MEXICO CITY Mexico’s textiles and apparel sector has agreed to a U.S. demand that the North American Free Trade Agreement undergo a five-year review in a possible exchange for allowing the Tariff Preference Level to source key clothing feedstocks to remain in place, top executives and observers said after the fifth negotiating round finished recently.

“We have agreed to review the treaty every five years hoping that there will be a compromise on TPL,” said José González, president of textiles lobby Canaintex’s Puebla-Tlaxcala chapter. “A revision could be good for the treaty, to look at what works well, what can be corrected, refined, etc. It has to be a win-win treaty.”

González, who also owns the 180-strong La Poblana textiles factory, said the U.S., Canada and Mexico — which make up the 23-year free-trade accord — “have advanced a lot” in the more technical negotiations. However, he acknowledged many challenges remain, especially related to the automobile industry, which the U.S. wants to significantly upend to its favor and where significant disagreements remain.

The survival of NAFTA — which helps Mexico and the U.S. trade some $11 billion annually — is being closely watched in Puebla Sate, the country’s largest textiles-making hub by volume and home to many cotton and polyester thread makers, as well as producers of woven, knitted and other fashion fabrics.

Textile exports are increasing this year, but rising contraband and Asian exports bringing undervalued fabrics with an illegal “NAFTA” stamp are pummeling the industry, González claimed. While Mexico agreed to the five-year examination, it rejected the U.S.’s “sunset” clause that the accord is automatically canceled if the parties can’t agree to extend it, said an observer who is closely following the negotiations.

“We will revise and update every five years, but we are not going to accept an automatic termination because that is not good for investments and would hurt the industry,” he said.

The U.S. has reportedly softened its sunset stance but continues to demand that the TPL is terminated under claims that the provision allowing Mexican and Canadian firms to import scarce raw materials from outside NAFTA hurts American textile makers.

Meanwhile, Canada has agreed to the same compromises as Mexico as it also wants the TPL to stay in the treaty, the observer added.

Canaive’s President Samuel Gershevich declined to comment on the talks, but said Mexico is confident that the ongoing negotiations, scheduled to resume in Montreal in late January, will bring more gains. Nevertheless, the stakes are becoming increasingly high amid reports that the broader talks are stalled and could lead to the deal’s cancellation, hurting Mexico most.

BMI Research warned “a lack of progress in negotiations, increasingly stringent demands from the U.S. and the tight timeline set by negotiators, make it increasingly likely that NAFTA will collapse.”

It said the latest rounds of negotiations did little to assuage fears that the accord will end, adding that the likelihood of a deal being reached by the first quarter of 2018 is diminishing.

Meanwhile, apparel makers in Puebla — also a major supplier of denim and cotton shirts to the U.S. — are jittery about the deal’s possible termination.

“If we lose NAFTA, we are going to see denim and T-shirt taxes go up to 32 percent and 16 percent [in line with pre-NAFTA rates] and we will have to pass that onto the final consumer,” said Gustavo Bojalil, president of Canaive’s Puebla division. “We still don’t know what is going to happen, but we are waiting.”