The USMCA will update and replace the 25-year-old North American Free Trade Agreement (NAFTA)

The USMCA will update and replace the 25-year-old North American Free Trade Agreement (NAFTA)

After two years of talks, a deal has finally been struck on the revised terms of the United States Mexico Canada (USMCA) trade agreement, with US apparel and textile industry groups urging swift Congressional and presidential approval.

Representatives from the three countries met in Mexico City yesterday (10 December) to sign a revision of the new trade deal, which will update and replace the 25-year-old North American Free Trade Agreement (NAFTA).

The USMCA was initially agreed with Canada and Mexico on 30 September 2018 and was officially signed by the presidents of the three countries on 30 November 2018. However, while Mexico had ratified the agreement, ratification by the US has been held up in Congress as the Trump administration and House Democrats worked to strike a deal. To complicate matters further, the Canadian government was not willing to formally adopt the agreement until the Americans ratified the deal.

Yesterday's signing marks a milestone in the path to USMCA approval and could see a vote by House of Representatives on the agreement as soon as next week, according to customs and trade law firm Sandler, Travis & Rosenberg (ST&R). The firm adds, however, the timing of a Senate vote is less clear.

The USMCA updates and modifies NAFTA and makes significant improvements, including:

  • Creation of a separate chapter for textiles and apparel rules of origin with strong customs enforcement language.
  • Stronger rules of origin for sewing thread, pocketing, narrow elastics and certain coated fabrics. Under the current NAFTA, these items can be sourced from outside the region – USMCA fixes this loophole and ensures these secondary components originate in the region.
  • Fixes the Kissell Amendment Buy American loophole, ensuring that a significant amount the Department of Homeland Security spends annually on clothing and textiles for the Transportation Security Administration is spent on domestically produced products.

The deal was welcomed by the leaders of all three countries, with President Trump taking to Twitter:

"After working with Republicans, Democrats, and many other stakeholders for the past two years we have created a deal that will benefit American workers, farmers, and ranchers for years to come. This will be the model for American trade deals going forward," says United States Trade Representative Robert Lighthizer.

Meanwhile, a statement from the office of Canadian Prime Minister Justin Trudeau notes: "Canada remains committed to working closely with the United States and Mexico to ratify and implement the new NAFTA, and to supporting Mexico's historic labour reform efforts."

And Mexican President Andrés Manuel López Obrador says the agreement will attract investment to the region. "If there is investment there is growth; if there is growth, there is well-being; if there is well-being, there is peace and there is tranquility."

He adds it should also improve conditions for workers. Mexico has been ramping up its labour reforms as part of efforts to ensure the USMCA is ratified, with clothing industry experts in the country telling just-style last week they hope the trade deal will cement Mexico's position as a major apparel exporter to the US and Canada.

Industry reaction

The deal between the Democrats and the Trump administration on the USMCA has been welcomed across the US textile and apparel industry, with many trade organisations now urging a swift congressional passage.

"We are happy to hear a deal has been reached that should help pave the way for USMCA to move forward and we will continue to work for Congressional passage on a clean bill," says National Council of Textile Organizations (NCTO) president and CEO, Kim Glas.

Meanwhile, the American Apparel & Footwear Association (AAFA) hopes there will be a seamless transition from NAFTA.

"We look forward to reviewing the final language and working with our members to determine how to best use the deal to create jobs throughout the supply chain," says Rick Helfenbein, AAFA president and CEO. "An integrated North American supply chain is an integral component of the apparel and footwear industry. Further, in a time of trade uncertainty, it will provide businesses with the ability to invest confidently in the region.

"That said, it is paramount that the transition from NAFTA to USMCA occur smoothly, to ensure that there are no negative impacts as the business community comes up to speed with the new rules."

Matthew Shay, president and CEO of the National Retail Federation (NRF), concurs. "The USMCA takes many important steps to modernise the agreement to reflect today's global and digital economy. This agreement could not come at a better time and provides certainty for US retailers that rely on the North American market, including those that operate in Canada and Mexico.

"It also ensures American families can continue to have access to a wide range of high-quality products at prices they can afford. We look forward to having this cross the finish line and continue the strong momentum in the consumer economy."

National Cotton Council (NCC) chairman Mike Tate estimates the trade agreement will provide an additional US$2.2bn in US economic activity and freer markets/fairer trade.

"Importantly, it will restore important trade certainty in the North American market which represents significant export market share for both US cotton and cotton textile products," he added.

Mexico is the second-largest export market for US cotton textile/apparel products and Canada is the fourth largest for these goods. Mexico is also a top market for US raw cotton.

Click on the following link to see just-style's analysis on: Why USMCA is a balanced trade deal for textiles and apparel.

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