Textiles and apparel in NAFTA : a case of constrained liberalization

Abstract

The authors examine the changes that Mexico's textile and clothing industry is likely to face under the North American Free Trade Agreement (NAFTA). They compare pre-NAFTA and probable post-NAFTA scenarios for Mexican exports. The U.S. clothing and textile industry is likely to remain among the most protected of U.S. industries, so this is essentially a comparison of two protectionist situations, not of protection and free trade. The authors trace how current quota and tariff restrictions on U.S. imports from Mexico will be replaced by rules of origin designed to protect U.S. industry. Mexican textile and clothing exports will enjoy greater access to the U.S. market if most inputs originate in North America. Under the triple transformation requirements, for example, a cotton shirt would have to be made in the NAFTA region from yarn and fabric of NAFTA origin. Mexican compliance with this rule would not prove onerous. Proximity and long-standing production-sharing arrangements have made Mexico heavily dependent on U.S. inputs. Roughly 53 percent of Mexican textile and apparel exports to the United States fall under production-sharing programs, with an average 69 percent of value added of U.S. origin. Only 15 percent of input requirements for the other 47 percent of trade is imported into Mexico - only 8 percent from non-NAFTA countries. What about future trade? The authors estimate that these Mexican exports to the United States will increase only modestly - partly because of the low level of protection already associated with production-sharing arrangements. Rules oforigin under the NAFTA are small. How much investment from outside North America will be attracted to Mexico under stringent input-sourcing requirements is open to question. The competitiveness of Mexico's apparel industry in non-NAFTA markets will depend to some extent on the international competitiveness of the U.S. textile industry.TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Economic Theory&Research,Environmental Economics&Policies,Textiles, Apparel&Leather Industry,Trade Policy