USITC Economic Assessment Report on USMCA—Textile and Apparel Sector Summary

On April 19, 2019, the U.S. International Trade Commission (USITC) released its independent assessment report on the likely economic impact of the U.S.-Mexico-Canada Free Trade Agreement (USMCA or NAFTA2.0). Below are the key findings of the report:

Impact of USMCA on the U.S. economy

USITC found that because of the size of the U.S. economy relative to the size of the Mexican and Canadian economies and the reduction in tariff and nontariff barriers that has already taken place among the three countries under the North American Free Trade Agreement (NAFTA), the overall impact of USMCA on the U.S. economy is likely to be moderate. For example, USITC’s computable general equilibrium (CGE) model suggests that compared to the base year level in 2017, USMCA could increase the U.S. GDP by 0.35% (or $68.2 billion) and create 0.17 million new jobs when other factors held constant.

Impact of USMCA on the textile and apparel sector

First, USITC found that the USMCA overall is a balanced deal for the textile and apparel sector, particularly regarding the rules of origin (RoO) debate. As USITC noted, USMCA eases the requirements for duty-free treatment for certain textile and apparel products, but tighten the requirements for other products. For example, USMCA eliminates the NAFTA requirements that visible linings must be sourced from members of the agreement; however, USMCA adds more restrictive new requirements for narrow elastic fabrics, sewing thread, and pocket bag fabric.

Second, USITC found that the USMCA changes to the Tariff Preference Level (TPLs) would not have much effect on related trade flows. As USITC noted in its report, where USMCA would cut the TPL level on particular U.S. imports from Canada or Mexico, the quantitative limit for these product categories was not fully utilized in the past.  Meanwhile, the TPL level for product categories typically fully used would remain unchanged under USMCA. The only trade flow that might enjoy a notable increase is the U.S. cotton and man-made fiber (MMF) apparel exports to Canada—the TPL is increased to 20million SME annually under USMCA from 9 million under NAFTA.

Third, USITC suggested that in aggregate, the changes under USMCA for the textile and apparel sector will more or less balance each other out and USMCA would NOT affect the overall utilization of USMCA’s duty-free provisions significantly. Notably, the under-utilization of free trade agreements (FTAs) by U.S. companies in apparel sourcing has been a long-time issue. Data from the Office of Textiles and Apparel (OTEXA) shows that of the total $4,292.8 million U.S. apparel imports from the NAFTA region in 2018, only $3,756.1 million (or 87.5%) claimed the preferential duty benefits under the agreement. As noted in the U.S. Fashion Industry Benchmarking Study, some U.S. fashion companies do not claim the duty savings largely because of the restrictive RoO and the onerous documentation requirements.

However, interesting enough, the USITC report says little about the potential impact of USMCA on U.S. textile and apparel manufacturing.

Timeline

On 30 September 2018, the United States reached USMCA with Canada and Mexico. On 30 November 2018, USMCA was officially signed by Presidents of the three countries. According to the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (the picture above), after the release of the USITC economic assessment report on USMCA, the Trump Administration will need to work with U.S. Congress to develop legislation to approve and implement the agreement. However, there remains huge uncertainties over USMCA’s prospect.

Related reading:

Author: Sheng Lu

Professor @ University of Delaware

15 thoughts on “USITC Economic Assessment Report on USMCA—Textile and Apparel Sector Summary”

  1. I find it very interesting that under USMCA, the requirements for certain duty treatments on apparel and textiles are reduced but tightened for others. This article states, “For example, USMCA eliminates the NAFTA requirements that visible linings must be sourced from members of the agreement; however, USMCA adds more restrictive new requirements for narrow elastic fabrics, sewing thread, and pocket bag fabric.” I believe that this was a strategic move because it balances out trade leading to an equilibrium. If all the dutys were tightened oral appareled textiles, it would give these countries less incentive to trade.

    1. thank you for the comment. Hopefully, after essay assignment 3 and our lectures this week, you will have a deeper understanding of the debate associated with the textile and apparel rules of origin in US free trade agreements. (Note: the issue of concern here for USMCA is NOT tariff, but rules of origin)

    2. I also find it really interesting that under USMCA there are different requirements for certain apparel and textiles. I think it is important that there be some incentive to trade with other countries, because it helps the US to prosper within different industries. After doing essay assignment 3, we learned that some people argued that eliminating TPL overall would disrupt the supply chain that we are currently working and are comfortable with. Personally, if i were a trade negotiator in the US, I would not eliminate TPL from the agreement because I think it helps companies be more cost effective in terms of the production of garments. Importing textiles from other countries often helps the production costs to decrease, because these textiles can be imported from countries that are less developed than the US.

  2. I also find it it very interesting as well that under USMCA, the requirements for certain duty treatments on apparel and textiles are reduced but tightened for others. It says that USMCA eliminates the NAFTA requirements that visible linings must be sourced from members of the agreement, but USMCA adds more restrictive new requirements for narrow elastic fabrics, sewing thread, and pocket bag fabric. In my opinion, I think that this was a smart move since it balances out trade. If this was tightened, it would give countries less of a reason to trade.

  3. I found it interesting that the USMCA would have a moderate impact on the United States but could potentially increase the GDP and number of new jobs created for the country. While it is supposed to be a balanced deal for both the textile and apparel sectors, it is interesting that it would ease duty free treatment for some T&A products and tighten treatments on others, which does not seem to be balanced. TPLs can make it difficult for the textile and apparel industries to agree on rules of origin, but the new TPLs would not effect existing trade flows between countries. Since U.S. fashion companies don’t typically claim duty free benefits because of the restrictive rules of origin, hopefully with the USMCA, they might be able to claim more benefits.

  4. While I was reading this article, the fact that USMCA had such specific impacts on the textile and apparel industry was very interesting to me. For example, by restricting narrow elastic fabrics, sewing thread, and pocket bag fabric the USMCA impacted specifics of production, but did not seem to have many other noticeably large changes. These changes and many of the other involved in USMCA are expected not to effect trade flows or the overall utilization of the duty-free provisions. The reason for this does many sense, as there are already other agreements in place so the overall impact was expected to be minimal. At first, when I read this article I was a bit confused by the need to manage small parts of the industry so closely, but I figure that the small parts are the parts that add up when mass producing.

    1. good thought! As we discussed in the class, the US textile industry wants NAFTA to require everything to be made in the region whereas US fashion brands and retailers want to have as much flexibility in sourcing as possible…

  5. I thought this article was very interesting and as both a fashion merchandising major and apparel design major, my design background is impacted by this information. The new restrictions with narrower elastic fabrics, sewing threas, and pocket bag fabrics will change the design process and choices of many brands and could make their development much more complicated. It is also interesting that at the same time that they are strengthening their restrictions on some textiles, they are loosening their restrictions on other; perhaps looking for the best balance.

  6. I found this article very interesting and thought the different restrictions for different products was insightful. I think moving forward it will be interesting to see if these restrictions continue to differ or will there be more restrictions on these.

  7. I found it very interesting that the USMCA is predicted to have a moderate impact on the U.S. economy due to the notable size difference compares to Mexican and Canadian economies and the previous NAFTA reduction of barriers. It doesn’t seem to have a huge impact on the textile and apparel sector either. I found it interesting that it seems to be balanced where when USMCA eliminates one NAFTA requirement, they in turn add a new stricter requirement. After hearing our guest speaker Matt Priest, I recall him saying that NAFTA and USMCA do not seem to have many differences, in the fact that people who think USMCA is much better than NAFTA are not in the right.

  8. After reading this article, something that really caught my attention was that under the USMCA, not everyone is treated equally. Some specific duty treatments on textiles and apparel are decreased for some, yet tightened for others. In the article they talk about NAFTA and the requirements that fall below it, but with the USMCA, they have disregarded and removed NAFTA adding in even more restricting rules. By doing this, I feel they are trying to balance out trade the most strategic way possible while still giving countries the incentive to trade.

  9. After reading this article I found it interesting how USMCA has certain requirements for different apparel and textiles. I think that it is important that some of these requirements be lessened to be less restrictive. So they are able to balance them out to be more incentive based in regards to trade with other countries so that they can prosper within different industries.

  10. I found it interesting that because of the size of the U.S. economy relative to the size of the Mexican and Canadian economies and the reduction in tariff and non-tariff barriers that have taken place among the countries under NAFTA, the overall impact of USMCA on the U.S. economy is likely to be moderate. It’s interesting how USMCA has certain requirements for different apparel and textiles. I agree with Rachel, it will be interesting moving forward whether these differences remain the same or change

  11. I found this article was interesting because the underutilization of free trade agreements by U.S. companies in apparel procurement has been a chronic problem.

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