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Cotton and TPP-11 Agreement

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Seshadri Ramkumar, Texas Tech University, USA

TPP-11 trade treaty has come into force in seven countries. 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 14th, the treaty came into effect in Vietnam. The treaty was signed by 11 countries on March 8th 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 30th, 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 U.S. exports, while other major importing countries are Turkey, Indonesia and Pakistan. Interestingly, Bangladesh is marching closely with Mexico in importing U.S. 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% of tariffs in the TPP-11 region, whose collective GDP is about US$ 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 percent 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.

Mr. Grady Martin, Director of Sales for Lubbock-based Plains Cotton Cooperative Association stated, “Vietnam is a very important market for U.S. cotton. As yarn and garment operations are shifting to Vietnam, the country has growing importance.” To a question from this scribe on the impact of the new TPP-11 treaty on exports to Vietnam, Martin replied 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, added 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% of U.S. cotton gets shipped abroad is a question that needs careful investigation.

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