WASHINGTON — The U.S. fashion industry is scrambling to interpret new Mexican regulations on apparel, textile and footwear imports that could threaten two-way trade under the North American Free Trade Agreement.

This story first appeared in the March 3, 2015 issue of WWD. Subscribe Today.

Mexican officials stress that the new import regulations, which were unveiled in December and were preceded by new imported footwear requirements issued in September, are to counter what the government claims is an onslaught of undervalued imports, primarily from Asia, that are hurting the Mexican domestic industry.

According to international trade law firm Sandler, Travis & Rosenberg and other industry organizations, the Mexican measures will present challenges that include:

• Minimum reference, or floor, prices calculated by the Mexican government on a wide range of imported products.

• A bond guarantee requirement and five-day advance notice rule for imports falling below the minimum reference prices.

• A new sectoral apparel and textile registry, forcing exporters to register with specific paperwork requirements.

• A pilot project with new tariff classifications for imported goods in those categories.

• Suspension of promised duty reductions on scores of imported products.

The new measures are part of a $70 million textile aid package Mexico launched in early December to protect its industry from undervalued Asian imports and boost competitiveness. But there could also be unintended consequences for U.S., European and Asian companies.

“I think this paints a bull’s-eye on global companies and brands importing product into Mexico and sets up a paradigm for a possible delay in receipted goods and additional import duties,” said Tom Travis, managing partner of Sandler, Travis & Rosenberg. “It’s bad. What is troublesome here is global brands, many based in the U.S. or European Union, import product from Asian countries, which do not benefit from the duty-free provisions [of NAFTA or other trade arrangements Mexico has]. I think that is where the arrow is pointing. But it also impacts exports of inputs from the U.S. under NAFTA, meaning yarns and fabrics. So it is another arrow pointed at that group.”

Travis said it is a double whammy for companies, pushing up duties and costs and potentially causing delays in clearance through Mexican Customs.

Stephen Lamar, executive vice president of the American Apparel & Footwear Association, said, “The bottom line is it will make it more expensive for our members to export to Mexico from the U.S. and everywhere.”

Lamar noted he has heard from several concerned apparel, footwear and textile firms that said the move by the Mexican government is hard to understand.

“If you look at apparel imports under NAFTA, it is basically a bell curve with a long line at the end,” Lamar said. “In the last two years, it has begun to inch up a little. That is why it is so difficult to understand. We see this as interfering with the partnership we are trying to promote.”

Lamar and others said there is uncertainty and a lack of clarity around the new Mexican rules that has companies on edge.

“There is a reference price scheme, for example, where you have to post bonds if your imports are below an arbitrary reference price [floor], which will take extra time in terms of posting a bond and filling out paperwork,” he said. “We have heard some conflicting things about reference pricing. It is a shifting regulatory regime. Not only are these [rules] announced with very little notice, but implementation is done in a manner that is very unpredictable.”

Lamar said Mexico’s decision to pull back on tariff cuts it had planned to implement this year could affect about 80 tariff lines. He said the Mexican government was reportedly going to drop tariffs on the designated imports to 20 percent from 25 percent.

“It’s disappointing,” he said. “They were moving in the direction of trade liberalization but have now postponed it.”

Julia Hughes, president of the U.S. Fashion Industry Association, said there are more questions than answers about the new rules, which have created uncertainty for companies making goods in Mexico and exporting finished goods from around the world to the Mexican market.

“I think there is a lot of concern from companies about implementation and lack of transparency,” Hughes said. “Some elements are in effect now, but there hasn’t been much information provided.”

She said there are concerns about new registration requirements that could become “more of a barrier” to trade with Mexico.

Apparel and textile imports to the U.S. from Mexico in 2014 totaled $4.7 billion, up 2.7 percent compared with 2013, according to U.S. government data. Exports of apparel and textiles to Mexico from the U.S. totaled about $6.2 billion.

U.S. textile and apparel producers, who count Mexico as their largest export market, are also on alert.

Auggie Tantillo, president and chief executive officer of the National Council of Textile Organizations, said the lack of clarity has created apprehension.

“When you take an announcement of a new program and combine it with some of the significant concerns that were experienced through the Mexican [tax authority] audit system, there is a level of apprehension,” Tantillo said. “I think there has always been a shared level of concern about that [illegal and unfair trade] among the U.S. and Mexican industries. Obviously, whatever programs are being implemented to address that, we hope do not ensnare legitimately priced products coming from the U.S.”

Tantillo said his association has been told that the reference pricing requirements will not apply to NAFTA-qualifying input exports to Mexico. However, it could not be independently verified whether the Mexican government has made that exemption.

“We view that as important,” Tantillo said. “But we don’t just ship NAFTA-qualifying goods. We want to make sure that the goods and our relationships [with the Mexican industry] aren’t inadvertently damaged.”

Trade group officials have reached out to the U.S. government for assistance in getting more clarity about the new rules, and others have also tried to work directly with the Mexican industry and government officials. A Commerce Department spokesman said U.S. officials are continuing to monitor the new Mexican textile and apparel rules, but declined to comment further.

Mexican tax authority officials declined to comment.​

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