On January 23, 2017—his third day in office—U.S. President Donald J. Trump followed up on an oft-repeated campaign pledge by issuing a presidential memorandum regarding withdrawal of the U.S. from the Trans-Pacific Partnership Agreement or TPP. U.S. participation in the agreement – which involved years of negotiation with 11 other nations and enjoys tremendous support with numerous U.S. industry groups and members of congress—was unilaterally terminated by the White House because it doesn’t meet Administration goals to:

Represent the American people and their financial well-being in all negotations [sic], particularly the American worker, and to create fair and economically beneficial trade deals that serve their interests.  Additionally, in order to ensure these outcomes, it is the intention of my Administration to deal directly with individual countries on a one-on-one (or bilateral) basis in negotiating future trade deals.  Trade with other nations is, and always will be, of paramount importance to my Administration and to me, as President of the United States.

Based on these principles, and by the authority vested in me as President by the Constitution and the laws of the U.S. of America, I hereby direct you to withdraw the United States as a signatory to the Trans-Pacific Partnership (TPP), to permanently withdraw the U.S. from TPP negotiations, and to begin pursuing, wherever possible, bilateral trade negotiations to promote American industry, protect American workers, and raise American wages.

By exiting the TPP, the White House created a vacuum in international trade issues that other nations are now racing to fill.  As has been widely reported in the media in the aftermath of the most recent meeting of G-20 nations, leaders from Japan and the European Union announced outlines of an agreement on July 6 which contains broad strokes of a trade deal that, reportedly, will cover nearly 30% of the global economy, 10% of the world’s population and 40% of global trade.

“If the nations agree to the terms,” the Washington Post reports, “the deal will create a trading block roughly the same size as that established by the North American Free Trade Agreement [NAFTA], a 1994 deal between the U.S., Mexico and Canada.”

As further reported, the July announcement appeared to be a “calculated rebuke of both the U.S., which has spurned global trade agreements in favor of more protectionist policies under President Trump, and Britain, which voted to leave the European Union last year.”

Shinzo Abe, the prime minister of Japan—who is facing significant, unrelated, challenges within his own government at home—greeted the announcement as “the birth of the world’s largest free advanced industrialized economic zone” and went on to say  “Japan and the European Union will hoist the flag of free trade high amidst protectionist trends.”

President of the European Commission Jean-Claude Juncker says the agreement “shows that closing ourselves off from the world is not good for business, nor for the global economy, nor for workers.  As far as we are concerned, there is no protection in protectionism.”

If the European Union and Japan are able to forge a Free Trade Agreement (FTA), published reports say the deal would lower trade barriers for a sweeping array of products, including pork, wine, cheese and automobiles. The pact would “also protect so-called ‘geographical indications’—products that derive their identity by being produced only in a specific region.”  This is a reference to Rules of Origin (ROO) that typically require primary components—fibers, binders, etc. in the case of nonwovens—to originate in one of the participating nations in order for finished goods that receive duty-free treatment.  Under the proposed EU/Japan FTA these ROOs wouldn’t apply. 

How does this potentially impact nonwovens? Beyond the shift in Rules of Origin noted above, Dave Rousse, president of INDA, Association of the Nonwoven Fabrics Industry, noted that a potential FTA between the EU and Japan is something beyond the US domestic industry’s control.

“While this particular development does not involve the U.S., INDA is always interested in international trade deals that advance freer and more fair trade policies and the potential impact they can have on the nonwoven/engineered fabrics industry,” he says. “So we will be watching these discussions from the sidelines. We are supportive of a level playing field for trade, and of trade agreement definitions intended for textiles that do not compromise nonwovens.”

When asked for an EU perspective, Pierre Wiertz, general manager of EDANA, the International Association serving the Nonwovens and related Industries, replies, “Considering EDANA’s longstanding mandate from our member companies to pursue every opportunity of enhancing free and fair trade for nonwovens, and our joint messages, with our colleagues from ANNA (All Nippon Nonwovens Association), to Japanese and European negotiators that we were not only ready, but impatient, to see duties on nonwovens between these two important trading partners removed, we can only express great satisfaction at the prospect of the finalization of the Japan/EU FTA.

“Furthermore, this will be the first ever free trade agreement in the world whose Rules on Origin recognize the specific character of nonwovens manufacturing, without the odd application of the traditional textile ‘double transformation’ rule, which did not allow non-originating raw materials to be used,” he adds.

In a news conference, Juncker said that more than 90% of European exports to Japan would have freer terms of trade under the deal; and the potential pact has been called “a heavy blow to American producers” because products manufactured in the U.S.—including nonwovens—will become relatively more expensive and less competitive in two major global markets:  Japan and the EU.

While data on the amount of trade between Europe and Japan for nonwovens isn’t readily available, Rousse’s point is well taken that there’s not much the U.S. nonwovens industry can do about this development other than observe its progression from the sidelines.

Two other notable points about the proposed EU/Japan FTA are that:  1) it includes a clause by which both sides agree to review issues of data privacy such that, according to media sources, the pact “could eventually run counter to the interests of major U.S. technology companies and other multinationals;” and 2) the deal “suggests that other countries are responding to the Trump administration’s efforts not by following suit, but by seeking other efforts at globalization and cooperation” according to Chad Bown, of Peterson Institute for International Economics.