U.S. Textile Industry Outlines Changes Needed in NAFTA

With a Washington, D.C., hearing coming up on June 27 to discuss possible changes to the North American Free Trade Agreement, the U.S. textile industry has put together a wish list of items it would like to see implemented.

The National Council of Textile Organizations, a textile trade group based in Washington, D.C., said it would like to see NAFTA restructured so more U.S. cotton and textiles are used by Mexico and Canada when making apparel.

In comments filed with the U.S. trade representative’s office, which could start NAFTA renegotiations as early as Aug. 16, the trade group said it would like to do away with certain NAFTA provisions that promote using textiles from countries that are not members of NAFTA.

“Eliminating loopholes that shift production to third-party countries like China and devoting more customs enforcement resources to stop illegal third-country transshipments are two changes that would make the agreement better,” said William V. McCrary Jr., NCTO chairman, who is also chairman and chief executive of William Barnet & Son, a synthetic fiber/yarn/polymer company based in Spartanburg, S.C.

The U.S. is the fourth-largest exporter of textile-related products in the world, with China being No. 1. Fiber, textile and apparel exports combined from the United States totaled $26.3 billion in 2016. That is a little more than one-third of the total U.S. output of textiles and apparel, which added up to $74.4 billion in 2016.

One of the U.S. textile industry’s saviors has been free-trade agreements that require that regional yarns and fabric be used in production. If you look at the $13 billion in man-made fiber, yarn and fabrics exported from the United States, a big chunk, $4.4 billion, is sent to Mexico, and $1.6 billion is shipped to Canada.

Countries that have free-trade pacts with the United States can receive duty-free entry of their apparel and textiles into the country if they adhere to a yarn-forward rule. That means everything from the yarn on has to come from within the free-trade-agreement region, with the United States being a big supplier of yarn and cotton.

But NAFTA allows for an exception to this rule under something called trade-preference levels. TPLs allow for a certain amount of yarn and fabric produced outside the free-trade-agreement region to be used in apparel production as long as the non-regional inputs are cut and sewn within the free-trade countries.

Overall, Mexico and Canada combined are permitted to ship nearly 236 million square meter equivalents (SME) of apparel, made-ups and fabric and 12.8 million kilograms of yarn containing third-party components.

NCTO and its members would like to see the TPLs completely eliminated under NAFTA so fabrics from places such as China, Vietnam and South Korea cannot be used.

The U.S. textile industry would also like NAFTA negotiators to decide whether to change or eliminate three rules that are said to hurt U.S. cotton and fabric sales.

The first is for component exemptions, which says that sewing thread, pocketing and narrow elastics do not have to come from the NAFTA region. Under the Dominican Republic–Central America Free Trade Agreement, these items must come from the region.

The second is the single-transformation rule. This means that certain apparel items—including some men’s dress shirts, cotton nightwear and certain underwear, bras and silk and linen apparel that is cut and sewn in the region—can receive duty-free status even if the key yarns and fabrics used in them come from outside the NAFTA region.

The justification for granting these items cut-and-sew status was based on a determination that key yarns or fabrics for these products were not “commercially available” in the NAFTA region at the time the agreement was negotiated. Despite the low NAFTA value-add, these apparel items are awarded the same duty-free status as products that fully comply with the yarn-forward rule of origin, which some feel is unfair.

The third provision to be discussed is the special-regime rule. This calls for a special provision that apparel made in the United States from fabric made in the United States but spun from yarn coming from outside the NAFTA region can receive duty-free status if exported to NAFTA members.

NCTO believes this is more liberal than the yarn-forward provision, but the downside is that all components (except sewing thread, pocketing and narrow elastics) must be woven or knit in the United States—not just the essential character fabric as under yarn forward.

NCTO would like to see this provision reviewed to see if it should be eliminated, adjusted or added to enhance the benefits for U.S. textile manufacturers.