Cotton & TPP-11 Agreement

Comprehensive and Progressive Agreement for Trans-Pacific Partnership, popularly known as TPP-11 came into force in seven countries out of 11 participating countries.On January 14, the treaty came into effect in Vietnam. The treaty was signed by 11 countries on March 8 in Santiago, Chile, which had to be subsequently ratified by respective national assemblies.

The treaty came into effect in Australia, Japan, Mexico, New Zealand, Canada and Singapore on December 30, 2018. Vietnam’s entry into the pack on January 14, 2019 creates an interesting dynamic in the cotton trade. Vietnam’s textile sector is burgeoning and is in good need of cotton.

In the last three seasons, Vietnam is the number one importer of Unites States’ cotton. In the 2017/18 season, about 2.98 million bales (480 lbs. each) were exported to Vietnam from the United States. The export has more than doubled since 2013-14, when the export from the United States was about one million bales. Vietnam is followed by China in terms of US exports, while other major importing countries are Turkey, Indonesia and Pakistan. Interestingly, Bangladesh is marching closely with Mexico in importing US cotton.

The free trade between Australia and Vietnam as part of the TPP-11 treaty, will boost agricultural exports from Australia to Vietnam. This agreement eliminates 98 per cent of tariffs in the TPP-11 region, whose collective GDP is about $13.5 trillion.

According to Australian Department of Foreign Affairs and Trade, all tariffs on cotton exports will be eliminated under the treaty. Exporting of cotton to Vietnam gives additional advantage to Australian cotton sector. Japan has given more market access to Australian cotton via Vietnam. Tariffs on clothing made from Australian cotton in Vietnam have been eliminated in Japan giving more market entry for Australian cotton. In 2017, Australia’s 15 per cent of total cotton exports were to TPP-11 countries. Market access and common rules are expected to enhance the export chances of agricultural products from Australia.

Grady Martin, Director of Sales for Lubbock-based Plains Cotton Cooperative Association states, “Vietnam is a very important market for U.S. cotton. As yarn and garment operations are shifting to Vietnam, the country has growing importance.” On the impact of the new TPP-11 treaty on exports to Vietnam, Martin says that it may have an impact, but Vietnam needs cotton. In the long run, what the impact will be is hard to judge right now, adds Martin, who has been in the cotton industry for 36-years.

Will the non-participation of United States in the TPP-11 impact agricultural exports and particularly cotton, as 80 per cent of US cotton gets shipped abroad is a question that needs careful investigation.

(By: Seshadri Ramkumar, Texas Tech University, USA)