The U.S. textile, apparel and retail industries all applauded news Tuesday that House Democrats had reached an agreement with the White House to strengthen labor, environmental, pharmaceutical and enforcement provisions in the U.S.-Mexico-Canada Agreement (USMCA), and set the stage for its passage.
The decision to proceed with the USMCA came after Democrats said they secured concessions from the White House to strengthen labor provisions that were in place in the North American Free Trade Agreement (NAFTA) and that were needed to garner the support of labor unions, including the AFL-CIO, the country’s largest.
“We are happy to hear a deal has been reached that should help pave the way for USMCA to move forward and we will continue to work for Congressional passage on a clean bill,” National Council of Textile Organizations (NCTO) president and CEO Kim Glas said.
The new USMCA includes several improvements that would greatly benefit the U.S. textile industry and bolster the $20 billion in annual trilateral textile and apparel trade, Glas said.
“U.S. textile exports alone to Canada and Mexico, the industry’s top two export markets, totaled $12 billion last year, underscoring the importance of the trade deal to the industry’s Western Hemisphere supply chain, as well as its growth and investment in the U.S.,” she said.
NCTO cited key updates and modifications that USMCA makes over NAFTA that represent significant improvements for the domestic industry. They include creation of a separate chapter for textiles and apparel rules of origin with strong customs enforcement language, and stronger rules of origin for sewing thread, pocketing, narrow elastics and certain coated fabrics.
Under the current NAFTA, these items can be sourced from outside the region. USMCA fixes this loophole and ensures these secondary components are originating to the region.
In addition, USMCA fixes the Kissell Amendment Buy American loophole, ensuring that a significant amount the Department of Homeland Security spends annually on clothing and textiles for the Transportation Security Administration benefits domestically produced products.
The American Apparel & Footwear Association (AAFA) said it strongly supports USMCA and lauded the U.S. Trade Representative and Congressional leadership for their work to finalize a deal that can get through Congress, receive presidential approval, and quickly benefit American job creators and consumers.
“We look forward to reviewing the final language and working with our members to determine how to best use the deal to create jobs throughout the supply chain,” AAFA president and CEO Rick Helfenbein said.
“An integrated North American supply chain is an integral component of the apparel and footwear industry. Further, in a time of trade uncertainty, it will provide businesses with the ability to invest confidently in the region,” Helfenbein said. “That said, it is paramount that the transition from NAFTA to USMCA occurs smoothly, to ensure that there are no negative impacts as the business community comes up to speed with the new rules.”
Retailers are encouraged by the step forward to approve the USMCA, National Retail Federation president and CEO Matthew Shay said.
“The USMCA takes many important steps to modernize the agreement to reflect today’s global and digital economy,” Shay said. “This agreement could not come at a better time and provides certainty for U.S. retailers that rely on the North American market, including those that operate in Canada and Mexico.”
The 25-year-old NAFTA, negotiated by the late President George H.W. Bush and signed into law by former President Bill Clinton, eliminated most tariffs and other trade barriers involving the U.S., Mexico and Canada. It resulted in many companies, such as Los Angeles denim and jeans manufacturers, moving factories and jobs to Mexico, where labor is cheaper.
But NAFTA along with the Central American Free Trade Agreement, also helped revive the U.S. textile sector, particularly for yarn makers that were able to export goods to Mexico for assembly and then ship products back to the U.S., all duty free.
U.S. apparel and textile imports under NAFTA were down 5.9 percent to $3.83 billion worth of goods for the year through October. Industry exports in the period fell 2.94 percent to $11.42 billion.
“On policy, the jury is still out on whether the heavily revised NAFTA 2.0 will be a win for the country,” Yvette Simpson, CEO of the progressive political action committee Democracy for America, said.
“Some unions are supporting the deal, while others aren’t,” she added, “but the idea that any trade agreement touched by the Trump administration can be trusted to protect the environment, prioritize worker safety or hold big pharma’s feet to the fire is absurd.”
USMCA improves NAFTA in important ways that may signal a shift for future trade agreements, according to Professor Alvaro Santos, an international law and trade expert at Georgetown Law.
“Its advancement also ends prolonged uncertainty around NAFTA, allowing the U.S., Canada and Mexico to start focusing on how best to take advantage of the new agreement,” Santos said.
Santos, who advised the newly elected Mexican government on the USMCA in 2018, said changes to USMCA, which the three countries signed more than a year ago, must now be woven into implementing legislation that the House and Senate will both vote on.
The pact will also need to final approval of the Mexican senate and Canadian leadership.