Mexico, Canada Counter US's TPL Removal Pitch With Proposals to Open NAFTA Apparel Trade Even More

Mexico and Canada have proposed to expand the benefits of NAFTA tariff preference levels (TPLs) for textiles and apparel, responding to a U.S. proposal to remove TPLs, people familiar with negotiations said in recent interviews. Mexico has “come back with a proposal that is similarly aggressive [to the U.S.’s], but from the other side,” Akin Gump attorney Josh Teitelbaum said. “That’s kind of the tension where we’re at, the stalemate, so to speak,” on textile and apparel negotiations. A Mexican official confirmed in an email that his country proposed to expand the TPLs. Mexicans proposed a multiple of their existing TPLs for some products and an alignment with Canadian TPLs for other products, a cleared adviser said. “For equality’s sake, they looked at the Canadian TPLs and said, ‘OK, we’ll just pick that number so it’s the same across the board,’” the adviser said.

Canada’s proposal goes a step further, contemplating an essential rewrite of part of the NAFTA TPL system, according to the adviser. Canada has pitched an “origin quota,” which would qualify certain apparel and textile materials cut and sewn in the NAFTA territory and eligible for a TPL as NAFTA-originating goods, up to a certain import threshold. That classification would exempt those products, up to a certain limit, from merchandise processing fees, the adviser said, as the pact spares originating goods from MPF payment requirements.

The Embassy of Canada didn’t directly discuss any TPL or “origin quota” proposal, but noted in an email that Canada made a textile and apparel proposal that “would enable Canadian producers to continue to benefit from NAFTA preferential tariff treatment.” The embassy added: “Canada will defend its textile and apparel interests, and work with Mexico and the U.S. to improve the NAFTA in order to expand textile and apparel trade opportunities and jobs.”

The Office of the U.S. Trade Representative is presumably frustrated by the MPF benefit proposal as it looks to close the NAFTA negotiation by the end of March, the cleared adviser said. Negotiators from the NAFTA parties will meet Dec. 11-15, in Washington for several intersessional meetings before the next official negotiating round, Round 6, set for Montreal next month. Asked for a schedule and whether textiles would be discussed next week, a USTR spokeswoman said in an email: “As this is not a formal negotiating round -- just several intersessional meetings, we have not released a schedule to any reporter.”

In addition to considering a new TPL framework, NAFTA parties are considering a U.S. proposal to implement a short-supply process akin to CAFTA, sources said. Per CAFTA, parties applying for fabric additions to the pact’s short-supply list submit a request to the U.S. Commerce Department, and present evidence of due diligence to determine any CAFTA territory production of the fabric as well as proof that other fabrics aren’t substitutable in commercial quantities in a timely fashion for the requested addition, among other information. The interagency Committee for the Implementation of Textile Agreements (CITA) generally has 30 U.S. business days after confirming receipt of a short supply request to determine whether a petition contains all necessary information and whether production of the petitioned fabric occurs in the region.

U.S. industry and Canadian and Mexican governments “agree that the NAFTA short supply process fundamentally doesn’t work,” and that the CAFTA process “works a whole lot better,” American Apparel and Footwear Association Executive Vice President Stephen Lamar said during an interview. While all parties appear interested in adopting more of a CAFTA-like process for NAFTA, a separate consideration is whether short-supply list additions and deletions will be administered by a single government body like the U.S. Commerce Department in CAFTA, or whether the responsibility will be shared among the NAFTA parties, Teitelbaum said. “It’s a question that I think will probably gain a little bit more importance in this agreement, since we’re dealing with Canada and Mexico rather than different Central American countries,” he said.

The U.S. has proposed to transfer the CAFTA process and several items on the short-supply list over to NAFTA, a pitch that might be too “U.S.-centric,” particularly for Mexican companies likely wanting to have a say in changes to the NAFTA list, the cleared adviser said. Another “core question” is whether CAFTA short-supply products are relevant to NAFTA, and they might not be, the adviser said. “It is not a perfect blend of what is actually needed to be added to the [NAFTA] short-supply list,” she said.

Suppliers of petitioned fabrics within the CAFTA region have 10 U.S. business days after Commerce’s official receipt of an application to show they produce the petitioned product. Depending on its determination, CITA either approves or denies short-supply applications, and posts the determinations online. CITA generally has 30 days after the official receipt of an application to post its affirmative decision online or 44 days after the official receipt of the petition to make determinations for requests for which it needs more information to make a determination.

The CAFTA short-supply process is “pretty thorough and my experience with it has been that the participants generally find it satisfactory, and certainly, easier to use than NAFTA, where there essentially isn’t a mechanism for short supply, where it involves more amending of the agreement, which is an incredibly arduous task,” Teitelbaum said. “So I think [NAFTA parties’] adopting that kind of mechanism is certainly a move that interests the parties because it’s been more successful.”