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After Long Haul, USMCA Redefines North American Trade

Whether they’re importers or domestic textile manufacturers, many would liken today’s implementation of the United States-Mexico-Canada Agreement (USMCA) to chicken soup: it might not cure what ails you, but it probably couldn’t hurt.

That’s because USMCA is generally seen as an iterative improvement on and a necessary extension of the North American Free Trade Agreement (NAFTA) that ruled trade between the three countries for a quarter century. Mexico and Canada are the two largest export markets for the U.S. textile and apparel industry, totaling $11.3 billion last year.

Some executives and experts felt NAFTA was what the late industrialist and presidential candidate Ross Perot called the “great sucking sound” that took jobs away from U.S. workers and shuttled them across the border to Mexico, while U.S. textile companies felt they at least had an export market in their southern neighbor that otherwise would have gone to Asia with little chance of doing business.

But American Apparel & Footwear Association (AAFA) executives hail the newly christened trade pact as a victory for domestic soft-goods and shoe stakeholders.

“The USMCA is a win for the textile, apparel and footwear industry, as it provides businesses with certainty to support supply chain operations that employ hundreds of thousands of Americans,” said AAFA president and CEO Steve Lamar. “When negotiations began, AAFA asked for three things–that the new agreement remain trilateral, that it not harm the industry’s supply chains, and that it be seamlessly implemented.”

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Lamar said the Trump administration and Congress reflected these requests in a bipartisan final deal.

“With the USMCA entering into force, American businesses are excited to continue to work with supply chains in the North American region,” Lamar said. “Allowing the agreement to provide structure and avoiding the imposition of unnecessary trade barriers, such as punitive tariffs, will be essential for these American businesses and the American workforce to succeed and prosper under the agreement. Ensuring predictability and lowering trade barriers are always important, but even more so now, as we recover from and safely restart our economy in light of COVID-19.”

When U.S. Trade Representative Robert Lighthizer notified Congress in April that Canada and Mexico had taken the necessary measures to comply with their commitments under USMCA, he said it was a “landmark achievement.”

“The crisis and recovery from the COVID-19 pandemic demonstrates that now, more than ever, the United States should strive to increase manufacturing capacity and investment in North America,” Lighthizer said.

On Wednesday, he noted that he had worked closely with Congress to win overwhelming bipartisan approval of the trade deal that President Trump had negotiated with his Mexican and Canadian counterparts in 2018.

“Today marks the beginning of a new and better chapter for trade between the United States, Mexico and Canada,” the USTR said. “The USMCA contains significant improvements and modernized approaches that will deliver more jobs, stronger worker protections, expanded market access, and greater opportunities to trade for companies large and small.”

Supply-chain risk intelligence analyst Tim Yu of Resilience360 noted that USMCA introduces a number of new rules and changes that effect North American supply chains, including major amendments to rules of origin, higher de minimis thresholds, labor rights obligations, customs facilitation, intellectual property, environmental protections, and digital trade and e-commerce.

“From a supply chain perspective, the new provisions are concerning on a number of fronts,” Yu said. “For the Facility-Specific Rapid Response Labor Mechanism (RRLM), the burden will be on the defendant to demonstrate that an alleged labor rights violation is not in a manner that would affect trade or investment between parties. This will likely create greater burdens on Mexico.”

He said digital trade and e-commerce firms, retail manufacturers and agriculture producers are set to benefit from greater market access and trade liberalization measures.

“Whether the USMCA will be successful in restructuring global supply chains and bringing manufacturing back to North America remains to be seen,” he said. “Over the long term, companies may decide to increase or shift production to their existing plants in North America to comply with higher regional content requirements. However, such restrictions could also have the unintended consequence of reducing North American production by incentivizing foreign companies to move production elsewhere to avoid additional trade restrictions.”

The National Council of Textile Organizations (NCTO) has stressed the critical importance of implementing USMCA. NCTO president and CEO Kim Glas called it a “critical trade deal that will greatly benefit the U.S. textile industry at a time when domestic producers, facing significant challenges due to the impact of the COVID-19 pandemic, have mobilized to convert their production lines to manufacturing personal protective equipment (PPE) for frontline workers during this crisis.

“Sustaining the $20 billion in apparel and textile trilateral trade between the U.S., Mexico and Canada is absolutely critical at this time,” Glas added. “USMCA, which makes several key improvements over the former North American Free Trade Agreement, will go a long way to increasing the textile industry’s exports, as well as investments and capacity in the U.S. We need to maintain and expand a Western Hemisphere supply chain to meet national emergencies head on in the future.”