PUBLICATIONS & REPORTS

Contents Introduction

The rules of origin pertaining to preferential trade in textiles and apparel in the North American Free Trade Agreement (NAFTA) are particularly restrictive. Coupled with the elimination of internal tariffs and quotas, a large margin of preference is conferred upon NAFTA producers of textiles and apparel relative to those in East Asia. The large price wedge resulting from the preferential reduction in internal trade barriers between members and non-members is expected to divert trade in textiles and apparel from nonmembers to members of NAFTA. Asian producers of textiles and wearing apparel are most likely to suffer from trade diversion effects of NAFTA. Trade data for the period since implementation of NAFTA are compared with the period before the agreement as a means of establishing whether or not trade diversion may have occurred. An ex post evaluation of NAFTA imports of textiles and apparel compared with imports from a control sector with less restrictive rules of origin is undertaken. This heuristic study seeks to provide evidence that restrictive rules of origin are indeed diverting substantial amounts of trade in textiles and apparel from low-cost producers in East Asia to producers within NAFTA.