New CRS Report: Textile and Apparel Sectors Disagree on Certain Provisions of the Proposed U.S.-Mexico-Canada (USMCA) Agreement

The study is available HERE

Key findings:

While U.S. textile manufacturers and the apparel and retail industries have expressed overall support for the newly reached US-Mexico-Canada Free Trade Agreement (USMCA or NAFTA2.0), textile producers and the apparel sector still hold divergent views on certain provisions:

Textile “Yarn-Forward” Rule of Origin

USMCA vs. NAFTA1.0: The USMCA will continue to adopt the “yarn-forward” rules of origin. The USMCA will also newly require sewing thread, coated fabric, narrow elastic strips, and pocketing fabric used in apparel and other finished products to be made in a USMCA country to qualify for duty-free access to the United States.

U.S. textile industry: U.S. textile manufacturers almost always support a strict “yarn-forward” rules of origin in U.S free trade agreements and they support eliminating exceptions to the “yarn forward” rule as well. The National Council of Textile Organization (NCTO) estimates that a yearly USMCA market for sewing thread and pocketing fabric of more than $300 million.

U.S. apparel and retail industries: The U.S. apparel industry opposes “yarn forward” and argues that apparel should be considered of North American origin under a more flexible regional “cut and sew” standard, which would provide maximum flexibility for sourcing, including the use of foreign-made yarns and fabrics.

Tariff Preference Levels (TPL) for Textiles and Apparel

USMCA vs. NAFTA1.0: With some adjustments, the USMCA would continue a program that allows duty-free access for limited quantities of wool, cotton, and man-made fiber apparel made with yarn or fabric produced or obtained from outside the NAFTA region, including yarns and fabrics from China and other Asian suppliers.

U.S. textile industry: The textile industry contends China is a major beneficiary of the current NAFTA TPL mechanism, and it strongly pushed for its complete elimination in the USMCA.

U.S. apparel and retail industries: U.S. imports of textiles and apparel covered by the tariff preference level mechanism supply 13% of total U.S. textile and apparel imports from Canada and Mexico. Apparel producers assert that these exceptions give regional producers flexibility to use materials not widely produced in North America.

Viewpoints on other Provisions in USMCA

U.S. textile industry: The U.S. textile industry also opposes the USMCA newly allows visible lining fabric for tailored clothing could be sourced from China or other foreign suppliers, and it would permit up to 10% of a garment’s content, by weight, to come from outside the USMCA region (up from 7% in NAFTA1.0). The U.S. textile industry also welcomes that the USMCA would add specific textile verification and customs procedures aimed at preventing fraud and transshipment. Additionally, the U.S. textile industry is also pleased that the USMCA would end the Kissell Amendment. The Kissell Amendment is an exception in NAFTA that allows manufacturers from Canada and Mexico to qualify as “American” sources when Department of Homeland Security (DHS) buys textiles, clothing, and footwear using appropriated funds (about $30 million markets for textiles, clothing, and shoes altogether).

U.S. apparel and retail industries: Apparel importers are of concern that the USMCA continue to incorporate the existing NAFTA short supply procedure, which is extremely difficult to get a new item approved and added to the list, limiting their flexibility to source apparel with inputs from outside North America.

Finally, the report argues that “Regardless of whether the USMCA takes effect, the global competitiveness of U.S. textile producers and U.S.-headquartered apparel firms may depend more on their ability to compete against Asian producers than on the USMCA trade rules.

Related reading:

Author: Sheng Lu

Professor @ University of Delaware

5 thoughts on “New CRS Report: Textile and Apparel Sectors Disagree on Certain Provisions of the Proposed U.S.-Mexico-Canada (USMCA) Agreement”

    1. USMCA wants to go forward with the “yarn – forward” rule because it allows for more regulations in the production steps. USMCA also hopes that this rule will veer their manufacturers from producing or sourcing their textiles from competitors like China. With that being said, they fail to take into account the negative impact it will have on the U.S. apparel brands and retailers. It is extremely expensive to source domestically and with these “rules” put in place, it limits their accessibility to other textiles. In an industry where the most cost – effective sourcing is needed to remain competitive, the “yard – forward” rule I believe will be detrimental to this sector of apparel.

  1. Obviously we know the textile and apparel industry go hand in hand but that does not mean they always see eye to eye. “Yarn-forward” under USMCA is clearly an advantage for the textile industry because it will add more items to the list that have to be made in a qualified USMCA country which means more money in their pockets. U.S. apparel companies are not the biggest fans of yarn forward because it limits where they can source materials for their garments if they want to enjoy the free trade. I think this article is very intriguing and really gets you thinking about the T&A industry. Also, as a consumer you want to know what is going on and how these agreements and provisions affect you and what you are buying

  2. The textile industry want the US to require this strict “yarn forward” rule. The rule states that fibers can be procured in any country, however every other component from the yarn to textile must be produced in an area with free trade. As mentioned before a TPP agreement could ultimately hurt U.S. exports. Thus, I believe the enforcement of a strict “yarn forward” is only to protect U.S. exports from Asian competition. This new rule will encourage longer duty phase-outs for sensitive items. This will protect from destructive outcomes such as sharp duty reductions that ultimately can give reason for transshipment fraud.

  3. The US textile industry benefits from the “yarn-forward” rule because it protects the US textile production. It enforces the use of US made textiles to be used instead of products from outside countries like China. The TPP agreement would not help US textile manufacturers because it would allow more business with outside textile producers. This could hurt the US textile industry because competitors could offer textiles at a lower cost than the US and would in turn have business drawn away from the US.

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