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28th June 2017, Washington, DC

NCTO President and former US apparel trade negotiator testify at NAFTA hearing

NAFTA is an agreement that came into force on 1 January 1994, signed by Canada, Mexico, and the US. National Council of Textile Organizations (NCTO) President and CEO Augustine Tantillo has testified at the US Trade Representative’s (USTR) hearing on Negotiating Objectives Regarding Modernization of North American Free Trade Agreement (NAFTA) with Canada and Mexico. Mr Tantillo testified as part of the textiles and apparel panel yesterday, at the Main Hearing Room at the US International Trade Commission (ITC), Washington, DC.

David M. Spooner, Washington Trade Counsel for the United States Fashion Industry Association (USFIA) and former Chief Textile and Apparel Negotiator at the Office of the US Trade Representative (USTR), also gave his opinion on the issue of the trilateral trade agreement.

NAFTA

NAFTA is an agreement that came into force on 1 January 1994, signed by Canada, Mexico, and the US. The goal of NAFTA was to eliminate barriers to trade and investment between the US, Canada and Mexico.

The implementation of NAFTA brought the immediate elimination of tariffs on more than one-half of Mexico's exports to the US and more than one-third of US exports to Mexico. According to many economic analyses, NAFTA has been a small net positive for the US, large net positive for Mexico and had an insignificant impact on Canada.

“We strongly support President Trump’s intention to reopen NAFTA and agree that it can be updated and improved to significantly enhance US textile production, exports, and employment,” said Mr Tantillo. “The NAFTA region enjoys vibrant fibre, yarn, and fabric sectors in addition to cut and sew capabilities. As a result, NCTO supports building on the successes of NAFTA through seeking reasonable improvements to the agreement, but not a cancellation thereof, due to the high level of supply chain integration that exists today.”

Damaging loopholes

Mr Tantillo also explained: “NAFTA is based on a yarn-forward rule of origin for textile and apparel trade, a main driver for the integration that has developed among the three countries. Yarn forward was originally devised under NAFTA and is the accepted rule for the industry and the US government in every FTA since because it reserves key benefits for manufacturers within the signatory countries. It is also easier to enforce than a value-added rule.”

“Despite the logic of the yarn-forward structure, most US FTAs, including NAFTA, also contain damaging loopholes in the textile rules of origin. The most egregious example is tariff preference levels. TPLs allow for products to be shipped duty free despite their components, representing the bulk of the value, being sourced from outside countries.”

“For example, a cotton top, made from Chinese yarn and fabric, can be cut and sewn in Mexico and shipped duty free to the United States. Consequently, TPLs undermine benefits for NAFTA textile manufacturers, transferring them to non-signatories, such as China, who often use predatory trading practices and have made no market-opening concessions themselves.”

“Altogether, Mexico and Canada may ship nearly 236 million square meter equivalents of apparel, made-ups, and fabric and 12.8 million kg of yarn containing third-party inputs annually under the TPLs. It is our strong recommendation that the NAFTA TPL regime be eliminated.”

Integral part of many supply chains

“A well-functioning Western Hemisphere supply chain is vital to maintain American jobs at home, as well as employment in the region,” said Mr Spooner. “Any efforts to make it more difficult to source apparel from both Mexico and Canada will encourage sourcing from other parts of the world, and will reduce employment in the North American apparel supply chain.”

Spooner, who negotiated the textile and apparel provisions of ten US Free Trade Agreements while at USTR, emphasised the need to maintain the current global value chains in the Western Hemisphere. “While NAFTA needs updating, the agreement has become an integral part of many supply chains, and uncertainty about the future of the agreement hurts American companies. Especially considering the major challenges in the retail sector today, this is not the time to disrupt trade for these companies,” he said.

“This means that, while the NAFTA rules of origin have been onerous, we ask that you do not make any major revisions to the current regulations. The Rules of Origin, and the limited exceptions to those rules, especially the Tariff Preference Levels (TPLs), are linked and are important parts of USFIA member companies’ supply chains.”

In the testimony, Mr Spooner provided eight recommendations for how NAFTA could be improved. The full testimony is available here.

Further reading

NCTO welcomes Trump decision to renegotiate NAFTA

www.ncto.org

www.usfashionindustry.com

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