NAFTA will create new opportunities for U.S. fiber, textile and clothing manufacturers to expand sales and increase production, to make full use of economies of scale and take advantage of complementary resources in the three countries to enhance export potential. Consumers in all three nations will benefit as well from the expansion of trilateral trade.
Canada and Mexico are the two largest export markets for U.S. textile and apparel products. These markets, which currently support over 80,000 export related jobs in the United States, are growing rapidly. U.S. exports to Canada have grown an average of 19 percent per year since 1986, reaching $2.5 billion in 1994, and resulting in a trade surplus in the sector of $892 million. U.S. exports to Mexico of fibers, textiles and apparel have increased by 25 percent on average each year since 1986, reaching $2.3 billion in 1994. U.S. imports from Mexico excceeded sector exports by $7 million in 1994, largely reflecting the increased use of offshore production,where cut fabric parts are exported to Mexico for assembly into apparel, and then reexported to the United States.
Elimination of Tariff and Non-Tariff Barriers
Tariffs will be phased out in a maximum of ten years for products manufactured in North America that meet NAFTA rules of origin. Import quotas in the United States will be lifted immediately for such "originating" goods, and gradually phased-out for non-originating goods (i.e., products that meet our normal rule of origin). Barriers covering over 80 percent of textile and apparel trade between the U.S. and Mexico will be eliminated in six years or less.
NAFTA will immediately eliminate tariffs on over 20 percent, or $250 million, of U.S. exports to Mexico, providing open access to competitive producers in sectors such as denim, underwear, sewing thread and many household furnishings.
Safeguard Actions
NAFTA establishes special rules under which countries may take action to provide temporary relief for producers seriously damaged by increased imports of textiles and apparel. Concerning imports from Mexico which meet our normal rules of origin--substantial transformation--but not the NAFTA content requirements, quotas may be established pursuant to procedures similar to those contained in the U.S. - Mexico bilateral textile agreement. For all originating goods and trade under TPLs between the United States and Canada, and trade between the U.S. and Mexico meeting the NAFTA rule of origin, tariffs can be temporarily increased to MFN rates during the transition period.
Rules of Origin
Strict, but fair, rules of origin have been established to determine whether textile and apparel goods qualify for the benefits of the Agreement. The basic rule of origin is "yarn forward," which means that textile and apparel goods must be produced from yarn made in a NAFTA country in order to have access to the full benefits of the Agreement.
Exceptions to this basic rule are intended to give producers flexibility to import product where needed. One such example are the Tariff Preference Levels, or TPLs (formerly Tariff Rate Quotas, or TRQs under the U.S. - Canada Free Trade Agreement), under which yarn, fabric and apparel that is made in North America but that does not meet the stricter NAFTA content requirements, can be eligible for preferential duty treatment up to agreed annual levels.
Review Clauses
The generic rules of the NAFTA allow any party to request consultations to review the rules at any time. In addition, specific review clauses for textiles and apparel have been negotiated. A five year review of all the rules of origin for this sector is mandated to occur before January 1, 1999. Parties may also request consultations to add or delete items subject to the substantial transformation rule of origin, add or delete items eligible for TPL access, and to review the appropriateness of individual tariff preference levels.
Special Committees Established
A North American Consultative Committee on Labelling for Textile Products will work to harmonize labelling requirements to the extent possible among the three Parties. The Committee will include government and industry experts. Additionally, a Consultative Committee on Trade in Worn Clothing will assess the potential effect of trade in worn clothing among the Parties.
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