP Negotiations, Bloomberg BNA (Apr. 16, 2014)). Given that Vietnam exports a large amount of apparels to the United States, Vietnam would obviously desire a flexible sourcing option (in particular from non-TPP members, such as India and China) for raw materials (such as yarn), rather than a limited one exclusively among TPP members (which appear to be a more costly option to Vietnam).
Predictably, domestic views in this issue are divided in the United States. The U.S. producers (such as the “National Council of Textiles Organizations”) strongly back the rule. They argue that:
The Western Hemisphere is by far the largest export market for U.S. yarns and fabrics. This is not by accident but is the result of U.S. government policy that has encouraged the exportation of U.S. yarns and fabric to the region in exchange for duty free entry of the final finished product—a piece of apparel.
In contrast, importers (such as the “U.S. Association of Importers of Textiles and Apparel”) want to loosen, if not eliminate, the rule. They view that:
[A] regional negotiation that includes at least seven nations will be extremely complex, especially in light of the existing U.S. FTAs with Chile, Singapore, Australia and Peru. (…) [I]t is essential to provide “cumulation” among the TPP participants and encourages the U.S. negotiators to consider expanding cumulation to allow integration of resources among all regional yarn and fabric suppliers who have preferential access to the U.S. market. Specifically, the United States should link the TPP to all of the FTAs the United States has in the Western Hemisphere, not just to Peru and Chile.
What do YOU think? Is the “yarn-forward” rule forwarding free trade?
