NCTO Pushes for a Stronger USMCA and Closure of Harmful Loopholes

The National Council of Organizations urged the Trump administration to extend and preserve the vital U.S.-Mexico-Canada Agreement (USMCA) and close harmful loopholes that have harmed the industry, at a U.S. Trade Representative’s (USTR) hearing on Wednesday.

NCTO and apparel and retail groups presented a positive assessment of USMCA’s textile and apparel rules and performance to date – along with a host of targeted recommendations for updating it – at the start of a three-day hearing on Wednesday which will inform the pact’s upcoming government review.

Industry officials highlighted the importance of maintaining the integrated textile and apparel coproduction chain, which accounts for $20 billion in two-way trade and represents the two largest markets for U.S. textile and supports hundreds of thousands of workers in the U.S. and region.

While NCTO outlined the government’s review of USMCA as an opportunity to make much-needed improvements to strengthen the textile and apparel rules and close loopholes, some apparel and retail groups urged the administration not to reopen or renegotiate USMCA, fearing changes to the existing rules of origin that the U.S. textile industry supports.

Two associations cited concerns about disrupting the stability of the integrated supply chain that is fundamental to the stability of Western Hemisphere sourcing and on which retailers and apparel importers depend.

There was consensus between NCTO and industry groups in opposition to any moves by the administration to break the trilateral agreement apart into two separate U.S. trade deals with Mexico and Canada.

Still, importing groups argued the USMCA is not perfect and reiterated long-standing positions and recommendations that would weaken the yarn forward rule of origin, including expanding the short supply list for finished goods not commercially available in the United States and cumulation between USCMA and other U.S. free trade agreements and preference programs.

Nearly 150 witnesses were slated to testify during the three days of hearings, representing a diverse range of stakeholders, from textiles and apparel to agricultural, steel, dairy and automotive groups, to think tanks, civil society, and business groups, on the impact the USMCA has had on U.S. businesses, workers and the economy.

During the tripartite government review slated for July 2026, the three countries must decide whether to let USMCA expire in another 10 years or to renew it for 16 years. If they do not agree to extend it, they can continue to meet annually to try to find an agreement, according to press reports. The review also allows the parties to propose changes to the deal. 

President Trump, whose first administration renegotiated NAFTA and renamed it USMCA said Wednesday that he could let USMCA expire or “work out another deal with Mexico and Canada.”

In addition, U.S. Trade Representative Ambassador Jamieson Greer told Politico in a podcast that aired today that President Trump could decide next year to withdraw from the USMCA. Greer also raised the idea of breaking up the trilateral trade agreement and negotiating separate deals with Canada and Mexico. Greer said in the podcast he talked with Trump about that possibility just this week.

Against this backdrop, NCTO and industry associations outlined their positions to the administration.

NCTO: Preserve USMCA, Maintain & Strengthen Textile Rules, and Close Loopholes

NCTO Vice President of Policy Katie White testified at the hearing on Wednesday, highlighting strong support for extending the trilateral trade deal while strengthening the textile rules of origin, increasing cooperation with Canada and Mexico to combat customs fraud, and closing loopholes that have long weakened the rules.

See NCTO’s written submission here.

“Textile and apparel trade between the United States and its USMCA partners totaled $20 billion in 2024, compared to just $7 billion in 1993, the year prior to NAFTA’s entry into force. U.S. textile and apparel exports to Canada and Mexico—our industry’s two largest export markets—accounted for $12.3 billion of this trade and more than 53 percent of total textile and apparel exports,” White said in her testimony.

Maintaining the yarn-forward rule of origin, “viewed as a gold standard by our industry,” is also imperative she noted, adding the rule provides significant economic benefits to U.S. textile manufacturers and has driven regional integration and the robust trade that exists between USMCA countries today.

White commended the administration for exempting USMCA qualifying trade from reciprocal tariffs and urged the same treatment for originating products under the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR), given the vital textile and apparel coproduction relationship between the United States and these countries, which sustains U.S. jobs

White recommended the following improvements to USMCA to help prevent erosion and boost domestic textile manufacturing:

• Limited exceptions to the yarn-forward rule when U.S. producers source inputs not readily available within the bloc, such as acrylic, to enhance the competitiveness of U.S. manufacturers.
• Tighten loopholes in the yarn-forward rule of origin. Targeted reforms should ensure that exceptions—like tariff preference levels (TPLs) and legacy assembly-only rules—do not advantage producers using non-USMCA components that compete directly with U.S. manufacturers but maintain needed flexibility for acrylic and other inputs not available.
• Crack down on customs fraud, including deeper enforcement cooperation with Canada and Mexico, public sharing of trade data, and stronger penalties for repeat violators—an acknowledgment that current enforcement tools are insufficient and allow third-country materials, including from China, to seep into North American supply chains.
• Address China’s predatory practices. The U.S. should push Canada and Mexico to adopt forced labor rules similar to the Uyghur Forced Labor Prevention Act and consider whether their participation in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) undermines regional integration.

Apparel, Footwear and Retail Groups Advocate for Extending USMCA & Recommend Changes

While two associations urged the administration to refrain from reopening and renegotiating USCMA, all of the groups reiterated their support for changes that would weaken the agreement’s textile and apparel rules of origin.

Beth Hughes, vice president of trade and customs policy, for the American Apparel & Footwear Association (AAFA), outlined three key points in her testimony at the hearing.

“First, we believe USMCA duty-free access should be preserved for U.S. brands and retailers with the certainty they need to operate efficiently throughout the supply chain,” Hughes said. “Maintaining duty-free access for USMCA qualifying goods and avoiding additional IEEPA tariffs is critical to ensuring the region remains competitive in a global market, particularly relative to Asia.”

Hughes added that duty-free access sends a “strong demand signal” to the U.S. textile industry, which sent 53 percent of its exports to the USMCA region.

“Second, we believe the USMCA rules of origin are working extremely well and we would caution against any changes to make them more restrictive,” Hughes stated.

She noted that USMCA utilization rates remain high. In 2024, 85 percent of U.S. apparel imports from Mexico and 92 percent from Canada qualified for the agreement’s duty-free benefits, Hughes said.

“This demonstrates that most goods meet the rules of origins providing businesses with clear, predictable and certain trade conditions that are essential for planning investments and long-term competitiveness.”

But Hughes argued USMCA is not perfect and recommended two key changes including:  modeling the USMCA short supply mechanisms after the CAFTA-DR short supply mechanism and allowing for cumulation between USCMA and other U.S. free trade agreements and preference programs.

Julia Hughes, president of the U.S. Fashion Industry Association (USFIA), also urged an extension of USMCA and no changes to the current USMCA textile and apparel rules of origin.

“While USFIA has long argued that easier-to-utilize apparel rules of origin in USMCA would foster more apparel production in the region, we recommend to the administration that there are no changes in USMCA’s clear and predictable rules of origin for textiles and apparel,” Hughes said.

She also called for maintaining duty-free access for USMCA-qualifying goods and avoiding additional tariffs including under Section 232.

“The tremendous flow of yarn, fabric, apparel, and home textiles in North American products represents employment in the U.S., Canada and Mexico,” Hughes said. “Any efforts to make it more difficult to source apparel from USMCA partners, will … encourage sourcing from other parts of the world and reduce employment in the North American apparel supply chain.”

Thomas Crockett, senior vice president of government relations, for the Footwear Distributors and Retailers of America (FDRA) urged the administration to loosen the regional value content rule of origin for footwear, which currently stands at 55 percent.

Crockett said Mexico continues to serve as an important sourcing location for footwear, accounting for some 22 million pairs of imports into the United States annually. Despite advantages footwear companies see to sourcing in Mexico, he argued the USMCA is “not fully realized when it comes to footwear” because of what he called “strict rules of origin.”

“Similarly, if U.S. footwear manufacturer want to source an upper from Mexico duty free using U.S. production, the upper from Mexico would have to meet a strict and complex rules,” Crockett argued. “Lowering this threshold would help shift some footwear sourcing to the Western Hemisphere and increase trade between the US and Mexico.”

Crockett also called for stepped up enforcement and cooperation between the U.S. and Mexico to combat counterfeit goods.

Sung Chang, vice president, international trade for the Retail Industry Leaders Association (RILA) said, “As the administration looks to strengthen North American competitiveness, we believe a 16-year of the agreement is critical, which means keeping USMCA compliant goods exempt from reciprocal tariffs. This means considering our interconnected relationships with Mexico and Canada as administration considers additional Section 232 action.”

Chang said it is imperative to maintain “clear and predictable rules of origin” under USMCA.

“We recognize the administration’s goal to address the incorporation of intermediate goods from China into North American supply chains. We know additional cooperation is warranted. But we believe revising the rule of origin will create unintended friction and undermine supply chain integration,” he said.

He also urged the exemption from tariffs of “semi-finished goods and raw materials not available in North America.

“Retailers continue to diversify supply chains, but some products cannot be sourced within this continent. This is why we value provisions that allow use of non-originating USMCA inputs when necessary. This adaptability has been critical for our members,” he noted.

Finally, Chang argued for cumulation among U.S. free trade partner countries, including CAFTA-DR and cooperation in addressing “long-standing” customs issues with Mexico including lack of transparency and enforcement.”

U.S. Trade Officials Pose Questions to NCTO and Industry Groups

“In your submission you talk about the critical importance of USMCA and CAFTA-DR for the U.S. apparel textile industry. Can you say more about why those two agreements are important and how they relate to each other?” an official asked White.

“Seventy percent of U.S. textile exports go to the Western Hemisphere. These trade agreements are critical to not only U.S. jobs, but they are really fundamental to the livelihood of our industry. If these agreements did not exist, our domestic industries would be decimated,” White said.

“For us, it really imperative the administration preserve both these agreements and take the opportunity to strengthen them where possible so that the benefits are going to domestic and regional manufacturers,” she added.

Julia Hughes was asked to explain why USFIA characterizes the rules in USMCA as “onerous” and claims they have discouraged some companies from moving apparel production to North America.

“Could you elaborate on the challenges your member companies have faced in moving apparel production to the USMCA region and what action would you recommend the U.S. government take to encourage companies to increase their U.S. and North American sourcing?” the trade official asked.

Hughes argued the yarn forward rule is “difficult to comply with” but reiterated that USFIA, which represents several well-known retailers, remain committed to use American textile yarn and fabric inputs for manufacturing apparel in the Western Hemisphere.

“The rules of origin are very tough. That is part of why I highlighted in today’s testimony that normally we would be coming here telling you how difficult the yarn forward rule is to our members and how we want to change that rule. That has been a consistent policy for our association. But in the case of USMCA renewal, we recognize that time will be short and we really need predictability, particularly in uncertain times for sourcing decision when strategies are being made.”

 In a separate question, a trade official asked Beth Hughes of AAFA to elaborate on her association’s description of USMCA as “clear rules of origin and strong enforcement ensure that companies can plan production and sourcing distribution with confidence.”

“How does the USMCA currently facilitate that and what improvements would you suggest to enhance those processes?” the official asked.

“USMCA has been working [since] NAFTA for decades. The supply chain is there. U.S. cotton goes into U.S. textiles, goes into U.S. apparel back-and-forth sometimes several times. That is a good thing about the agreement although there are some things that could be changed if there was the opportunity. However, we are not interested in reopening or renegotiating the agreement,” Hughes said.

Responding to FDRA’s recommended change to the footwear rules of origin, a trade official asked Crockett to detail the positive and negative impacts the current footwear rules have had.

“We are obviously different than what [everyone] else has said on rules of origin. For footwear, it is worth exploring that and worth looking at that. If you look at …the consistent shift over the past decade of companies looking to move out of China,” Crockett said.

He noted footwear imports from China to the U.S. were nearly 90 percent in 2009 and have fallen to 58 percent in 2024.

“We are not seeing this rush to the Western Hemisphere, particularly to Mexico,” he added, he said citing high production costs quality issues and delays.

“It is important to adjust that threshold. It is currently 55 percent. We are not saying eliminate it, but bringing it down some would create flexibility for brands and help drive some of that production back to Western Hemisphere, back to Mexico and U.S.

Chang from RILA was asked to elaborate on why retailers “need flexibility to procure non-USMCA origination inputs.”

“In your view how can that adaptability best be achieved? What pros and cons are associated with those actions,” the trade official asked Chang.

In his response, Change said COVID “underscored” the significant importance of diversification out of China” and the need for more nearshoring to the Western Hemisphere.

But he added nearshoring is “not possible for all products across all sectors.”

“Flexibility in USMCA, for example single transformation rules, short supply TPLs—those tools are there for products we have not been able to reshore or nearshore into the Western Hemisphere,” Chang said, adding that RILA supports including cumulation as a potential change to the deal.

He said RILA supports keeping the USMCA in tact as a trilateral trade deal.

“On trilateralism, a lot of RILA member have stores that operate in all three countries, and they have overlapping functions,” Chang said. “Some members have joint ventures and many members source from both Canada and Mexico. What we have under USMCA has worked. All rules of origins, flexibilities, and the CAFTA-DR [short supply] rules mentioned; we want those preserved to best serve the American consumer.”

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