The elimination of US tariffs under the North American Free Trade Agreement (NAFTA) on imports of certain footwear articles from Mexico will likely have little or no adverse effect on affected domestic industries, workers in these industries, or on consumers of the affected goods. This conclusion was reached by the US International Trade Commission (ITC) in its report ‘NAFTA: Probable Economic Effect of Accelerated Tariff Elimination’.

The ITC, an independent, non-partisan, fact-finding federal agency, was asked to provide advice to the US President and the United States Trade Representative (USTR) on the probable economic effect of the elimination of US tariffs under the NAFTA for selected footwear articles from Mexico. They were asked to investigate the impact on domestic industries producing like or directly competitive articles, on workers in these industries, and on consumers of the affected goods.

The footwear articles are classifiable under 21 rate lines in the Harmonized Tariff Schedule of the United States (HTS). The report said that for 18 of the 21 rate lines under consideration, the NAFTA tariffs for Mexico are already low and are scheduled to be phased out on January 1, 2003. Furthermore, total US imports from Mexico are negligible under these rate lines, which provide for footwear with rubber or plastic outer soles and uppers, footwear with leather outer soles and textile uppers, and formed footwear uppers. The NAFTA tariffs for Mexico under the remaining three rate lines, which provide for footwear with rubber or plastic outer soles and textile uppers and are believed to consist almost entirely of house slippers, are scheduled to be phased out completely in 2008. However, most imports from Mexico under these provisions already enter the United States at reduced duties, with US importers allowed to receive a partial duty exemption for articles assembled abroad comprising US components in whole or in part.

The report also concluded that the expected duty savings resulting from the proposed tariff elimination will likely enhance the competitiveness of US firms that assemble the footwear in Mexico from US components. The savings might spur US firms to move more operations to Mexico and, as a result of provisions in the newly enacted United States-Caribbean Basin Trade Partnership Act, to the Caribbean Basin as well. It is likely that a significant portion of the expected duty savings will be passed on to US consumers.

Imports already supply at least 90% of the overall US footwear market by quantity. Most product substitution that could occur as a result of any tariff elimination is likely to occur between footwear articles made in Mexico and those made in China, which accounts for the majority of all the footwear sold in the US market by quantity, and other countries. Domestic footwear articles compete mostly on non-price factors such as brand names, product quality and differentiation, and support services.