The Trump administration's decision to renegotiate NAFTA has created concerns for U.S. fashion, apparel, and textile companies and their respective supply chains. As with U.S. automakers, NAFTA has allowed fashion, apparel, and textile companies to develop regional supply chains where qualifying U.S. apparel and textiles enter into Canada and Mexico duty-free.
The priorities for fashion, apparel and many retail brands in the renegotiation are more streamlined customs enforcement, facilitation of regional supply chains, protection of intellectual property and provisions for digital and e-commerce. These companies advocate a cautious approach so that a new deal does not harm their existing supply chains.
The U.S. textile industry has different priorities. Qualifying textiles have duty-free access to the U.S. and Canadian markets because of the "yarn-forward" origin rules, which require that each step of apparel production from the spinning of the yarn onwards take place in the United States, Canada, or Mexico. The U.S. textile industry wants the 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 genuinely made in the United States and North America." Textile companies 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 many retailers believe the "yarn-forward" rule is too restrictive and limits their sourcing options. U.S. apparel 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 commonly produced in the NAFTA region. The administration has indicated that it would like to "ensure that the rules of origin incentivize 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. It seems unlikely that the NAFTA renegotiation will liberalize the "yarn-forward" rules of origin to their benefit.
The added challenge to the process is the pressure to wrap up negotiations by the end of 2017. The renegotiation pursuant to Trade Promotion Authority (TPA) expires on June 30, 2018, and there are upcoming elections in all three member countries next year. Time is the enemy of the renegotiation. The political climate gives all parties a strong incentive to finish by the end of 2017, but a rushed timeline and lengthy agenda makes that equally unlikely to happen. There is also the risk that President Trump pulls the U.S. out of NAFTA if he loses patience for the renegotiation, which is the greatest risk to industries that have developed complex supply chains in accordance with the agreement.