Textile and Apparel Groups Want Streamlined NAFTA Short Supply, FTA Cumulation Provisions

The agreement also currently doesn’t allow for any removal of materials from the list, a provision that would be important to reverse in any renegotiation, USFIA's Hughes said. USFIA is looking for implementation of practical deadlines and criteria for short supply list additions, in part to help increase companies’ certainty. “I’m not sure that the trilateral decision-making process is the problem in NAFTA that slows it down,” Hughes said. “I think just the fact that there are no deadlines means that there’s no impetus to reach a conclusion.” In the Central American Free Trade Agreement (CAFTA), the U.S. government is the sole decision-making entity for short-supply changes. Nate Herman, AAFA supply chain senior vice president, said during an interview that his association is discussing potential NAFTA short supply changes with members and “taking a strong look” at whether the list could be made more similar to CAFTA’s, which he said has worked “pretty well for all sides.”

AAFA continues to look at whether NAFTA might adopt some sort of cumulation between various U.S. free trade agreements that might allow certain yarns and fabrics to qualify for benefits if sourced from an area covered by an existing FTA such as CAFTA, or the U.S.-Colombia FTA, the U.S.-Peru FTA or the U.S.-Chile FTA, Herman said. The Office of the U.S. Trade Representative and the Commerce Department didn’t comment.

While USFIA isn’t pursuing its ideal of eliminating NAFTA’s overarching “yarn-forward” rule of origin, the group will urge the administration to keep the current NAFTA tariff preference levels (TPLs) in place, which is important for her member companies established in and selling to at least one other NAFTA member, Hughes said. “TPLs go in all directions,” she said. “There are TPLs into the U.S.; there are TPLs into Canada; and there are TPLs shipping into Mexico. So it’s a pretty important aspect of the supply chain that gives companies the comfort to know that if they have issues in terms of sourcing a certain input, they’re not out of business. They’re not suddenly paying thirty-two percent duty on that product.”

But National Council of Textile Organizations (NCTO) Director of Public Affairs Lloyd Wood in an interview described TPLs as a “loophole” in NAFTA’s “yarn-forward” apparel rule of origin. He said, for his group, TPLs are “front and center” as problematic and NCTO would like to see them closed. “What we want to do is to make the rule of origin stronger, because … when you weaken the rule of origin, there’s a very good chance what you’re doing is driving business out of the region,” he said. “For instance, if you’ve got a TPL and somebody can bring in product from China, what is China giving the United States in NAFTA?”

Wood said another loophole follows from the U.S.'s allowance of Mexican- and Canadian-sourced apparel and textile products in Transportation Security Administration (TSA) procurements, which he said goes against the spirit of the Kissell Amendment of the American Recovery and Reinvestment Act of 2009. The Kissell provisions generally require that Department of Homeland Security apparel- and textile-related procurements originate from U.S. sources. But because of U.S. obligations under the World Trade Organization Government Procurement Agreement (GPA), the Kissell language only applies to Coast Guard and TSA procurements. However, the U.S. never notified Mexico or Canada that it was withholding TSA procurement from GPA commitments after the agency formed in 2001. "So obviously, we would like to see that loophole fixed," Wood said.

The Footwear Distributors and Retailers of America (FDRA) is also considering how it might like to see NAFTA change and will file comments by the time USTR’s comment period ends on June 12 (see 1705220007), FDRA CEO Matt Priest said during an interview. But “if the agreement were to move on as is, that would be fine,” he said. The U.S. imports 94 percent of its shoes from three countries, none of which are party to NAFTA, Priest added. FDRA will however be pushing for a more flexible footwear rule of origin, which could create more opportunities to source from Mexico. The agreement currently requires 55 percent of footwear material to originate in North America to qualify for NAFTA treatment, and requires that shoe uppers be sourced from one of the three NAFTA nations. FDRA would like to see a lower regional value content threshold for footwear and an elimination of the provision restricting sourcing of uppers to North America, Priest said.

"There certainly are ways that we think [NAFTA] could be improved that could better support the supply chains that exist today in 2017," Hughes said. "On the other hand, our sense is the priorities for the administration have nothing to do with us. It's other sectors that they're really looking at where they want the major changes to be, and thinking about the textile and apparel sector isn't really a priority for them as they go to the negotiating table. So that also shifts a little bit, then, what we're saying publicly, because there are lots of things we might want to change, but I think the reality is that changes in our sector are probably going to be relatively minimal."

Outside of the textile and apparel sector, industry executives see opportunities to modify customs provisions during the upcoming NAFTA renegotiation. Wood called for U.S. officials to use the renegotiation to strengthen customs cooperation between the NAFTA parties, and said NCTO would like to see negotiators work toward a more "robust" electronic reporting regime, which could be used to reliably reconcile trade statistics so any potential enforcement issues can be flagged in the region.

Customs enforcement in the NAFTA region, especially for textiles and apparel, is largely paper-based, and AAFA would like to see that streamlined, Herman said. "You’re talking about reams and reams of paper for each individual shipment that’s required to prove origin to meet the origin requirements in the NAFTA, and that can be a great burden for companies," he said. U.S. negotiators should also tackle issues cited by stakeholders about Mexican Customs, related to held shipments and undue requests for records up to five years old to prove origin of U.S. textile inputs shipped to Mexico that will eventually come back to the U.S. as clothes, Herman said.

The upcoming renegotiation could also provide another opportunity to push a common "trusted trader" program among all NAFTA parties, as well as a chance to consider urging Mexico and Canada to increase their de minimis levels, Herman said. Those issues are "part of the mix" of AAFA discussions with members on NAFTA priorities, he said. Express Association of America Executive Director Mike Mullen recently said his group will be pushing during the renegotiation process for Canada and Mexico to raise their respective $20 and $50 de minimis levels (see 1705170058). Hughes agreed that de minimis would be an important issue for the U.S. to bring to the negotiating table, and also expressed confidence in the possibility of establishing a common "trusted trader" framework during upcoming talks. "Information sharing is key," she said. "We're really looking at, 'How can we rationalize and share that information so that an American company doing business who has met the standards with customs can have some assurance that they're not going to be blindsided by Mexican customs or Canadian customs?'"