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Is the TPP Bad for New Balance's Soles?

Written By: A. Wilt

May 2016

For several years, athletic shoe company New Balance was a vocal critic of the TransPacific Partnership ("TPP"), a pact aimed at making trade easier between the US and eleven other partner countries. Specifically, New Balance wanted the US to maintain trade tariffs on athletic shoes purchased from Vietnam.

Is the TPP Bad for New Balance's Soles?
New Balance Heritage Made in the USA Found on their Website

As part of the TPP, those tariffs would be reduced or eliminated, and New Balance says that threatens approximately 3,000 jobs at its factories in New England. It should be noted that New Balance makes only about 25% of their athletic shoes in the US, with the remainder being manufactured overseas.

A Handshake Deal to Quiet Criticism

Last year, the company went quiet with its criticism, and when CEO Rob DeMartini held a press conference at company headquarters on April 12, 2016 to discuss the TPP, we found out why. The company claims that it was told that the US Department of Defense ("DoD") would give their company the opportunity to bid on defense contracts to provide shoes to the military in exchange for supporting or remaining neutral on the TPP.

Under the Berry Amendment, almost all apparel and equipment used by the military must be "grown, reprocessed, reused or produced in the United States." For years there was a major exception: Athletic shoes. There were not sufficient American options.

New Balance hoped to change that and began investing in its domestic production. It even purchased a midsole machine, which is as large as a school bus and is the most expensive piece of equipment that had been missing in the US supply chain. In 2014 the Pentagon signaled that it was ready to consider US made athletic shoes. First, the shoes had to pass a wear test.

Is the TPP Bad for New Balance's Soles?
New Balance Heritage Made in the USA Found on their Website

It was at that point, New Balance says, that an Obama administration representative asked the company to accept the TPP, and in exchange, the administration would assist in expediting the purchase of the shoes. The company agreed and stopped its public criticism of the TPP.

A Broken Promise or Two Unrelated Issues?

But the shoe order from the DoD never came. To date, there have been no domestic orders of athletic shoes. There are, of course, different versions of reasoning for that fact. New Balance VP of Public Relations Matt LeBretton laid the situation out as an example of the DoD dragging its feet:

"The Department of Defense has basically played a shell game with domestic footwear manufacturers to protect the profits of their [base stores]. They've put up roadblock after roadblock. Our shoes are ready to go. It's a bureaucracy run amok."

For its part, the DoD claims that New Balance's offerings do not meet their cost requirements and that one of the three versions of shoe offered didn't meet its quality standards. A spokesman for the Office of the US Trade Representative responded to New Balance's renewed criticism by saying:

"It is unfortunate that, despite a strong outcome in TPP that advances the interest of US footwear workers, New Balance now appears to be changing its position on TPP in response to the Pentagon's separate procurement process."

Generally, the footwear industry supports the TPP, buying into the argument that the partnership will open new foreign markets for US companies, and that it will lower the prices of consumer goods in the US. The Footwear Distributors and Retailers of America reacted to New Balance's renewed criticism and in their statement pointed out the irony of New Balance's criticism due to its lowered tariff costs:

"We are disappointed at New Balance's change of heart on this vitally important agreement for the entire U.S. footwear industry over a matter unrelated to TPP. New Balance's position is especially surprising as it is one of the companies that would see significant tariff reduction under the agreement. In fact, TPP will save footwear consumers and companies $450 million the first year of implementation and $6 billion over the first decade. That is why 99% of the entire footwear industry, both domestic manufacturers and importers, support TPP and why we will continue to lead the charge in explaining to lawmakers how this agreement will strengthen jobs across the U.S. and provide real value to footwear consumers."

The American Apparel and Footwear Association echoed support for the TPP in in its own statement, while also calling for the full application of the Berry Amendment: 

"The Berry Amendment, a well-established staple of government procurement law, is vital to the survival of the U.S. textile, apparel, and footwear manufacturing industry. Failure to fully implement and enforce the Berry Amendment on a timely basis erodes the ability of U.S. government contractors to create and sustain U.S. manufacturing jobs that are key to the growth of our economy."

The TPP has not yet been ratified and likely won't be until after the election, tying yet another hot button issue to the outcome of November 8, 2016.

AAFA Reiterates Support for TPP and Berry Amendment. (2016, April 12). Retrieved from American Apparel & Footwear Association.
The Berry Amendent. (n.d.). Retrieved from International Trade Administration.

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