May 31, 2019

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 fibers 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 550,000 workers nationwide.  In 2017, the industry manufactured nearly $78 billion in output, while exporting more than $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 $20 billion.  U.S. exports accounted for more than $11 billion of this trade, with Canada and Mexico serving as our two largest export markets worldwide.

These figures compare to just $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 $250 million annually for sewing thread for apparel applications and $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 fiber, yarn, and/or fabric.  The TSA Mexico loophole translates to a significant weakening of U.S. Buy American statutes.  Noting that DHS spent $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 $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.

Conclusion

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.

Thank you for providing us this opportunity to testify regarding the economic impact of the United States‐Mexico‐Canada Agreement (USMCA).

My name is Rick Helfenbein. I am President and CEO of the American Apparel & Footwear Association (AAFA) – the national trade association of the apparel and footwear industries, and their suppliers. AAFA represents about 350 companies, accounting for about 1000 brands. Our industry employs nearly four million U.S. workers and equals about $400 billion in annual U.S. retail sales. Our members design,

make, market, and sell clothes, shoes, and fashion accessories in the United States and in nearly every country around the world, including the U.S., Mexico, and Canada. 

Before offering comments on the USMCA, let me first state our very strong support of the North American Free Trade Agreement (NAFTA). NAFTA serves as an important anchor for the U.S. textile, apparel, and footwear industry. Much of the textile manufacturing in the United States is tied directly to NAFTA through U.S. exports to NAFTA partners. Many of the fabrics and yarns we export to Mexico end

up in garments that are imported back into the United States. Without the tariff preferences afforded by NAFTA, many of these garments would be made in other locations that do not use U.S. textiles.  We estimate that the NAFTA supports approximately 200,000 U.S. jobs in our sector and, of course, it

supports many millions more throughout the entire economy.

We also welcomed the opportunity to modernize NAFTA. It is, after all, is a 25‐year‐old agreement that predates the internet. We were pleased that this was done under the auspices of Trade Promotion Authority AND with full involvement and oversight by Congress out of recognition of Congress’s Article I Section 8 authority to regulate commerce with foreign nations and set tariff policies.  

Any effort to examine the USMCA needs to look at it in relation to the underlying NAFTA. One need only ask a simple question. Does the USMCA improve upon the NAFTA?

As we attempt to answer that, we will look through the three lenses we used to guide our advice to the Administration as it pursued NAFTA modernization negotiations.

A. Do No Harm

B. Keep It Trilateral

C. Make It Seamless

I will take each in turn.

A. Do No Harm

The USMCA appears to have largely met this goal. USMCA retains market access schedules and makes no changes to the travel goods or footwear rules of origin provisions. While it does make some changes to the rules of origin for textiles and apparel, these appear to be largely cosmetic and we are hopeful the

industry will be able to quickly adjust to the changes that have been made.

That said, we are discouraged that – with few exceptions – the changes made to the rules of origin were to introduce more restrictive approaches. For example, many tariff preference levels (TPLs) were lowered and the USMCA now includes new requirements that sewing thread, elastic strips, and pocketing originate. While we understand U.S. negotiators were attempting to legislate more U.S. content into North American textile and apparel supply chains, the result unfortunately may be the opposite. Each of these new provisions, individually and collectively, will make it harder to use the

agreement, which may lead to less – not more – U.S. content being used in North American supply chains. Such an outcome would come at the expense of the U.S. textile firms these provisions are designed – on paper – to help.

Likewise, USMCA represented a lost opportunity to bring more flexibility to the footwear and travel goods provisions of NAFTA. The current rules are so restrictive, in an ostensive effort to keep all benefits in North America that very little travel goods and footwear trade exists under NAFTA. As we argued throughout the talks, the best way to encourage more U.S. content is to weave in more flexibility into the rules. Such flexibilities provide additional opportunities for business to be conducted under the agreement. For example, the USMCA dramatically increases the TPLs that will enable more U.S. apparel and made up goods to be exported to Canada. Even though such articles don’t have to be made with U.S. textiles, the mere presence of their production in the U.S. will mean more customers for U.S. textile firms.

The USMCA should have included many more similar provisions to increase trade of apparel, footwear, and travel goods under the new USMCA. These new flexibilities, in turn, would have dramatically increased the opportunities for U.S.‐made textiles, leather, soles, clothes, shoes, and travel goods to sell their product throughout North America, and beyond.

In other areas of the agreement, uncertainties over how different provisions will operate make it premature to offer a systematic assessment. For example, we are pleased to see many trade facilitation agreement provisions hardwired into the USMCA, and believe that such provisions, if implemented successfully, could reduce customs paperwork associated with North American trade. This is important for a region that depends on speed to the consumer for its competitive edge. Similarly, we were pleased

to see the increase in de minimis thresholds – important for ecommerce – but are worried by a footnote suggesting the Administration may erase these gains by unilaterally lowering the U.S. threshold.  Other provisions, such as those relating to the periodic reviews, could keep the agreement invigorated, or lead to premature termination.  

B. Keep the Agreement Trilateral

One of the strengths of NAFTA is that it unites North America into a single trading bloc. Textile, apparel, and footwear companies produce and sell product across all three countries, using supply chains that stretch from Canada to Mexico, which together create a competitive North America. We strongly opposed any efforts to split NAFTA into a series of bilateral deals, and were pleased to see the USMCA retain this essential trilateral feature.

C. Make It Seamless

Our members have invested millions in building compliant supply chains threading throughout the continent. As they shift from NAFTA – which has governed North American trade for more than a quarter century – they will need time to adjust to new rules. Our industry needs an opportunity to learn about new provisions, educate personnel within the supply chain of the new provisions, and establish controls to ensure full compliance. U.S. Customs and Border Protection, which will have a crucial enforcement role, will need the same accommodation. Too many times we have seen new agreements or trade provisions take effect in a manner that provided little warning of the change or incomplete compliance guidelines. The resulting confusion created uncertainty, costs, and chaos.

While we won’t know until many years from now how this transition went, we are pleased that the Administration included transition periods – from 12 to 30 months – before the new textile chapter rule restrictions take effect. 

Thank you again for providing us this opportunity to testify.

I look forward to your questions.  

(as of January 4, 2018)

Chair

Jane L. Johnson

Manager, Government Relations

Unifi, Inc.

Vice-Chairman

Mark S. Jaeger, Esq.

Senior Vice President, Human Resources,

Jockey International, Inc.

Members

Charles L. Sanders

Vice President, Customs and Trade Compliance

Union Underwear Company, Inc. dba Fruit of the Loom

Dean Draughn

Vice President, Materials and Commercialization, Sourcing

Under Armor, Inc.

Edward G. Cochrane

Vice President and Secretary

Mount Vernon Mills, Inc.

Eric F. Warshaw

President

ErexCorp

Representing Secondary Materials and Recycled Textiles Association

H. Clayton Jenkins

Vice President, Global Sourcing, Compliance

Brown Show Company, Inc.

Jeffrey B. Whalen, Esq.

Senior Counsel, Customs

Nike, Inc.

Jessica E. Franken

Director, Government Affairs

The Franken Group, LLC

Representing INDA: Association of the Nonwoven Fabrics Industry

Katherine M. Dutih

Manager, Government Relations

Milliken Company

Kathie M. Leonard

President and Chief Executive Officer

Auburn Manufacturing, Inc.

Marc L. Fleischaker, Esq.

Partner and Chair Emeritus

Arent Fox LLP

Representing Rubber and Plastic Footwear Manufacturers

Maristella Iacobello

Vice President, Customs Compliance

PVH Corporation

Mathew B. LeBretton, Esq.

Director, Public Affairs

New Balance Athletic Shoe, Inc.

Michael D. Korchmar

Chief Executive Officer

The Leather Specialty Company

Nathanael “Nate” E. Herman

Director, Government Relations

Travel Goods Association

Patricia (Patti) M. Bates

Vice President, Sales

Glen Raven Technical Fabrics, LLC

Representing United States Industrial Fabrics Institute

R. Matthew Priest

President

Footwear Distributors and Retailers of America

Sara O. Beatty

Principal

Whitehaven Trade Advisors

Representing National Council of Textile Organizations

Shawn J. Dougherty

Director, Strategy and Trade Affairs

Dillion Yarn Corporation

Stephanie H. Lester

Senior Director, Government Affairs

Gap Inc.

Stephen E. Lamar

Executive Vice President

American Apparel & Footwear Association