North American Free Trade Agreement

NAFTAe-mail: sheltork@jmu.edu

Multi-Fiber Arrangement (MFA)

MFA was instituted in 1974 as trade laws for the textile and apparel industry, it is in the process of being phased-out.

Multi-Fiber Arrangement served to protect the textile and apparel industries of developed countries from the low-cost competition of textile and apparel from developing countries.

The most important structural change is the gradual phase-out of Multi Fiber Arrangement between now and the year 2005.

Uruguay Round Agreement

The Uruguay Round Agreement replaces the Multi-Fiber Arrangement.

Uruguay Round Agreement has been designed to liberalize the trade in textiles and clothing by allowing market forces to guide the consumption and production decisions.

Uncontrolled products could grow at an an accelerated rate during the transition period.

Many of these imports will come from countries that have low-cost production and can easily penetrate and over whelm the United States market.

North American Free Trade Agreement

In addition to changes in the MFA Agreement under the North American Free Trade Agreement, by January 1, 2004 all tariffs will be eliminated on textiles and apparel products traded among:

Canada, Mexico and the United States. Initial tariff phase-out, effective January 1, 1994, Mexico removed

tariffs on nearly 50% of all industrial goods. By 1999, sixty-five per cent of all U. S. Industrial products exported

to Mexico will enter that country tariff free. NAFTA strengths Mexico’s position as a main supplier of imported

textiles and clothing product6s to the United States.

North American Free Trade Agreement Countries

1992-1996 Imports in Million of Dollars

The direction of imports of textiles and apparel to the United States is changing, the big four suppliers of textiles and apparel to the United States in the past has been: China, Hong Kong, Twain and South Korea.

Over half of the textiles and apparel sold in the United States has been imported from outside the country.

In the 1980, eight three percent of these importers came from Asia - today with NAFTA in place. Asia accounts for forty one percent of textiles and apparel imports.

China has been the main supplier of textiles and apparel to the United States prior to 1996.

Imports to the United States - 1996

The countries that have been most successful in importing textiles and apparel goods to the United States are:

Millions Sq. Meters Millions $$ China 1644,000,000 4892,000,000 Hong Kong 1796,000,000 4031,000,000 South Korea 2207,000,000 2049,000,000 Taiwan 1203,000,000 2733,000,000 Mexico 891,000,000 4231,000,000 Canada 729,000,000 1995,000,000

0 2000 4000 6000

1992

1993

1994

1995

1996

U. S. Imports of Textiles & ApparelMillions of Dollars

S.Korea

H.Kong

Taiwan

China

1992 1993 1994 1995 1996 PercentChina 1964 2112 2042 1772 1644 -7.2Canada 980 1120 1318 1559 1796 15.25Mexico 601 746 977 1550 2207 42.39Taiwan 1270 1230 1237 1174 1203 2.51H.Kong 1010 935 1022 981 891 -9.11S. Korea 845 872 864 798 729 -8.65India 601 641 677 751 869 15.84Pakistan 576 622 678 749 815 8.89D. Republic 479 549 608 710 718 1.22Thailand 620 672 662 665 631 -5.06Phillippines 443 479 534 611 622 1.88Bangladesh 378 399 487 603 625 3.66Indonesia 398 478 516 540 604 11.94Sri Lanka 222 286 328 398 427 7.29Honduras 126 158 220 338 536 58.75Turkey 178 223 341 329 303 -7.7Costa Rica 216 252 284 312 277 -11.32Germany 236 318 306 287 280 -2.28ElSalvador 90 132 201 276 317 15.27Japan 326 310 324 252 246 -2.34Malaysia 239 245 251 251 229 -8.8Italy 165 189 249 247 262 5.87Jamaica 134 161 202 228 204 -10.4Egypt 118 144 185 210 149 -28.96Guatemala 169 194 195 204 211 3.9Israel 143 153 196 187 189 1.09U.Kingdom 107 120 142 172 155 -9.7Macau 91 85 112 158 155 -1.52Brazil 281 204 216 153 108 -29.24Colombia 102 101 106 105 83 -20.55Portugal 78 83 98 98 94 -3.08France 77 89 113 95 104 10.22U.Arab 92 107 93 93 86 -7.11Russia 12 82 111 92 64 -29.46Spain 39 61 95 89 68 19.72

Manufacturing Companies and Factories

Companies are closing down Far Eastern manufacturing companies and factories and moving them to Mexico, a direct consequence of NAFTA.

Though workers in Mexico make higher wages, savings in transportation time and cost means savings for United States companies and consumers.

Although wages in Mexico are three times the $60 per month textiles and apparel workers make in some Asian countries, it is cheaper and faster to move goods from Mexico to the United States than from China.

U.S. Textile /Apparel Imports - MFA Million Equivalent Square Meters

-20-10

01020304050

1996 -7.2 15.25 42.39 2.51 -9.11 -8.65

China Canada Mexico Taiwan H.Kong S.Korea

Leading Suppliers

At present Mexico’s swift accent to become, if only by a small margin, is the United States leading suppliers of imported apparel and textiles. (square meter equivalent.)

Mexico’s ( in 1966) combined shipments out passed China, which has held the top spot most of the last decade.

A new scene may emerge, and countries will want low cost labor supply - lower than Mexico - labor cost may be more competitive in a quota less world.

Countries involved in NAFTA

North American Free Trade Agreement which already has resulted in significantly increased trade among the United States, Canada and Mexico, it is likely that NAFTA will negotiate free trade agreements with other countries in the future.

Honduras 32.73 increase in 1996 El Salvador 23.26 increase in 1996 Brazil -22.04 decrease in 1996 Colombia -14.29 decrease in 1996

1992-1996 Mexico’s Imports in Dollars

Since the North American Free Trade Agreement’s enactment three years ago, Mexico’s exports to the United States have trebled, to over four billion dollars.

In years past, the United States has supplied only minuscule amounts of fabric to the Asian market, but in 1996, they supplied seventy percent of the raw materials going to the Mexican sewing shops.

U.S. Imports Textiles & Apparel Millions of Dollars

0

1000

2000

3000

4000

5000

1992 1993 1994 1996

Mexico

0

2000

4000

Mex

ico

Can

ada

Chi

na

U.S. Imports in Square Meters

Mexico

Canada

China

Mexico 601 746 977 1550 2207

Canada 980 1120 1318 1559 1796

China 1964 2112 2042 1776 1664

1992 1993 1994 1995 1996

U.S. Textile/Apparel Imports - MFA Data In Million $$

-20

0

20

40

60

1996 1.86 20.81 39.33 -0.87 -8.19 -9.77

China Canada Mexico Taiw an H.Kong S. Korea

International Trade Patterns

International trade patterns for three of the four major Asian importers of textile and apparel during the years 1995-1996 decreased in market share measured in million square meters.

Market share of imports to the U.S. from Mexico during the years 1995-1996 increased 42.39% (meters) and 39.33% ($).

Canadian market share of imported goods during the years 1995-1996 was increased 15.25% and 20.81% ($)

1992 1993 1994 1995 1996 PercentChina 4583 4767 4931 4803 4892 1.86Canada 823 1020 1317 1652 1995 20.81Mexico 1117 1372 1894 3037 4231 39.33Taiwan 3033 2861 2830 2757 2733 -0.87H.Kong 4317 3957 4406 4391 4031 -8.19S. Korea 2426 2477 2449 2271 2049 -9.77India 1117 1286 1520 1615 1736 7.57Pakistan 633 652 768 965 1011 4.81D.Rep. 1256 1458 1616 1787 1802 0.88Thailand 990 1131 1234 1420 1402 -1.24Phillippines 1240 1337 1457 1704 1706 0.13Bangladesh 725 766 927 1115 1177 5.67Indonesia 935 111 1170 1336 1493 11.74Sri Lanka 655 840 892 1025 1138 11.11Honduras 370 508 648 921 1222 32.73Turkey 419 472 688 806 745 -739Costa Rica 596 659 693 766 710 -7.33Germany 376 404 375 346 322 -3.86ElSalvador 183 68 421 607 748 23.26Japan 612 583 584 481 450 -634Malaysia 671 678 704 745 707 -5.1Italy 1067 1048 1271 1464 1703 16.33Jamaica 296 391 455 532 506 -4.32Egypt 154 196 254 319 312 -2.09Guatemala 476 565 612 698 805 15.4Israel 266 304 369 418 402 3.75U.Kingdom 333 348 394 421 439 4.63Macau 515 483 607 764 760 -0.44Brazil 321 289 321 234 184 -22.04Colombia 326 347 384 390 334 -14.29Portugal 166 176 213 247 235 -4.49France 319 293 335 357 364 2.16U.Arab 159 174 184 215 222 3.68Russia 6 44 84 98 92 -5.12Spain 61 78 94 118 113 -404

– Freer trade in the apparel and textile sector will pose important challenges for manufacturers and retailers in defining and adapting their competitive positions and marketing strategies in a quota less world.