Op-Ed: What Happens if NAFTA Negotiations Don’t Reach a New Deal?

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Change, it would seem, is in the air. Change to the North American Free Trade Agreement to be more precise.

The question a lot of textile, apparel and footwear executives are asking themselves these days is: What’s the one change to NAFTA I would want?

Current political dynamics notwithstanding, that kind of question would make sense. After all, NAFTA is more than 20 years old. It was negotiated at a time when quotas governed the apparel industry and when there were few free trade agreements. As NAFTA was being implemented, the World Trade Organization (WTO) was still being negotiated and the global supply chains that fuel the apparel and footwear industry were very different.

Since the ink dried on NAFTA, there has been a global explosion of Free Trade Agreements (FTAs). The WTO has entered into force and now comprises 164 countries, including China and Vietnam. Mexico’s market share has grown, shrunk and then grown again. The sourcing and retail environment has completely changed with the development of e-commerce, the establishment of new logistics models and deployment of a dizzying array of cool technologies.

NAFTA, on the other hand, looks pretty much the same as it did when it entered into force in 1994.

As industry executives imagine what NAFTA 2.0 could look like, many ideas relating to rules of origin, customs, and e-commerce have emerged. But what’s missing from the debate so far is a clear articulation of what happens if NAFTA negotiations fail to reach a new deal on the agreement. Also missing is clear recognition of the significant benefits and jobs dependent upon the NAFTA textile and apparel supply chain.

President Trump took office declaring NAFTA to be the worst trade deal ever. Such a description may be better reserved for Boston’s decision to trade Babe Ruth to the Yankees or when the Colts traded John Elway to the Broncos. It certainly is not right for NAFTA.

Currently, NAFTA supports hundreds of thousands of textile, apparel and footwear jobs in the United States. Approximately one quarter of our textile exports go the NAFTA partners, while trilateral trade supports manufacturing, logistics and retail activities in all 50 states. A pair of jeans made in Mexico today contains so much U.S. content that the label “Made in Mexico” tells only a small part of the story. Even using the metric the Trump Administration prefers to measure trade deals, NAFTA is running a trade surplus in the textile and apparel industry. Additionally, the hundreds of thousands of Mexicans employed in maquiladoras throughout Mexico stabilize that country and its economy.

These textile, apparel and footwear supply chains—and the hundreds of thousands of jobs they support—are much better with NAFTA than without it.

U.S. threats to withdraw from NAFTA may seem like a good ploy to maximize negotiating leverage, but in reality, the threats induce damaging business uncertainty that disrupts highly efficient supply chains that today benefit companies, workers, consumers and communities across the country.

Trump has signaled that the U.S.-Canada trade relationship is only in need of “tweaking.” What those tweaks entail remains to be seen. But it suggests that a trade partnership with our neighbor to the North will be preserved. Such assurances are helpful but they should be extended to the U.S./Mexico partnership to be most effective in creating a conducive negotiating environment for NAFTA 2.0 to keep the trilateral relationship healthy.

Likewise, if we are successful in forging a NAFTA 2.0, we should also make sure the new agreement is seamlessly implemented across North America. An erratic implementation can be highly disruptive and could adversely affect U.S. jobs as well.

The textile, apparel and footwear industries need access to global suppliers and global customers to stay competitive, and free trade agreements like NAFTA are key to that imperative. But the industry also needs predictability and the assurance that compliant supply chains—and the American jobs they support—won’t be penalized to fix a problem that doesn’t exist.

Let’s acknowledge and embrace what’s worked well, and sustain and build upon it.

From cotton farmer to retailer, and all the supply chain partners in between, there is a core recognition that NAFTA supports jobs and sustains communities. NAFTA may indeed be in need of a change, but before we go down that road, let’s first clarify what we are prepared to do if change isn’t possible.

 

Stephen Lamar is executive vice president at the American Apparel & Footwear Association (AAFA). Steve is responsible for the design and execution of AAFA lobbying strategies on a series of issues covering trade, supply chains, and brand protection. In these roles, Steve also advises AAFA member companies on legislation and regulatory policies affecting the clothing and footwear industries. Steve is also president of the Washington International Trade Association (WITA), a non-profit, non-partisan organization dedicated to providing a neutral forum for discussion of international trade policy and related issues.


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