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March 5, 2019
Textile and Apparel Sectors Disagree on Certain Provisions of
the Proposed U.S.-Mexico-Canada (USMCA) Agreement
Introduction
domestic production. U.S. manufacturers of textiles
employed 229,000 workers in 2018.
The U.S.-Mexico-Canada Agreement (USMCA) is the
proposed replacement of the North American Free Trade
Many U.S.-headquartered apparel companies, which
Agreement (NAFTA), which entered into force in 1994 and
increasingly focus on product design and marketing, have
gradually eliminated tariffs and quotas on regionally made
transferred much of their production to third-party
textile and apparel products. The proposed agreement
manufacturers in non-U.S. locations. In 2018, employment
would make several changes in rules affecting textiles and
was 113,000. Apparel production in the United States is
apparel among the three countries. U.S. textile
generally restricted to high-quality niche products and U.S.
manufacturers and the apparel and retail industries have
government defense contracts. The Berry (10 U.S.C.
expressed overall support for the USMCA. Still, certain
§2533a) and Kissell (6 U.S.C. §435b) Amendments require
provisions have been controversial, and textile producers
100% U.S. content for textiles and garments purchased by
and the apparel sector hold divergent views. If Congress
the Departments of Defense (DOD) and Homeland Security
considers the USMCA, its textile and apparel provisions
(DHS) for certain military and nonmilitary purposes.
may draw particular scrutiny.
Textile and Apparel Trade
U.S. Textile and Apparel Manufacturing
U.S. textile manufacturers have arranged their production
Textile and apparel manufacturing covers several different
with Canada and Mexico around the NAFTA provisions.
industrial processes (Figure 1). Textiles are made with
Half of all U.S.-made yarns, fabrics, made-up articles (such
fibers harvested from natural sources (such as cotton or
as towels and bedsheets), and apparel are sold to Canada or
silk), manufactured from cellulosic materials (such as rayon
Mexico. U.S.-made technical fabrics, which make up more
or acetate), or made of man-made synthetic materials (such
than half of all fabrics exported to those two countries, are
as polyester, nylon, or acrylic). The raw fibers pass through
used in industrial applications such as automobile seats.
four main stages of processing: yarn production, fabric
More than three-fourths of all clothing imported into the
production, finishing, and fabrication.
United States from Mexico is made from U.S.-produced
Figure 1. The Fiber, Textile, and Apparel Industries
yarn or fabric.
Domestic textile mill producers also are affected by other
trade arrangements in the Western Hemisphere. For
example, under the Dominican Republic-Central America
Free Trade Agreement (CAFTA-DR) regional producers
from six partner countries are allowed to ship apparel
products to the United States duty-free as long as the yarn
and fabrics used for these manufactures originate in the
region, with some exceptions. Most CAFTA-DR apparel
shipped to the United States is made from U.S. textiles. In
2017, the United States exported $2.5 billion worth of
textiles to the region, making it the second-largest U.S.
textile export market in the world (NAFTA is first).
Source: U.S. International Trade Commission (USITC).
The most significant competitive challenge for textile and
apparel production in the Western Hemisphere comes from
Both the textile and apparel sectors have undergone
outside the region, specifically China and Vietnam. China is
extensive structural changes. U.S. production at textile mills
the world’s largest manufacturer of man-made fibers, a
in 2018 was 60% below the 1994 level, and U.S. production
large producer of cotton, and a major supplier of yarns,
at apparel plants was 88% less in 2018 than in 1994,
fabrics, and trims. China has become the leading exporter
according to the Federal Reserve Board.
of textiles and apparel to the U.S. market, supplying 38% of
Still, significant textile production remains in the United
imports in 2017. Vietnam is the second-largest source of
States largely owing to automation, which has helped
apparel for the United States. Neither has a preferential
reduce operating costs for U.S. producers. Textile
trading relationship with the United States, suggesting
production is also capital- and scale-intensive, making U.S.-
lower production costs have offset tariff incentives offered
based textile manufacturing less prone to relocation to
by NAFTA. Asian apparel uses little or no U.S.-made yarn
lower-wage countries. However, demand for U.S.-made
and fabric, but Asian countries rank as top markets for U.S.
textile products has fallen as the industry that was formerly
cotton exports.
the main consumer, apparel manufacturing, has reduced
https://crsreports.congress.gov
Textile and Apparel Sectors Disagree on Certain Provisions of the Proposed U.S.-Mexico-Canada (USMCA) Agreement
Disagreements About Specific Provisions minimis textile threshold is 7%). Another exemption is a
Rules of origin, which specify how much processing must
“short supply process” for certain textile items deemed
occur within a free-trade area for a product to obtain duty-
commercially unavailable within North America. The new
free benefits, are an important aspect of any trade
agreement would incorporate the existing NAFTA short
agreement. For textile and apparel companies, the rules
supply procedure, a process apparel importers argue will
determine what tariffs apply to imported textile and apparel
continue to make it difficult to get a new item approved and
inputs or finished products. Apparel products face normal
added to the list, limiting their flexibility to source apparel
tariff rates ranging as high as 32% of import value and
with inputs from outside North America.
textile tariffs are as high as 20%, so importers may benefit
Customs Enforcement. More than $20 billion of imported
from significant duty savings if their products qualify for
textiles and clothing claim preferential tariff treatment
favored treatment under NAFTA, and this would continue
annually, according to U.S. Customs and Border Protection.
under the proposed USMCA. Because rules of origin affect
The USMCA would add specific textile verification and
textile and apparel producers differently, they disagree on
customs procedures aimed at preventing fraud and
certain provisions.
transshipment because of concerns that major textile- and
Textile “Yarn-Forward” Rule of Origin. The USMCA
apparel-producers such as China are shipping products
generally would maintain the existing NAFTA “yarn
through Canada, Mexico, and other countries that have free-
forward” rule of origin. This is meant to ensure that
trade agreements with the United States. Textile producers
primarily U.S.-made yarns and fabrics—not lower-cost
consider this a key improvement, whereas the apparel
Asian inputs—supply textile and apparel producers located
industry questions the need for separate enforcement
in the region. Fibers in the yarn may generally be produced
provisions.
anywhere in the world.
Kissell Amendment. The USMCA would end exceptions
U.S. textile manufacturers almost always support
in NAFTA that allow manufacturers from Canada and
eliminating exceptions to the “yarn forward” rule. In a
Mexico to qualify as “American” sources when DHS buys
concession to the textile industry, the USMCA would
textiles, clothing, and footwear using appropriated funds.
newly require sewing thread, coated fabric, narrow elastic
DHS spent more than $30 million on textiles, clothing, and
strips, and pocketing fabric used in apparel and other
shoes subject to the Kissell amendment in FY2018.
finished products to be made in a USMCA country to
Additional Provisions. The USMCA includes a separate
qualify for duty-free access to the United States. The
chapter for textiles and apparel, which the textile industry
National Council of Textile Organizations, a textile industry
argues is meaningful because it highlights the importance of
trade group, estimates a yearly USMCA market for sewing
textile manufacturing for the North American region. In
thread and pocketing fabric of more than $300 million. The
NAFTA, many specific provisions affecting textile and
U.S. apparel industry opposes “yarn forward” and argues
apparel trade appear in an annex to the broader market
that apparel should be considered of North American origin
access chapter for goods (Annex 300-B). The USMCA
under a more flexible regional “cut and sew” standard,
would also create a Committee on Textile and Apparel
which would provide maximum flexibility for sourcing,
Trade Matters to raise concerns regarding mutual trade in
including the use of foreign-made yarns and fabrics.
these products.
Tariff Preference Levels for Textiles and Apparel. In
Outlook
response to concerns raised by the apparel industry, the
For the proposed USMCA to enter into force, implementing
USMCA, like NAFTA, would permit exceptions to the
legislation must be passed by Congress under the Trade
textile rules when certain inputs are not available in partner
Promotion Authority procedures set in 2015 by the
countries. With some adjustments, the USMCA would
Bipartisan Congressional Trade Priorities and
continue a program that allows duty-free access for limited
Accountability Act (P.L. 114-26). The Canadian parliament
quantities of wool, cotton, and man-made fiber apparel
and the Mexican congress must approve it as well. In
made with yarn or fabric produced or obtained from outside
general, the USMCA tightens some provisions of NAFTA
the NAFTA region, including yarns and fabrics from China
and loosens others to balance the competing interests of
and other Asian suppliers.
textile and apparel producers. Regardless of whether the
U.S. imports of textiles and apparel covered by the tariff
USMCA takes effect, the global competitiveness of U.S.
preference level mechanism supply 13% of total U.S. textile
textile producers and U.S.-headquartered apparel firms may
and apparel imports from Canada and Mexico. Apparel
depend more on their ability to compete against Asian
producers assert that these exceptions give regional
producers than on the USMCA trade rules.
producers flexibility to use materials not widely produced
in North America. The textile industry contends China is a
CRS Product
major beneficiary of the current NAFTA tariff preference
CRS Report R44981, NAFTA Renegotiation and the Proposed
level mechanism, and it strongly pushed for its complete
United States-Mexico-Canada Agreement (USMCA)
elimination in the USMCA.
Other Exemptions. The U.S. textile industry opposes
several other exemptions, which do not encourage more use
of U.S. yarn and fabric inputs. Under the USMCA, for
Michaela D. Platzer, Specialist in Industrial Organization
example, visible lining fabric for tailored clothing could be
and Business
sourced from China or other foreign suppliers, and it would
permit up to 10% of a garment’s content, by weight, to
IF11124
come from outside the NAFTA region. (NAFTA’s de
https://crsreports.congress.gov
Textile and Apparel Sectors Disagree on Certain Provisions of the Proposed U.S.-Mexico-Canada (USMCA) Agreement
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