Page 3 - Fashion Law

NYLJ.COM | Fashion Law | MONDAY, AUGUST 28, 2017 | S3
Trump’s NAFTA Renegotiation: Potential Changes And Impacts to Brands, Apparel and Textiles
TBY FRANCES P. HADFIELD
he Trump administration’s deci- sion to renegotiate the North American Free Trade Agreement
(NAFTA) has unsettled U.S. fashion, apparel, and textile companies that have constructed their businesses around its provisions. The renegotiation began in Washington, D.C. on August 16 with an optimistic completion date by the end of the year. The big ques- tion remains: Who will be the winners and losers in these talks? And just as importantly, is there more than money at stake?
NAFTA aimed to eliminate barriers to trade and investment among Mexico, Canada, and the United States. Qualifying U.S. apparel, footwear, leather, textile and travel goods enter into Canada and Mexico duty-free. And for the past 20 some years, NAFTA has allowed U.S. companies to develop regional supply chains. For many companies, NAFTA supports domestic retail jobs, the cotton growers and the mills that make the mate- rial that then goes into NAFTA-made apparel products, imported and sent to retailers. NAFTA has been good for textile and apparel and they recognize both the value of NAFTA and the problems with pulling out of the agreement. In fact, the American Apparel & Footwear Association (AAFA), Retail Industry Leaders Association (RILA) and U.S. Fash- ion Industry Association (USFIA) all sent letters to the U.S. Trade Representative (USTR) urging him to “do no harm” to the existing agreement because NAFTA supports
FRANCES P. HADFIELD is a counsel in Crowell & Mor- ing’s international trade group in the firm’s New York office. Her practice focuses on customs litigation and regulatory compliance.
hundreds of thousands of U.S. textile and clothing jobs, along with retail operations in all states. That being said, these companies and industries do not have the same goals or shared interests.
Interests Diverge in Renegotiation
The priorities for fashion, apparel and retail brands in this renegotiation are more streamlined customs enforcement, facilita- tion of regional supply chains, protection of intellectual property and provisions for digital and e-commerce. U.S. fashion brands, importers and retailers have repeatedly urged a cautious approach to the renego- tiation so that any new deal does not harm their existing supply chains.
The U.S. textile (yarns and fabrics) indus- try has different priorities. Qualifying tex- tiles (as well as apparel goods originating from NAFTA region) have duty-free access to the U.S. and Canadian markets because of something called the “yarn-forward” origin rules. The rules require that each step of apparel production from the spin- ning of the yarn onwards take place in the United States, Canada, or Mexico. In order to qualify for NAFTA tariff benefits, com- panies must use fabrics made from yarn in these three countries. The U.S. textile industry wants the NAFTA renegotiation to provide for more jobs and production in the United States, Canada and Mexico, and to this end mirrors the administration’s stated goals to “update and strengthen the rules of origin, as necessary, to ensure that the benefits of NAFTA go to products genu- inely made in the United States and North America.” But what does “genuinely” mean? Textile companies want the statement to mean that the administration will review the rules of origin to increase the value of addition required under NAFTA. They would also like to remove tariff preference for articles produced from yarn and fabric
from China and other non-NAFTA countries. Conversely, U.S. fashion brands, importers and retailers believe the “yarn-forward” rule is too restrictive and limits their sourcing options. And the administration’s general statement says nothing about substantial transformation or what the minimum region- al value content impacts might be. U.S. appar- el would like to see less restrictive rules of origin for apparel articles made from fabric that is in short supply in North America. They would also like less restrictive rules to govern articles made from fabric not com- monly produced in the NAFTA region. The administration has indicated that it would like to “ensure that the rules of origin incen- tivize the sourcing of goods and materials
from the United States and North America.” Yet, apparel companies see the exceptions as a means to provide them with the flexibility to import materials not readily available in the NAFTA countries.
The Bigger Picture
For apparel, a trade deficit exists because the U.S. spends more money annually on imports than it receives from its exports of the same. In general, reducing the trade deficit and bringing more manufacturing jobs back to the United States are a cen- terpiece of the Trump’s rhetoric on trade policy regarding NAFTA’s renegotiation objectives. » Page S10
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