WASHINGTON — The North American Free Trade Agreement may be expanded to some other Latin American countries next year, but trade analysts do not see much of a sourcing bonanza for textiles and apparel. However, such a development might be somewhat more positive for retailers and exporters of U.S. goods, the analysts said.
With congressional approval of GATT now behind him, President Clinton is expected Sunday to propose expanding NAFTA, sources said.
It’s anticipated that Clinton will cap off the three-day Summit of the Americas in Miami by telling presidents of nearly every Western Hemisphere nation that the U.S. favors incremental expansion of the year-old NAFTA.
Sources said the President hasn’t finalized his speech, but likely will not set a firm date for creating an Americas Free Trade Area. It is expected that Mexico and Canada will approve expanding NAFTA.
Trade sources here said Tuesday they believe the new, Republican-controlled Congress will grant Clinton fast-track authority to begin a new round of NAFTA talks, but only if the White House agrees not to pursue side agreements on environmental and worker-rights protections.
As of now, the consensus is that Chile would be the first to negotiate access to NAFTA, followed by Argentina and Brazil.
The likely beneficiaries of these three countries becoming free-trade partners will be U.S. retailers rather than importers, according to Robin Lanier, trade vice president with the International Mass Retail Association.
“Competition in the U.S. and Canada is very tough, these markets are built up, so some [retailers] are looking at other markets,” Lanier said. The Western Hemisphere, especially if free trade is the rule rather than the exception, is ideal for expansion, she said.
“With the U.S. and Canada, you have half of a very good distribution network built, no oceans to cross and a launching point from either the U.S. or Mexico to the rest of the hemisphere. In addition, generally speaking, consumers there desire U.S. products, and there’s a growing middle class to buy our goods.”
J.C. Penney Co. is about to make this leap, perhaps in anticipation of an enlarged NAFTA.
Next March 1, Penney’s is slated to open its first department store in Santiago, Chile, the same day it opens its first door in Mexico. A spokesman for the retailer said its own studies indicated consumer demographics, coupled with Chile’s political and economic stability, made that country the choice for its first South American store. Penney’s has experience there already; its catalog features unfinished furniture imported from Chile, the spokesman said.
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IMRA’s Lanier, though, said it was unlikely retailers would rush to South American nations, even those countries that may join NAFTA.
“Reality about ‘free trade’ is now sinking in, and people realize it doesn’t solve some problems,” she said. “We’re seeing this in Mexico, where its requirements on certificates of origin for imports are creating huge problems for American retailers.”
“The fact of the matter is that until you begin harmonizing rules of origin, things like labeling language and customs enforcement, there is a huge disconnect between the vision and reality.”
Meanwhile, bilateral trade between the U.S. and Argentina, Brazil and Chile has been growing, most notably for U.S. exports, but remains relatively meager. For the year ended in June, for example, the value of all apparel and textiles imported from Chile was $38.7 million. This was up 9.9 percent from $35.2 million recorded a year earlier, but these imports had declined almost monthly since 1991, when they amounted to about $45 million. U.S. apparel and textile exports to Chile in the period ended June were $83.1 million, down almost 15 percent from the year-earlier level.
For the year ended in June, the U.S. imported $8.75 million worth of textiles and apparel from Argentina, down 49.6 percent from $17.4 million in the year ended June 1993. During the same span, U.S. exports of these categories to Argentina rose 6.2 percent to $76.6 million.
Textile and apparel imports from Brazil were $312.9 million for the 12 months through June, up almost 7 percent from about $292.5 million a year earlier. In the same period, U.S. textile and apparel exports to Brazil rose 26.7 percent to $51.1 million.
Despite some growing numbers, such bilateral trade is minuscule compared with that of a dozen or more nations where activity is measured in billions of dollars. A free-trade agreement with Chile, Argentina or Brazil probably would not boost the figures much for U.S. imports, averred Clinton Stack, president of International Development Systems, a Washington trade consulting firm.
“These countries may jump to join NAFTA, but not because of any advantages it would give their textile and apparel industries,” Stack said.
He explained that these nations historically had their closest ties with Europe and generally would export more fabric or apparel to the U.S. only to take up slack when Europe was in recession. In addition, he said the lion’s share of their apparel and textile production was consumed domestically.
Laura Baughman, president of The Trade Partnership, another trade consultant, said NAFTA’s yarn-forward rule-of-origin for free-trade benefits would make it even more difficult for U.S. retailers to import apparel from these South American countries than it is from Mexico, since they are thousands of miles from the U.S.
Concurring, Larry Martin, the American Apparel Manufacturers Association incoming president, said U.S. firms doing joint manufacturing or importing “already have large sourcing possibilities in Mexico and the Caribbean,” explaining it would remain economically advantageous to continue there, rather than in South America.
Another domestic industry official, Susan Lord, Springs Industries government relations vice president, said logistical considerations — the need for more and better roads and the distances between the Americas — would work against any quick moves to manufacture or import apparel or textiles from the three South American nations, even with NAFTA benefits.
— Fairchild News Service