The NCTO statement
The U.S. International Trade Commission (ITC) held a public hearing on November 15-16 in Washington, D.C. as part of its investigation of the likely impact of the U.S.-Mexico-Canada Agreement (USMCA) on the U.S. economy.
National Council of Textile Organizations (NCTO) President & CEO Auggie Tantillo testified on Panel 4, General Manufacturing, on Friday, November 16, the hearing’s second day.
Tantillo’s testimony as prepared for delivery is below:
Testimony of Auggie Tantillo, President and CEO National Council of Textile Organizations
U.S. International Trade Commission Hearing on the United States-Mexico-Canada Agreement
November 16, 2018
On behalf of the National Council of Textile Organizations (NCTO), thank you for the opportunity to provide input regarding the recently negotiated United States-Mexico-Canada Agreement (USMCA). NCTO represents the full spectrum of the U.S. textile sector, from fibres to yarns to fabrics to finished products, as well as suppliers of machinery, chemicals, and other products and services with a stake in the prosperity of our industry. The entire U.S textile manufacturing chain, from fiber through finished sewn products, employs 550000 workers nationwide. In 2018, the industry manufactured nearly USD 78 billion in output, while exporting more than USD 28 billion of our production.
I want to preface my remarks by stating that NCTO has not yet adopted a formal position on USMCA. We have produced a detailed internal analysis on the agreement for our members and have solicited their feedback. Once we have reviewed input from our membership, the NCTO Board will come to final position that we will then make public.
With that said, it is important to note that the United States, Canada, and Mexico have built a vibrant and prosperous textile production chain over the 24-year life of the North American Free Trade Agreement (NAFTA). In 2017, total textile and apparel trade between the three countries was approximately USD 20 billion. U.S. exports accounted for more than USD 11 billion of this trade, with Canada and Mexico serving as our two largest export markets worldwide.
These figures compare to just USD 7 billion in textile trade between the three countries in 1993, the year prior to NAFTA’s implementation. An understanding of this data validates that the current, yarn-forward structure embedded in NAFTA has been highly successful, providing significant benefit to North American manufacturers throughout the entire textile production chain.
It is for this reason that NCTO is very pleased that the basic textile origin rules adopted originally in NAFTA were essentially reaffirmed in USMCA. Further, we commend the three governments for creating a separate textile chapter in the new agreement as opposed to relegating textiles to an annex of the broader market access provisions. A stand-alone chapter recognizes the sensitivities associated with trade in this sector and allows for unique provisions, such as separate and enhanced customs enforcement language over the original NAFTA. Enforcement is critical in the textile sector as the lucrative duty-free benefits create enormous incentives for fraud.
In terms of changes to the original text, NCTO is very supportive of revisions that will require the use of USMCA-origin sewing thread, pocketing, narrow elastics, and coated fabrics in certain end items. While there are transition periods associated with these new requirements, their ultimate inclusion should offer a boost for U.S. producers formerly left out of the origin rules in the original NAFTA. We estimate the USMCA market to be USD 250 million annually for sewing thread for apparel applications and USD 70 million annually for pocketing.
We are also appreciative of a key change made in the Government Procurement Chapter of USMCA regarding the Kissell Amendment, which is a Buy American statute for textiles that applies to the Department of Homeland Security (DHS). Kissell requires 100 % U.S. content, with very limited exceptions, for purchases by the Coast Guard and Transportation Security Administration (TSA).
Regarding TSA procurement, Kissell has a problematic loophole tied to NAFTA that has allowed Mexico to supply these contracts. As a result, under the terms of NAFTA, Mexico can supply TSA uniforms made from Mexican fibre, yarn, and/or fabric. The TSA Mexico loophole translates to a significant weakening of U.S. Buy American statutes. Noting that DHS spent USD 34 million on clothing and textiles for TSA in FY2017, closing the Kissell loophole was a substantive change from NCTO’s perspective.
While all the items mentioned to this point are clear improvements to the original NAFTA, there was one key area of disappointment, from our perspective, with USMCA. NAFTA incorporated a major exemption to the yarn-forward origin requirement through a system of Tariff Preference Levels (TPLs). TPLs allow products to be shipped duty free among free trade partner countries even though the components within the product are sourced from countries that are not signatories to the agreement.
While NAFTA TPLs have annual limits that cap their impact to a degree, more than USD 641 million in textile and apparel TPL shipments entered the U.S. last year. As such, eliminating the TPLs was a primary focus of NCTO’s in the NAFTA renegotiation. While USMCA did reduce the size of some specific TPLs, the reductions will not cut into existing trade levels. This outcome is frustrating given the President’s stated goals of increasing benefits for U.S. manufacturers and eliminating provisions that have helped non-signatory countries, such as China, take advantage of tariff preferences intended for North American producers.
As stated earlier, NCTO is not yet in a position to communicate a formal position on USMCA. We hope to have a decision finalized soon, which will be shared with both the Administration and Congress as soon as we complete our review process.
Nonetheless, it is accurate to state that in an overarching fashion, the new agreement is an improvement over the original NAFTA in many areas. This is certainly the case for U.S. manufacturers of component parts such as thread, pocketing, narrow elastics, and coated fabrics. There is also a clear victory on the Kissell amendment and a strong upgrade in customs enforcement. With our strong disappointment in the TPL outcome noted, we are also grateful for the Administration’s willingness to work with domestic manufacturers in an effort to improve this important agreement.
Thank you for this opportunity to provide input, and I would be pleased to answer any questions that you may have at this time.
NCTO is a Washington, DC-based trade association that represents domestic textile manufacturers, including artificial and synthetic filament and fiber producers.
- U.S. employment in the textile supply chain was 550500 in 2017.
- The value of shipments for U.S. textiles and apparel was USD 77.9 billion in 2017.
- U.S. exports of fibre, textiles and apparel were USD 28.6 billion in 2017.
- Capital expenditures for textile and apparel production totalled USD 2.4 billion in 2016, the last year for which data is available.
U.S. Fashion Industry to Testify at USMCA Hearing Today in Washington DC
Also on November 16, 2018, United States Fashion Industry Association (USFIA) President Julia K. Hughes will testify during the Office of the U.S. Trade Representative’s hearing, Impact of the U.S.-Mexico-Canada Agreement (USMCA) on U.S. Economy, Consumers, and Fashion Industry.
Her testimony will highlight the importance of trade between the United States, Canada, and Mexico for the fashion industry, and the need for business continuity in this time of uncertainty in trade policy and expected cost increases. While USFIA is supportive of several key components of the new USMCA—particularly the maintenance of the Tariff Preference Levels (TPLs) and the elimination of the “visible linings” requirement for duty-free treatment—we are nonetheless concerned about the continuation of the yarn-forward rule of origin and the addition of new regulatory requirements.
“The new regulations WILL make it more expensive and complicated for American brands and retailers to use the agreement. That is not an assumption, that is what companies tell us,” says Hughes. “So, complicated rules of origin and heavy documentation requirements mean we have a missed opportunity—for American companies as well as for our trading partners Canada and Mexico. Let’s be honest, if the Administration wants to encourage companies to move their sourcing out of China, it would make sense to make it easier to do business with America’s closest neighbours.”
United States Fashion Industry Association Testimony:
Impact of the U.S.-Mexico-Canada Agreement (USMCA) on U.S. Economy, Consumers, and Fashion Industry
Investigation No. TPA-105-003 November 16, 2018
Julia K. Hughes, President, United States Fashion Industry Association:
“Good morning and thank you for the opportunity to appear today to talk about our assessment of the impact of the new U.S.-Mexico-Canada Agreement. The United States Fashion Industry Association represents fashion brands, retailers, importers, and wholesalers based in the United States and doing business globally—many of the companies you and your families wear on a daily basis. Our member companies manage supply chains that span the globe, and trade with Mexico and Canada is critically important both for sourcing and for retail.
The North American Free Trade Agreement (NAFTA) has been one of the most important trade agreements for the fashion industry. According to our annual survey of American brands and retailers, NAFTA is the most-utilized trade agreement: 65 percent of companies say they utilize it and more than half explicitly say NAFTA is important to their business operations. This is more than any other US free trade agreement.
We reviewed the details of the USMCA, and we were pleased to find much we can support in it. Thank you to the Administration’s negotiators for listening to our members’ concerns on several critical issues.
As we asked, USMCA remains a trilateral agreement, and “does no harm” to existing U.S.- Mexico-Canada supply chains. This should ensure a level of business continuity in a time of increasing uncertainty in trade and supply chains. We believe this certainty will allow American businesses to continue their plans to expand and hire more Americans to fill high-paying jobs in the United States.
The agreement also maintains the Tariff Preference Levels (TPLs) for apparel to and from all three countries. This is one of the most important elements of the agreement for our industry, and according to some of our members, the only way they can source textiles and apparel with these trading partners.
We also applaud the elimination of the requirement that visible linings for tailored clothing come from the NAFTA region. This was a barrier to more trade in our sector under NAFTA. Both of these provisions—the maintenance of the TPLs and the elimination of the visible linings requirement–will help companies continue and expand business with our trading partners Canada and Mexico. USFIA looks forward to supporting efforts to expand trade in the region.
I want to repeat the importance of trade with Mexico and Canada for American brands and retailers. While our NAFTA partners represent slightly less than four percent of total U.S. apparel imports (by quantity), our survey shows that almost two-thirds of companies have some NAFTA sourcing. That is why we are concerned that the addition of more regulatory requirements to qualify for duty-free market access may hold back the ability of some companies to expand their sourcing with Mexico and Canada.
However, in this time of uncertainty and cost concerns, the addition of regulatory requirements to qualify for duty-free market access will deter this expansion of business. The yarn-forward rule of origin already discourages trade in our sector—and some companies have told us that they do not claim the duty savings on eligible products from the region because the compliance requirements are simply too onerous and expensive. In addition, the USMCA creates new technical requirements –for example, the addition of requirements for originating sewing thread, pocketing and narrow elastic bands—which will result in higher costs for inputs and higher costs for brands and retailers (as well as their suppliers in Mexico and Canada) to administer the agreement.
We are concerned that there will be some companies, who shift operations out of the Western Hemisphere, or decide not to move new orders to Canada or Mexico because of these cost increases. The new regulations WILL make it more expensive and complicated for American brands and retailers to use the agreement. That is not an assumption, that is what companies tell us. So, complicated rules of origin and heavy documentation requirements mean we have a missed opportunity — for American companies as well as for our trading partners Canada and Mexico. Let’s be honest, if the Administration wants to encourage companies to move their sourcing out of China, it would make sense to make it easier to do business with America’s closest neighbours.
And, let us not forget the most important piece of the equation – that apparel imports create jobs and value here in the United States. According to recent analysis, U.S. workers contribute an average of 70 percent of the value of the final price of a retail item sold in the United States, regardless of where it is manufactured. This translates to high-paying, high-quality jobs in the United States—and 1 in 4 jobs in the United States are supported by retail—as well as affordable apparel for American families and economic growth for our neighbours Canada and Mexico.
The fashion industry, perhaps more than any other manufactured consumer products industry, relies on complex global supply chains to deliver the right products at the right price for American consumers. Let’s make sure the rules and requirements work with existing supply chains and create new openings for American jobs and business with our trading partners—not deter them.
We appreciate the opportunity to appear today and look forward to answering any questions.