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April 6, 2015

Jobs in the balance: New Balance, Maine officials keep close eye on Pacific Rim trade agreement

What's at stake for Maine in the Trans-Pacific Partnership, the largest proposed free trade agreement in history, involving the United States and 11 countries on the Pacific Rim and representing close to 40% of the world's economy?

In two words: New Balance.

The Boston-based footwear company still doesn't know for sure if the agreement will eliminate footwear tariffs on shoes made in Vietnam, since deal-making has been cloaked in secrecy from the opening of negotiations in 2010. But the company has made it clear that if tariffs dating back to the 1930s are eliminated — as Vietnam and the world's largest shoemaker, Beaverton, Ore.-based Nike Inc., would like — it would risk more than 850 manufacturing jobs at New Balance's three Maine factories and another 500 jobs at two factories in Massachusetts. New Balance argues that it would have a competitive disadvantage against Vietnamese shoemakers whose workers earn an average of $90 to $129 a month.

Negotiations are in the end game for the trade agreement, and the Obama administration is pushing Congress to grant it “fast track” authority to set the terms and sign the agreement before the House and Senate vote on it, with no amendments allowed and strict limits being placed on debate. A fast track bill to accomplish that could come to a vote in Congress as early as mid-April.

New Balance declined to be interviewed for this story, but offered the following statement from Matt LeBretton, its vice president for public affairs: “We are closely monitoring both Trans-Pacific Partnership and Trade Promotion Authority [i.e., fast track] to ensure that the interests of the men and women who make New Balance shoes in Maine and Massachusetts are not negatively impacted. Our commitment to making shoes in the United States has not wavered and with the help of Sens. Susan Collins and Angus King we have made our position clear to the Obama administration. We are hopeful that the TPP, when and if it is passed, will reflect our commitment to making shoes in the United States.”

In Maine, New Balance has plants in Norridgewock, Skowhegan and Norway.

New Balance has 1,350 U.S. employees, an “all-time company high,” Amy Dow, New Balance's senior global corporate communications manager, said in an email to Mainebiz. Sales revenue has more than doubled in the last five years to a record of $3.3 billion in 2014.

In its battle over the TPP, New Balance has an ally in the Rubber and Plastic Footwear Manufacturers Association, which represents the company and other footwear firms that support 4,000 domestic jobs. “Eliminating these tariffs as part of the TPP at the request of the Vietnamese government would effectively end footwear manufacturing in the United States and destroy an important part of our industrial base that dates back to our country's founding,” the group's trade counsel testified last spring at a House committee hearing on President Obama's trade agenda.

The trade group told committee members Vietnam's footwear industry “is doing very well under the current tariff system and does not need assistance getting its products to U.S. customers,” citing a fivefold increase in Vietnam's total footwear imports between 2002 and 2013, with a 10% market share of roughly 235 million pairs of shoes valued at almost $3 billion in 2013. In a pointed reference to Nike, which no longer manufactures footwear in the United States, its testimony concluded: “The administration should not give an advantage to footwear companies that manufacture all of their products overseas, at the expense of … domestic footwear manufacturers that are committed to keeping jobs in the United States. U.S workers will lose jobs if this occurs.”

Nike: Eliminate the tariff

As wages in China continue to climb, the footwear industry is accelerating the movement of manufacturing facilities to lower-wage areas, notably Vietnam, which is the world's No. 2 shoemaker after China. Vietnam's wages are reportedly 38% of China's; TPP could accelerate the shift from factories in China to those in Vietnam. An estimated 600 businesses employ more than 1.1 million workers, who produce 800 million pairs of shoes annually in Vietnam, according to Thanh Nien News.

Nike Inc. (NYSE:NKE), which had sales last year of $27.8 billion, a 10% gain, has 333,591 workers at 67 factories in Vietnam, with 39% of them manufacturing footwear, according to its website. Given its investment in production in Vietnam, Nike has been one of the more vocal supporters of eliminating the footwear tariff. Although the issue is often framed as a 'New Balance vs. Nike' issue, it's actually broader than that, pitting a host of footwear exporters against a handful of domestic manufacturers.

“The industry and our consumers paid over $2.7 billion in footwear duties in 2014, more than $400 million of which was taxed on TPP footwear imports alone,” says Matt Priest, president of the Footwear Distributors and Retailers of America, which represents more than 130 companies, 200 brands and 80% of total U.S. footwear sales. “Imagine the impact on consumers and footwear companies if outdated footwear tariffs from the 1930s — reaching upwards of 67.5% — were eliminated on footwear out of TPP countries.”

Eliminating the tariff, Priest's group argues, would create “new footwear design, marketing, distribution, and retail jobs.” Conspicuously absent from that lineup: manufacturing.

Fast track authority

Negotiations for the TPP, which have been dragging on since 2010, still have a handful of unresolved issues. President Obama highlighted the proposed trade agreement in his State of the Union speech on Jan. 20, urging Congress to act quickly on passing a Trade Promotion Authority bill, more commonly referred to as “fast track,” setting the stage for an up-or-down vote on the TPP, with no amendments and limited debate, possibly in the fall.

U.S. Sen. Orrin Hatch, R-Utah, chairman of the U.S. Senate committee responsible for trade, has been pushing for a fast track vote soon after Congress returns from its Easter recess. Ironically, President Obama is getting more support from Republicans than Democrats on the fast track bill.

U.S. Sen. Angus King, Independent-Maine, says he supports New Balance's position on keeping Vietnam's footwear tariff in place. “I can't say what the final outcome is,” he told Mainebiz in a phone interview from Washington. “Like everyone else in the free world, I haven't seen the [TPP] agreement. I do know that New Balance is in ongoing conversations about this tariff, but I don't know if it is, or isn't, part of the agreement.”

King says the high-level secrecy surrounding the TPP is precisely the problem he has with the fast track bill, which would prevent Congress from making amendments. “To say it's like 'buying a pig in a poke' might be an insult to the pig,” he says.

U.S. Rep. Chellie Pingree, D-1st District, opposes both fast track and major trade deals being negotiated in secret and worries the TPP could have more impact on American jobs than the North American Free Trade Agreement, which went into effect in 1994. U.S. Rep. Bruce Poliquin, R-2nd District, says he is closely monitoring negotiations. He said he supports “free and fair trade” that would open markets for “Maine farmers, wood product manufacturers and fishermen,” but also wants to insure that “our companies and workers are competing on a level playing field.” U.S. Sen. Susan Collins, R-Maine, takes a similar view, adding that she's “repeatedly urged the United States trade representative not to undermine footwear manufacturing jobs in Maine by precipitously eliminating long-standing duties on certain footwear.”

Will it help Maine?

As co-chair of the state's Citizen Trade Policy Commission until she left the Legislature last December due to term limits, former state Sen. Sharon Treat has been following closely the TPP and the equally major Transatlantic Trade and Investment Partnership trade agreement pending with the European Union. The commission was established in 2003 to provide ongoing assessments of the impact international trade policies might have on state and local laws and Maine businesses.

While Treat agrees that preserving New Balance's manufacturing jobs in Maine and Massachusetts is critical, it's by no means the only issue in the TPP she believes Maine residents should be worried about.

Maine policies designed to help local farmers — such as “buy local” procurement guidelines or the Maine Milk Pool — could be challenged if the trade agreement prohibits procurement provisions that favor local producers. And long-established Maine policies governing pharmaceutical and medical device reimbursements, as well as “buy local” or “buy green” procurement guidelines, she says, “are all completely threatened by” the TPP and the equally sweeping Trans-Atlantic Trade and Investment Partnership with the European Union.

“What's going to be the net benefit if we do this?” she says. “And what are all those jobs they're talking about being created? Ultimately, the question is: What's our vision for Maine and does this trade deal promote that?”

Read more

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Text of landmark trade agreement revealed

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