	Introduction

On May 18, 2017, the Office of the U.S. Trade Representative (USTR) formally notified Congress of the Trump Administration's intent to renegotiate the North American Free Trade Agreement (NAFTA). The Trump Administration has stated that its objectives for renegotiation of NAFTA include maintaining duty-free access to the Mexican and Canadian markets for U.S. textile and apparel products and improving competitive opportunities for U.S. textiles and apparel, while taking into account U.S. import sensitivities. Formal talks with Canada and Mexico began in August 2017. The effects of NAFTA with respect to textiles and apparel, however, are not straightforward, and the drop in domestic textile and apparel production and jobs cannot be blamed solely on the agreement. Last year, the United States registered a bilateral trade surplus in yarns and fabrics with both NAFTA partners of $4.1 billion and a surplus of more than $720 million in made-up textile products. Although U.S. textile products can be more expensive than those from other countries, apparel producers in Canada and Mexico use U.S.-made textiles in products that are exported to the United States because the goods may enter the United States free of tariffs. The United States had a trade surplus in apparel products with Canada of $1.4 billion and a trade deficit with Mexico of $2.7 billion last year. Tariffs on textile and apparel imports vary considerably, but major textile- and apparel-producing countries face average U.S. tariff rates of 7.9% for textiles and 11.6% for clothing. Rates on particular products may be as high as 32% (see Appendix C ). Still, the most significant competitive challenge for textile and apparel production in North America has come from outside the region, specifically China and Vietnam. Canada and Mexico

Within the NAFTA supply chain, the United States typically exports textiles to Mexico or Canada, which turn U.S.-made yarns and fabrics into apparel, home furnishings, or other industrial textiles for sale in the U.S. market. China, which provided more than a third of total U.S. garment imports, was the top supplier of apparel to the United States, with U.S. imports registering at $29 billion in 2016, and it led in U.S. imports in the yarn, fabric, and made-up textile categories. The U.S. textile industry generally wants to ensure that textiles and apparel are chiefly manufactured within the NAFTA region. Apparel brands and retailers say this requirement reduces their sourcing and manufacturing flexibility. Yarn Forward . NAFTA was the first FTA to include the yarn-forward rule of origin. Mexico and Canada reportedly oppose the elimination of the NAFTA TPL program. Conclusion

As the NAFTA renegotiations progress, there are at least three possible outcomes: (1) no change to the textile and apparel provisions in NAFTA; (2) adjustments to NAFTA, such as changes to rules of origin; or (3) full U.S. withdrawal from NAFTA.
When the North American Free Trade Agreement (NAFTA) was negotiated more than two decades ago, textiles and apparel were among the industrial sectors most sensitive to the agreement's terms. NAFTA, which was implemented on January 1, 1994, has encouraged the integration of textile and apparel production in the United States, Canada, and Mexico. For example, under NAFTA's "yarn-forward" rule of origin, textiles and apparel benefit from tariff-free treatment in all three countries if the production of yarn, fabric, and apparel, with some exceptions, is done within North America.
The United States maintains a bilateral trade surplus in yarns and fabrics with its NAFTA partners. In 2016, the United States had a $4.1 billion surplus in yarns and fabrics and a positive balance of around $720 million in made-up textile products (such as home textiles and furnishings) with Canada and Mexico. U.S. exports of yarns and fabrics shipped to Mexico and Canada were valued at close to $6 billion last year. In apparel, the United States had a trade surplus with Canada of $1.4 billion and a trade deficit with Mexico of $2.7 billion in 2016.
On May 18, 2017, the Trump Administration notified Congress of its intent to renegotiate the agreement. In July 2017, the Administration announced specific goals for textiles and apparel among its renegotiating objectives, which include improving competitive opportunities for U.S. textile and apparel products, but also taking into account U.S. import sensitivities. Also germane to textiles and apparel are several other renegotiating objectives, such as enhancing customs enforcement to prevent unlawful transshipment of these goods from outside the region and ensuring that requirements for use of domestic textiles and apparel in U.S. government purchases primarily benefit producers located in the United States.
NAFTA renegotiation started in August 2017. There is widespread support for continuation of the agreement among U.S. textile and apparel producers, although there are significant differences of opinion with respect to certain provisions. In particular, U.S. textile manufacturers generally favor eliminating all exceptions to NAFTA's yarn-forward rule, whereas U.S. retailers and apparel groups oppose tightening the rule.
If the United States were to exit NAFTA, imports of textiles from Mexico and Canada would face U.S. tariffs as high as 20%, and imports of apparel would have tariff rates of up to 32%. U.S. exports of textiles and apparel could face higher tariff rates entering Canada and Mexico. One possibility is that U.S. withdrawal from NAFTA could lead U.S. retailers and apparel brands to source more of their goods from Asia, which could reduce demand for U.S.-made yarns and fabrics within the NAFTA region.