December 20, 2018
Secretary
United States International Trade Commission
500 E Street, S.W.
Washington, D.C. 20436
Re: United States-Mexico-Canada Agreement: Likely Impact on U.S. Economy and on Specific Industry Sectors (Investigation No. TPA-105-003)
Secretary,
On behalf of the National Cotton Council of America (NCC), thank you for the opportunity to submit these comments concerning the likely impact of the United States-Mexico-Canada Agreement (USMCA). The USMCA will provide significant economic and competitive benefits to the U.S. cotton industry, its export potential, and to those employed in its sector.
The NCC serves as the central organization of the U.S. cotton industry. Its members include thousands of producers, ginners, cottonseed processors and sellers, merchants, marketing cooperatives, warehousers, and textile manufacturers. The majority of the industry is concentrated in seventeen states across the southern half of the country, from the Pacific Ocean to the Atlantic. Downstream manufacturers of cotton apparel and home furnishings are located in nearly every state. The annual U.S. cotton crop is valued at more than $6 billion at the farm gate. Overall, farms and businesses directly involved in the production, distribution and processing of cotton employ approximately 125,000 workers and generate direct annual revenue of more than $21 billion. Including the indirect economic impact, the U.S. cotton sector supports the employment of more than 280,000 people with economic activity in excess of $95 billion.
A summary of these comments follows my signature.
Overview
The U.S. cotton industry is heavily dependent on access to export markets. On average, roughly 75% of U.S. cotton production is sold to foreign buyers as raw cotton fiber, while another 20-25% is exported as textile products, whether in the form of yarn, thread, or fabric. In other words, approximately 95% of U.S. cotton is exported in some form. Thus, access to dependable foreign markets is essential to the competitiveness of the U.S. cotton industry and to stable employment within the sector.
Since its implementation in 1994, the North American Free Trade Agreement (NAFTA) has resulted in significant shifts and adjustments to the U.S. textile industry in order to compete and remain competitive. NAFTA has ensured dependable market access for exports of U.S. cotton, and led to the development of an integrated regional supply chain for textile yarn and fabric manufacturers. In turn, the development of a regional supply chain has stabilized employment and encouraged investment throughout the entire cotton and textile sector.
Over the past two decades, U.S. cotton producers and textile manufacturers have witnessed rising production and competition from China and India, which are now the two largest producers of raw cotton. China is also the largest consumer of cotton and largest producer and consumer of manmade textile fibers, principally polyester, that are substitutable for cotton fiber. In recent years, the U.S. textile industry has also faced a surge in competition from textile industries in Vietnam, Bangladesh and Indonesia.
The development of an integrated North American textile and apparel supply chain through NAFTA has helped enhance the competitiveness of the U.S. cotton and textile segments and ensure stable employment.
A quick look at the scale of trade flows with Mexico and Canada underscores the critical importance of NAFTA to the U.S. industry. Overall, the North American market accounted for approximately $2 billion in annual U.S. exports of raw cotton fiber and cotton textile products during the most recent three-year period, from 2015-2017.
Mexico is the fifth-largest foreign destination for U.S. raw cotton, annually purchasing almost a million bales, which is about 8% of total U.S. cotton exports. Mexico also ranks second among U.S. cotton textile and apparel export customers, accounting for 15% of total U.S. exports. Canada accounts for another 6% of U.S. cotton and textile exports, making it the fourth-largest market. The U.S. market accounts for over $2 billion annually in cotton textile imports from Mexico and Canada. In 2017, trade in textile and apparel products between the United States, Canada, and Mexico was approximately $20 billion, nearly triple the level of annual trade prior to NAFTA’s implementation.
Specific Provisions of the USMCA That Will Benefit the U.S. Cotton Industry
Overall, the USMCA would preserve the current benefits of NAFTA and encourage continued regional integration of the cotton and textile supply chain. It would also enhance regulatory coordination on sanitary and phytosanitary (SPS) disciplines and encourage greater cooperation in biotechnology, including gene editing. Finally, it would improve the terms of trade for U.S. textile manufacturers.
Perhaps the most important feature of the USMCA is the preservation of NAFTA’s market access benefits for U.S. cotton and cotton products. During the USMCA’s negotiation, NCC – along with other U.S. agricultural organizations – advocated a “do no harm” approach to market access for U.S. farm exports. We are gratified that USMCA retains NAFTA’s market access benefits.
The new SPS chapter would enhance regulatory transparency and encourage the compatibility of science-based measures. The advancement of transparent, non-discriminatory, science-based SPS and biotechnology measures in foreign markets is a primary negotiating objective of the U.S. agriculture community. The inclusion of these provisions in the USMCA represents a significant step forward.
Importantly, USMCA establishes a new, separate textile chapter, reflecting the scale and significance of regional textile and apparel trade, and incorporates NAFTA’s yarn-forward rule of origin. Together with the preservation of market access for U.S. cotton exports, the incorporation of NAFTA’s yarn-forward rule of origin represents another major benefit of the USMCA. Under NAFTA, the yarn-forward rule of origin has played a central role in the development of an integrated regional supply chain. It has also helped ensure that the benefits of growing trade accrued to manufacturers within the region.
The textile chapter would also strengthen customs enforcement, which is particularly important to the sector, given that U.S. imports in the sector have annually accounted for approximately 40% of all U.S. duty revenue.
The USMCA also offers new benefits corresponding to the use of USCMA-origin sewing thread, pocketing, narrow elastics, and coated fabrics for certain end items. According to the National Council of Textile Organizations, the annual value of the regional market for sewing thread in apparel applications is approximately $250 million, while the annual market for pocketing is worth $70 million.
Finally, U.S. textile manufacturers would benefit from the USMCA’s closure of a NAFTA loophole that exempts purchases by the U.S. Department of Homeland Security’s Transportation Security Administration from the Buy American requirements known as the Kissell Amendment. In FY2017, TSA purchased approximately $34 million worth of textile and apparel products. Eliminating NAFTA’s loophole would thus provide significant benefits to manufacturers of U.S.-origin textile and apparel products.
Conclusion
In short, the U.S. cotton industry anticipates continued growth in trade and employment through the implementation of the USMCA. The preservation of current market access for U.S. cotton exports and the enhancement of regulatory cooperation are important benefits of the agreement. The U.S. industry would also benefit from the USMCA’s establishment of a separate textile chapter, including the incorporation of the yarn-forward rule of origin, as well as further protections for U.S. textile manufacturers. Thank you again for the opportunity to submit these comments concerning the likely impact of the USMCA. Please do not hesitate to contact me should you need additional information.
Sincerely,
Gary M. Adams
President and CEO
Summary of Written Submission
Since its implementation in 1994, the North American Free Trade Agreement (NAFTA) has resulted in significant shifts and adjustments to the U.S. textile industry in order to compete and remain competitive. NAFTA has ensured dependable market access for exports of U.S. cotton, and led to the development of an integrated regional supply chain for textile yarn and fabric manufacturers, thereby stabilizing employment and encouraging investment throughout the sector.
The North American market accounted for approximately $2 billion in annual U.S. exports of raw cotton fiber and cotton textile products during the most recent three-year period, from 2015-2017. Mexico is the fifth-largest foreign destination for U.S. raw cotton, annually purchasing about 8% of total U.S. cotton exports. Mexico also ranks second among U.S. cotton textile and apparel export customers, accounting for 15% of total U.S. exports. Canada accounts for 6% of U.S. cotton and textile exports, making it the fourth-largest market. In 2017, trade in textile and apparel products between the NAFTA markets was approximately $20 billion, nearly triple the level of annual pre-NAFTA trade.
Overall, the USMCA would preserve the current benefits of NAFTA and encourage continued regional integration of the cotton and textile supply chain. It would also enhance regulatory coordination on sanitary and phytosanitary (SPS) disciplines and encourage greater cooperation in biotechnology, including gene editing. Finally, it would improve the terms of trade for U.S. textile manufacturers.
A major benefit of the USMCA is the preservation of export market access for U.S. cotton and cotton products. The new SPS chapter would enhance regulatory transparency and encourage the compatibility of science-based measures. The inclusion of the SPS and biotechnology-related provisions in the USMCA represents a significant step forward.
Importantly, USMCA establishes a new, separate textile chapter and incorporates NAFTA’s yarn-forward rule of origin. Together with the preservation of market access for U.S. cotton exports, the incorporation of NAFTA’s yarn-forward rule of origin represents another major benefit of the USMCA. Under NAFTA, the yarn-forward rule of origin has played a central role in the development of an integrated regional supply chain. It has also helped ensure that the benefits of growing trade accrued to manufacturers within the region.
The textile chapter would strengthen customs enforcement. The USMCA also offers new benefits corresponding to the use of USCMA-origin sewing thread, pocketing, narrow elastics, and coated fabrics for certain end items. The annual regional market value for sewing thread in apparel applications is approximately $250 million, while the annual market for pocketing is worth $70 million.
Finally, U.S. textile manufacturers would benefit from the USMCA’s closure of a NAFTA loophole that exempts purchases by the U.S. Department of Homeland Security’s Transportation Security Administration from the Buy American requirements known as the Kissell Amendment. In FY2017, TSA purchased approximately $34 million worth of textile and apparel products. Eliminating NAFTA’s loophole would thus provide significant benefits to manufacturers of U.S.-origin textile and apparel products.