Key findings:
U.S. textile and apparel trade with NAFTA members
- The United States maintains a bilateral trade surplus in yarns and fabrics ($4.1 billion in 2016) as well as made-up textiles ($720 million in 2016) with NAFTA members.
- Regarding apparel, the United States had a trade surplus with Canada of $1.4 billion and a trade deficit with Mexico of $2.7 billion in 2016.
Impact of NAFTA on employment and production in the U.S. textile and apparel industry
- The effects of NAFTA are NOT straightforward, and the drop in U.S. domestic textile and apparel production and jobs cannot be blamed solely on NAFTA.
- The U.S. International Trade Commission (USITC) concluded that imports of textiles had a tiny effect on U.S. textile industry employment (a 0.4% decline) from 1998 to 2014, which covers most of the period since NAFTA’s enactment. However, the collapse of the U.S. domestic apparel industry and changing clothing tastes may have had a more significant impact on domestic textile production.
- There is little evidence that NAFTA was the decisive factor for the loss of jobs in the U.S. apparel manufacturing sector, given that the major growth in apparel manufacturing for the U.S. market has occurred in Asian countries that receive no preferences under NAFTA.
Impact of the Tariff Preference Level (TPL) in NAFTA
- In nearly every year since 2010, Mexico has come close to exporting the maximum allowable amount of cotton and man-made fiber apparel with duty-free foreign content. Canada’s TPL fill rates are typically highest for cotton and man-made fiber fabric and made-up products but are not usually fully filled.
- It is not clear that eliminating the TPL program would result in a substantial return of textile production or jobs to the United States; if it were to raise the cost of Mexican apparel production, it could instead result in imports from other countries displacing imports from Mexico.
- Other than U.S. fashion brands and retailers, Mexico and Canada reportedly oppose the elimination of the NAFTA TPL program too.
Possible Effects of Potential NAFTA Modification
- Mexico’s focus on basic apparel items suggests that S. importers could quickly source from elsewhere if duty savings under NAFTA are eliminated. However, even now, some U.S. fashion companies say the duty savings are not worth the time and resources required to comply with the NAFTA rules of origin and documentation requirements. In 2016, roughly 16% of qualifying textile and apparel imports from NAFTA failed to take advantage of the duty-free benefits and instead paid applicable tariffs.
- Whatever the outcome of the NAFTA renegotiation, in the medium and long run, the profitability of the North American textile and apparel industry will likely depend less on NAFTA preferences such as yarn forward and more on the capacity of producers in the region to innovate to remain globally competitive.
- One change in NAFTA proposed by the United States would require motor vehicles to have 85% North American content and 50% U.S. content to qualify for tariff-free treatment. If auto manufacturers were to import more passenger cars from outside the NAFTA region and pay the 2.5% U.S. import duty rather than complying with stricter domestic content requirements, automotive demand for U.S.-made technical textiles could be adversely affected.
- If the TPP-11 countries strike a trade deal, one possible effect is that Canada and Mexico may import more textile and apparel products from other TPP countries, including Vietnam. This could ultimately be a disadvantage for U.S.-based producers. How the inclusion of Canada and Mexico in a fresh TPP-11 arrangement would affect their participation in NAFTA is unknown.
The full report can be downloaded from HERE
FASH455 Global Apparel & Textile Trade and Sourcing 
I find this article very informative on NAFTA and the TPL. The most interesting fact that stood out to me is that it if TPL is eliminated, there may not be a substantial return of textile production or jobs to the United States. We have learned that eliminating TPL is one of the major considerations in the renegotiation of NAFTA, and if we may not have jobs returning to the U.S., would it even be worth it to eliminate the TPL? I find the NAFTA renegotiation very interesting and I am anxious to see what the outcome will be.
Exactly. Here is a story I recently learned from an industry executive:
A company uses fabric that is 85% US yarn, 15% imported from Asia (not available here in commercially significant qty) Goods require TPL.If they eliminate TPL, the company would close their 3 factories in Canada, and move production to Asia – and the US company loses its customer – because there isn’t a snowball’s chance in hell they are going to ship the US textiles to China for assembly.
There is another great article written by Steve Lamar, EVP of AAFA, FYI: https://www.uschamber.com/above-the-fold/how-keep-nafta-dressed-success?platform=hootsuite
These findings were extremely interesting to me, while being simultaneously nerve-wracking due to the effects the potential NAFTA termination or renegotiation could have on our country as a whole. As mentioned in the first statistic, the U.S maintains a bilateral trade surplus in terms of yarns and fabrics as well as made up apparel products with other NAFTA members. Could this be a contributing reason why President Trump would have the motivation (if the agreement IS renegotiated) to possibly create an amendment to the agreement that would set it up as a bilateral agreement as opposed to a trilateral configuration? Trump may be enamored with the idea of having leverage over countries such as Mexico in terms of our larger and more powerful economy, but is he loosing sight of the big picture regarding the benefits we could enjoy by having more concessions with more countries (Mex & Can)? For example, as mentioned in the statistics above, although we are currently engaging in a trade deficit with Mexico in terms of apparel, this could be on account of our exporting materials and textiles to them and importing constructed apparel items. If we were to engage in a bilateral agreement rather than trilateral, we could miss out on the benefit we enjoy from shipping these materials to countries like Mexico, which would ultimately affect what we export to other NAFTA countries such as Canada. In order to have a well functioning Western Hemisphere supply chain that could be comparable to the other large hemispheres such as Asia and Europe, I feel that more countries would be more of a beneficial factor than a negative.
There were two huge takeaways that I had from reading this article. One was that in 2016, roughly 16% of qualifying textile and apparel imports from NAFTA failed to take advantage of the duty-free benefits and instead paid applicable tariffs. Fashion companies claim that the duty savings are not worth the time and resources required to comply with the NAFTA rules of origin and documentation requirements. While this may be true that it could be quicker to source from elsewhere, in the long run those savings that you could’ve been making are going to add up. I’d be curious to know just how much time it would take to comply with the NAFTA rules of origin and documentation requirements. It’s true that in most business decisions there is an opportunity cost, so I’d like to know how much this cost of not taking advantage of the duty-free benefits is worth. The other takeaway I found was that regardless of the outcome of the NAFTA renegotiation, in the medium and long run, the profitability of the North American textile and apparel industry will likely depend less on NAFTA preferences such as yarn-forward and more on the capacity of producers in the region to innovate to remain globally competitive. This backs up what we’ve been learning the entire semester – globalization is not going anywhere, and it is up to the people to adapt to these changes. This also brings up the question on whether or not fashion companies and textile manufacturers are arguing over the right topic. If it doesn’t necessarily matter how the NAFTA renegotiation ends up, should we instead be having more conversations about how to remain globally competitive?
I think this article is another reinforcement of the notion that American jobs aren’t leaving America because of trade agreements such as NAFTA. They are leaving America because they are not able to remain competitive in the global sphere. Even with NAFTA renegotiations, jobs are not coming back to America because they left due to lack of competitiveness. The fact that stood out to me the most in this report was that “In the medium and long run, the profitability of the North American textile and apparel industry will likely depend less on NAFTA preferences such as yarn forward and more on the capacity of producers in the region to innovate to remain globally competitive.”. This was surprising to me because even with these yarn forward rules that the textile industry is promoting, will not be enough to keep jobs in America. Apparel manufacturers do not even always take advantage of duty free rates because NAFTA rules are already too restrictive. While it is important to protect U.S. industry I think it is also important to remember that in order for U.S. retailers to remain competitive they need to be able to exercise as much flexibility as possible. I don’t think there is one straightforward answer, at least not one that I know, to these back-and-forth issues of NAFTA renegotiations but I do think it is important for U.S. retail companies to be able to exercise some flexibility to be able to benefit from the western hemisphere supply chain.
The fact that the US has maintained a surplus of bilateral trade in in yarns and fabrics just justifies the notion that the US is keeping jobs in America. We have discussed in class at length about nationalization and the notion that jobs needs to stay in the country. I before the class also assumed that the US was outsourcing most of their products and that we were not a key player in textile trade. NAFTA is definetly reinforcing these notions as well, it lets us into the idea that this agreement and the goals it initially had are still being recognized and watched.