Trade Deal Opens Doors for Manufacturers
On apparel trade, Mexico stands to gain more than the US from NAFTA, while the loser may be Asia
IF the North American Free Trade Agreement (NAFTA) is ratified, United States consumers are likely to see "made in Mexico" on more of their clothing and fewer labels from Asia.
But some US apparel manufacturers worry that the NAFTA will accelerate the long-term trend of apparel business moving to lower-wage nations.
"It will probably be one of the last nails in the coffin for the apparel industry" in the US, says Gene Laudon, president and owner of A & A Manufacturing Company, a Fall River, Mass., sportswear producer.
"It's just labor costs versus labor costs," Mr. Laudon explains, citing the gap between the $1.50 an hour wages of Mexican apparel workers and the $7 and up that he pays his workers. Despite its struggeles, the US apparel industry employs 1 million people.
The trade agreement would not hurt US apparelmakers so much as it would shift production from Southeast Asia to North America, says William Cline, a textile expert with the Institute for International Economics in Washington.
Such a deal would also benefit US consumers, Mr. Cline says, because apparel sewn in Mexico from North American-made yarn would be freed from tariffs and thus cost less. The current US system of quotas and duties, for example, adds about 28 percent to textile import costs and 56 percent to apparel, according to Cline's research. Mexico and the Caribbean enjoy easier terms when they use US-made fabric.
Meanwhile, as Mexico brings down its own tariffs, US apparelmakers might increase their exports to Mexico from $242 million to $272 million, according to a KPMG Peat Marwick study.
But Mexico's apparel industry would be the big gainer, seeing exports to the US rise from $506 million to $906 million, the accounting firm's study predicts. And the rise could be much greater.
"Using the history of Spain's accession to the European Community as our guide, we would not be surprised if Mexican exports of textiles and apparel reach $3 billion to $5 billion in 10 years," write trade experts Jeffrey Schott and Gary Hufbauer in a recent book.
By 1990, the US was already importing $688 million of Mexican textiles and apparel, up 140 percent from 1985. By comparison, total US imports have risen about 50 percent over that time period to $31.5 billion in 1990. Imports supply more than half of the US apparel market.
If more of these imports come from Mexico, United States textile producers stand to gain. Making fabrics is more technology-intensive and less labor-intensive than apparel production. The textile industry employs 650,000 Americans.
Mexico's maquiladora plants near the American border often use US-made fabric. Since 1985, US textile exports to Mexico have grown from $110 million to $526 million. The maquiladoras - aided by lower tariffs - account for 90 percent of Mexican apparel exports to the US.
Another reason for the maquiladoras' strong growth is their proximity to the US market, which allows quick response on orders. This advantage over Asian producers is increasingly important as retailers try to keep inventories low and adjust quickly to changing demand.
The US apparel industry wants to see NAFTA's terms extended to the Caribbean and Central America, to avoid distorting the region's industry. US import quotas have held Asian producers at bay, forming an umbrella under which the Caribbean apparel industry has prospered. The US-Mexico-Canada deal might disrupt that growth.
Meanwhile, international trade talks now nearing conclusion would phase out worldwide import quotas over a 10-year period. But even if quotas start falling, Cline says, tariffs will still be relatively high, which means that NAFTA could still have a big impact on the industry.