What does China's membership in CPTPP mean for apparel trade?

The other key issue is rules of origin. In general, CPTPP adopts very restrictive “yarn-forward” rules of origin. Under this rule, fibres may be produced anywhere, but each component starting with the yarn used to make the garment must be formed within the CPTPP region to enjoy the preferential duty benefits under the agreement.

Meanwhile, CPTPP adopts several exceptions to the “yarn-forward” rules. For example, the short supply mechanism allows specific textile inputs (fibres, yarns, and fabrics) determined not available in commercial quantity in the CPTPP region to be sourced from anywhere in the world. [Note: the detailed CPTPP short supply list is available here]. Meanwhile, CPTPP’s de minimis rule allows textile and apparel products containing less than 10% of non-originating materials to be still eligible for the preferential tariff rates under the trade agreement.

What does China’s membership in CPTPP mean for textiles and apparel?

First, once China joins CPTPP, the tariff cut could provide strong financial incentives for Mexico and Canada to use more Chinese textiles. As Table 1 shows, China is already a leading textile supplier for many CPTPP members. In 2019, as much as 47.7% of CPTPP countries’ textile imports (i.e., yarns, fabrics, and accessories) came from China, far more than the United States (12.1%), the other leading textile exporter in the region.

Notably, thanks to the Western Hemisphere supply chain and the US-Mexico-Canada Trade Agreement (USMCA, previously NAFTA), the United States remains the single largest textile supplier for Mexico (48.2%) and Canada (37.2%). Mexico and Canada also serve as the single largest export market for US textile producers, accounting for as many as 46.4% of total US yarn and fabric exports in 2020.

However, US textile exporters face growing competition from China, offering more choices of textile products at a more competitive price (e.g., knitted fabrics and man-made fibre-woven fabrics). As Table 2 shows, from 2005 to 2019, US textile suppliers lost nearly 20 percentage points of market shares in Mexico and Canada, to what China gained in these two markets over the same period.

Further, China’s membership in CPTPP means its textile exports to Mexico and Canada could eventually enjoy duty-free market access. The significant tariff cut (e.g., from 9.8% to zero in Mexico) could make Chinese textiles even more price-competitive and less so for US products. This also means the US textile industry could lose its single largest export market in Mexico and Canada even if the Biden administration stays away from the agreement.

Table 1 Source of CPTPP members’ textile imports in 2019 (by value)

Importers	from China	from CPTPP	from the US	Tariff rate for Chinese textiles in 2020
CPTPP	47.7%	8.1%	12.1%	2.5%
Australia	49.7%	7.8%	5.3%	4.2%
Brunei	31.4%	30.8%	6.6%	0.0%*
Chile	57.1%	7.4%	4.0%	0.0%*
Canada	26.5%	5.1%	37.2%	2.3%
Japan	53.2%	11.6%	2.9%	5.5%
Malaysia	12.4%	11.6%	2.9%	0.0%*
Mexico	26.8%	5.1%	48.2%	9.8%
New Zealand	40.1%	12.5%	7.3%	0.0%*
Peru	52.8%	3.6%	5.3%	6.3%**
Singapore	28.6%	21.4%	7.6%	0.0%
Vietnam	57.3%	7.3%	0.7%	0.0%*

Data source: UNComtrade (2021); WTO (2021); *zero tariff rate provided by China-ASEAN free trade agreement, China-Chile free trade agreement, and China-New Zealand free trade agreement. **: While China and Peru reached a free trade agreement in 2009, Peru excluded most textile products from the tariff cut.

Table 2 Source of CPTPP, Canada, Mexico, and Vietnam’s textile imports 2005-2019 (by value)

From China
Importers	2005	2010	2015	2018	2019	2019 vs. 2005*
CPTPP	25.8%	36.1%	42.8%	46.5%	47.7%	21.9
Canada	13.2%	21.0%	24.5%	26.6%	26.5%	13.3
Mexico	9.6%	13.4%	22.0%	25.7%	26.8%	17.2
Vietnam	23.4%	37.4%	49.6%	54.4%	57.3%	33.9
From the United States
Importers	2005	2010	2015	2018	2019	2019 vs. 2005*
CPTPP	29.1%	19.4%	16.0%	12.9%	12.1%	-17.0
Canada	56.3%	48.1%	43.3%	38.1%	37.2%	-19.1
Mexico	70.1%	62.4%	57.0%	50.5%	48.2%	-21.9
Vietnam	0.7%	0.6%	0.7%	0.7%	0.7%	0.0

Data source: UNComtrade (2021); *: Percentage points

Second, China’s membership in CPTPP would intensify the debate on whether the United States should rejoin the agreement.

On the one hand, US fashion brands and retailers will be very excited about the duty-saving opportunities CPTPP’s membership provides. When CPTPP members include the two largest sources of US apparel imports—China and Vietnam, US fashion brands and retailers theoretically could save billions of import duties every year. For example, in 2020, US companies paid over $6.3 billion tariffs for their apparel imports from these two countries (or about a 20% tariff rate). CPTPP could also help US fashion companies gain more favourable market access in some of the world’s largest and fastest emerging consumer markets.

On the other hand, the US textile industry could forcefully oppose the US joining CPTPP when China becomes a member of the agreement. Notably, if China and the US both became CPTPP members, even the most restrictive rules of origin would NOT prevent Mexico and Canada from using more textiles from China and then export the finished garments to the US duty-free. Considering its heavy reliance on exporting to Mexico and Canada, such a scenario would be a disaster for the US textile industry.

Even worse, the US textile exports to CAFTA-DR members, another critical export market, would drop significantly when China and the US became CPTPP members. Under the so-called Western-Hemisphere textile and apparel supply chain, how much textiles (such as yarns and fabrics) US exports to CAFTA-DR countries depends on how much garments CAFTA-DR members can export to the US. In comparison, US apparel imports from Asia mostly use Asian-made textiles. For example, as a developing country, Vietnam relies on imported yarns and fabrics for its apparel production. However, over 97% of Vietnam’s textile imports come from Asian countries, led by China (57.1%), South Korea, Taiwan, and Japan (about 25%), as opposed to less than 1% from the United States (see Table 1).

Table 3 Source of US apparel imports (by value)

Suppliers	2010	2015	2018	2019	2020	2020 vs. 2010
China	40.9%	37.4%	34.4%	30.8%	29.8%	-11.1
Vietnam	7.6%	11.4%	13.5%	14.9%	16.6%	9.0
China+ Vietnam	48.5%	48.8%	47.9%	45.7%	46.4%	-2.1
Asia (exclude China and Vietnam)	7.6%	11.4%	13.5%	14.9%	16.6%	2.4
CPTPP (exclude Vietnam)	8.3%	7.5%	7.9%	7.7%	8.4%	0.1
USMCA	5.4%	4.7%	4.9%	4.6%	4.1%	-1.3
CAFTA-DR	8.9%	9.0%	9.2%	9.5%	8.0%	-0.9

Data source: UNComtrade (2021)

How will China’s CPTPP membership affect Vietnam’s apparel trade

The US textile industry also deeply worries about Vietnam becoming a more competitive apparel exporter with the help of China under CPTPP. Notably, among the CPTPP members, Vietnam is already the second-largest apparel exporter to the United States, next only to China. As Table 3 shows, despite the high tariff rate, the value of US apparel imports from Vietnam increased by 131% between 2010 and 2020, much higher than 17% of the world average. Vietnam’s US apparel import market shares quickly increased from only 7.6% in 2010 to 16.6% in 2020 (and reached 19.3% in the first half of 2021). The lowered non-tariff and investment barriers provided by CPTPP could encourage more Chinese investments to come to Vietnam and further strengthen Vietnam’s competitiveness in apparel exports.

Understandably, when apparel exports from China and Vietnam became more price-competitive thanks to their CPTPP memberships, more sourcing orders could be moved away from CAFTA-DR countries, resulting in their declined demand for US textiles. Notably, a substantial portion of US apparel imports from CAFTA-DR countries focuses on relatively simple products like T-shirts, polo shirts, and trousers, which primarily compete on price. Losing both the USMCA and CAFTA-DR export markets, which currently account for nearly 70% of total US yarns and fabrics exports, could directly threaten the survival of the US textile industry.

Third, overall, China’s membership in CPTPP will have a modest impact on Asian countries’ apparel exports. As Table 4 shows, except China itself, CPTPP accounts for less than 10% of most Asian countries’ total apparel exports, such as Vietnam (7.3%), India (9.5%), Bangladesh (4.2% in 2015), Cambodia (8.7%), and Sri Lanka (6.0%). Also, China already enjoys preferential or duty-free market access to several CPTPP members through bilateral free trade agreements, including Chile, Brunei, and New Zealand. In other words, joining CPTPP will not provide additional price advantages for Chinese products in these markets. Further, in the long run, as its economy matures, China is moving from exporting apparel to more sophisticated textile products. It is no longer a secret that many garment exports from southeast Asia today come from Chinese-invested factories.

Table 4 CPTPP as a percentage of total apparel exports (by value)

Exporters	2005	2010	2015	2018	2019
ASEAN	22.7%	15.1%	14.8%	14.2%	15.1%
Bangladesh	2.3%	4.5%	4.2%	N/A	N/A
China	13.4%	13.1%	17.2%	25.0%	23.6%
Vietnam	24.8%	11.9%	6.4%	7.9%	7.3%
Cambodia	6.6%	5.0%	6.4%	9.7%	8.7%
India	5.1%	7.3%	8.4%	8.7%	9.5%
Indonesia	18.0%	16.6%	14.6%	14.1%	15.0%
Sri Lanka	5.9%	7.8%	10.9%	7.1%	6.0%

Data source: UNComtrade (2021); “N/A” means data not available.

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What does China's membership in CPTPP mean for apparel trade?

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