WASHINGTON — U.S.-Mexico textile and apparel trade boomed during the first three months of free trade, but analysts say it will take a couple of years of solid data before anyone can quantify how much the pact is benefiting manufacturers and retailers on either side of the Rio Grande.
On paper at least, the North American Free Trade Agreement generated a tidal wave of U.S. textile and apparel exports to Mexico. They were up nearly 25 percent, to $458 million in the first quarter, compared with a year ago, according to data from the Commerce Department’s Office of Textile and Apparel. By comparison, these shipments rose about 15 percent, to $1.59 billion in all of 1993, versus a year earlier.
Meanwhile, U.S. imports of Mexican-made apparel, fabrics and yarns were up about 19 percent, to $461 million, in the first quarter, compared with a year ago, while total 1993 imports were up 17.7 percent, to $1.76 billion.
This information, according to analysts, is not necessarily what it seems. Up to last year, under the U.S.’s Special Regime program, fabric cut in the U.S. for assembly into apparel in Mexico was counted as a U.S. apparel export — rather than as a lower-value fabric one. The assembled clothing, when shipped back to the U.S., was counted as an apparel import, even though duties were paid only on the value added.
This anomaly, which skews the value of U.S. exports, may be diminished once NAFTA gets into full swing, since fabric need not be cut first in the U.S., meaning its export value will not be calculated as if it were apparel.
‘Export data can be a joke,” said one analyst. “Export information is documented by the shipper and especially where there is a lot of cross-border truck traffic, the quality of the information filed at the border, before crossing, can be marginal,” said the analyst, who requested anonymity.
Even though NAFTA took effect on Jan. 1, most of the U.S.-Mexico trade in textiles and apparel likely continues under Special Regime — although no one can say for sure — since import duties on many goods are being phased out over five to 10 years.
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Caveats about the reliability of data aside, many trade analysts remain bullish over NAFTA, while others still debate its final impact on trade.
“No one expects that it will change trade in a few months, but it’s a net positive,” said Josephine Esquivel, Lehman Bros.’ senior vice president for textile and apparel analysis.
“NAFTA eliminates some tariffs immediately and others over time, meaning that it will be a lot easier to do business there,” the New York-based Esquivel said. “Mexico’s consumer market presents a very young, brand-interested consumer that obviously is very appealing to manufacturers of jeans, T-shirts, licensed sports apparel and sneakers.”
Esquivel, in a Lehman report, averred: “We expect activewear, casual and work clothes to be key growth categories in Mexico. We believe that Cone Mills, VF Corp., Russell Corp. and Galey & Lord are the initial beneficiaries of NAFTA.”
These trends do not necessarily equate to a jobs-led export boom for the U.S., she indicated. Production of “basic apparel, which is one of the bigger growth areas under NAFTA, is one that is very easy to transplant,” Esquivel said, noting that VF has manufacturing plants in Mexico, and Cone is now in a 50/50 joint venture partnership with Mexico’s largest denim fabric manufacturer.
Eventually, she said, NAFTA-led creation of factory jobs in Mexico should buoy its consumers’ living standards, giving them the wherewithal to buy more U.S.-made goods.
Not necessarily, counters Tom Travis, managing partner with Sandler, Travis & Rosenburg, a Miami-based trade consulting firm.
“NAFTA could raise Mexicans’ living standards and increase their ability to buy consumer goods, but it doesn’t legislate that this need will be filled by American goods,” Travis said.
“Mexican retailers certainly could increase sourcing from Mexican or U.S. manufacturers, but they could source from Asia, too,” he said, noting that low production costs there could offset NAFTA’s advantages for sourcing in North America.
There could be other problems. Assuming the new GATT Uruguay Round treaty — still awaiting Congressional approval — takes effect on Jan. 1, 1995, all member nations’ apparel and textile import quotas will be phased out over 10 years and tariffs reduced, a move that would most benefit Asian manufacturers with rock-bottom production costs. In addition, the Clinton administration is backing a plan to extend NAFTA’s free trade benefits to apparel firms in the Caribbean Basin, which would mitigate some of Mexico’s newly won advantages.
But there’s another side that is being overlooked, contends Peter Harding, a vice president with Kurt Salmon Associates, New York. NAFTA, he said, “changes the dynamics” of apparel production by enabling U.S. textile firms — which are among the world’s most efficient — to ship fabric directly to Mexico, without the Special Regime’s requirement that the fabric first be cut in the U.S.
“You now will simplify the logistics and create a free, open border situation, where the producers can respond quicker [to production and consumer demand] than any other country, or combination of countries,” Harding said.