Not good, not bad.
That is the way Canadian textiles and apparel executives are qualifying the United States-Mexico-Canada Agreement, adding that the deal to replace the North American Free Trade Agreement is expected to have little impact on the U.S.’ northern neighbor.
“We are only happier because the sky has not fallen,” said Bob Kirke, executive director of the Canadian Apparel Federation, when asked if his industry will be better off with the USMCA, which Canada agreed to join at the 11th hour on Sept. 30. “It’s not better. It is just as good as before.”
Apparel executives said the trilateral agreement — pending U.S. Congress approval — mainly pleased President Trump’s constituents in the U.S. dairy industry, which finally gained access to the Canadian market, while the U.S.’ last-minute concession to waive Canadian auto tariffs “was cosmetic.”
“We basically did all of this to placate a bunch of dairy farmers in Wisconsin?” charged one Canadian apparel executive, requesting anonymity. “These are the only people who really benefit, not the apparel sector.”
Perhaps the biggest win for Canada in the thorny negotiations to modernize NAFTA was a U.S. compromise to allow it to largely keep its tariff preference levels (TPLs) to import scarce raw materials to make for-U.S. clothing.
The TPLs were a major bone of contention during the 18-month negotiations as the U.S. demanded the provisions be removed.
Ultimately, however, the USMCA curbed Canadian wool suit makers’ TPL to 4 million SMEs from 5 million SMEs. It also halves cotton and man-made fiber makers’ TPL to 40 million SMEs from 80 million SMEs. However, the sectors’ utilization or demand rates are below those thresholds so they won’t be negatively impacted, according to Kirke.
“In a perfect world, we would have preferred our TPLs to remain nice and big but I don’t see a downside with the way these changes were negotiated,” Kirke said, adding that Canadian makers still enjoy flexibilities to ship clothing to U.S customers.
Washington also agreed to remove so-called TPL merchandise processing fees impacting over $500 million worth of merchandise, according to Kirke.
But while Canada was allowed to maintain most of its TPLs, the U.S.’ equivalent benefit was doubled to 20 million SMEs from 10 million SMES, giving American labels a strong advantage.
“In the past, designer brands in New York or L.A. shipping to Canada would run out of their TPL immediately and any further shipments would have to pay an 18 percent duty,” Kirke said. “Now we have a more reciprocal TPL.”
USMCA also helped major Canadian players such as mattress fabric maker and tailored suits firm Culp and Peerless Clothing, respectively, remain competitive.
Culp is the top beneficiary of Canada’s TPL and had fought hard — alongside Mexico — to retain the provisions against fierce U.S. opposition.
Meanwhile, Kirke said the U.S.’ escalating trade war with China is set to boost U.S. exports 15 percent to 20 percent this year as some American brands start moving West to avoid Trump’s 25 percent duty on Chinese goods, set to start next January.
“Apparel exports are up 15 percent so far this year,” he said. “U.S. brands are starting to relocate some apparel production out of China and as the new duties kick in, we could even see a 20 percent increase.”