TPP ‘yarn-forward’ clause likely to encumber Indonesian textiles

The Indonesian Textile Association’s (API) advisory board chairman, Benny Soetrisno while speaking at the recent press conference said that the US-led TPP is likely bring more benefits than harm to the local textile industry, but there’s one thing that need to watch out when joining the Trans-Pacific Partnership [TPP], that’s the yarn-forward clause. Hence, the country has to boost the industry’s readiness at all stages of the manufacturing process.

There’s a provision in the TPP that will cut tariffs only for garment products made using materials sourced from the member countries, he said.

The US-led economic partnership, once implemented, is set to apply a “yarn-forward” rule of origin that requires textile and apparel products made using TPP members’ yarns and fabrics to qualify for zero-tariff in trades among the member countries.

The clause will also certainly apply to Indonesia if it eventually joins the so-called 21st century economic partnership.

The TPP currently has 12 signatory countries, namely Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the US. All the 12 signatories are now in the process of ratifying the TPP in their respective countries, expected to take about two years.

President Joko “Jokowi” Widodo during his last October state visit to the US said that Indonesia intended to join the TPP and in his recent visit to the US-ASEAN Summit, he said that Indonesia was now calculating both the benefits and drawbacks of the partnership.

Indonesia’s textile industry is considered to be the sector that will gain most should the country join the TPP in the coming years.

The Industry Ministry’s director for textiles, leather, footwear and various industries, Muhdori, said that the textile industry was ready for the partnership as it was already structured from its upstream to downstream.

Meanwhile, the Industry Ministry’s data show that in 2014, Indonesia still imported a total of US$8.6 billion textiles in the form of fiber, yarn, fabric, garments, tapestry and other textile products, with a big chunk estimated to come from China, which is not a TPP member.

Vietnam, which is one of the TPP signatories, has previously raised concerns about the yarn-forward rule of origin as it still imports some types of fabric from China.

API chairman Ade Sudrajat argued that he was still upbeat that joining the TPP would benefit the country’s textile industry, but support from the government to develop the whole process of garment manufacturing was needed.

In terms of workers, Ade said that the government could, for example, help textile companies build workers’ dormitories next to production plants. They want the government to subsidize housing for workers at garment factories so that they can recruit workers from other districts outside where the production plants are based.

While a number of business sectors have been reportedly making lay-offs to improve business efficiency, many garment manufacturers have experienced workforce shortages to support expansion.

According to API, it is estimated that the TPP could more than double Indonesia’s textile exports in a decade as the US is one of its major markets.