NAFTA on Textile and Apparel

¶ … NAFTA on Textile and Apparel Industry

Introduction to NAFTA

Increasing market liberalization and globalization are the two constants of the contemporaneous economy and in support of them, various agreements have been signed between countries. The aim of these agreements is to form alliances and partnerships based on free trade, through the elimination of tariff and non-tariff trade barriers. Such as agreement is NAFTA, or the North American Free Trade Agreement. NAFTA was signed on January 1st, 1994 by three countries: the United States of America, Canada and Mexico (United States Department of Agriculture, 2008). It stipulated the gradual elimination of tariffs and taxes and its completion was established for 2008. The agreement was received with both content and disapproval and most of the criticism derives from Mexico - the closest to an enclosed economy and the country which had to implement most of the regulations - where the economic and political stability, working conditions, human rights and environmental concerns have all suffered drawbacks in the past decade.

The American corporations were great proclaimers of the NAFTA stating that liberalization of trade would increase the living standards and create jobs within all countries, when in fact their agenda was to get access to cheap workforce, natural resources and free form restrictions working environments (Chapter 11 allows American companies to sue the Mexican government if it imposes laws that restrict their profits, such as regulating the maximum waste allowed).

2. NAFTA's Effects on the Textile and Apparel Industry

Regardless of the negative effects and arguments against NAFTA, fact remains that it has also had some positive effects. A relevant example in this sense is given by the textile and apparel industry, which significantly grew in both Mexico and United States following the signing of the free trade agreement. "NAFTA (the North American Free Trade Agreement) eliminated barriers for textile and cotton trade between Mexico and the United States. Ten years on, NAFTA has proven a great success for textile manufacturers on both sides of the border and for U.S. cotton producers" (Cook, 2004). The most eloquent benefits for the two parties are succinctly presented below:

With the liberalization of trade, Mexico was better able to export its cotton to the U.S. - by 2000, Mexican exports of textile cotton and apparel had increased to a total of $9.4 billion, as compared to $3 billion in 1995

Mexico was also granted better access to the U.S. textile industry and its cotton imports were increased to a total of $3 billion by 2002, as compared to $1.1 billion in 1995

Increased exports to the United States generated more financial resources for the Mexican producers and supported as such the industry's growth and development

Through the reduction to 5% from 10% and then the complete elimination of export taxes to Mexico, the United States were able sell more textile products, register more revenues and the Mexicans had increased access to the American fibres

Today, the United States holds next to 100% of the Mexican cotton import market (Cook, 2004)

Mexico became the primary exporter of garment to the U.S. market, with a total value of $8.7 billion in 2000, as compared to only $709 million in 1990

Mexican products were given preferential access to the U.S. textile and apparel market and production in the maquilas increased (Spener, Gereffi and Bair)

Another major impact of NAFTA upon the textile and apparel industry was that it allowed American manufacturers to move their plants to Mexico. Here, they found cheap labour force and reduced governmental restrictions. The American companies established maquilas, or factories generally located near the border line. These factories mainly employed young women and paid them less than minimum wage. But regardless of the poor working conditions in these maquilas, fact remains that the industry grew and more jobs were created for the Mexicans. From this particular instance, the situation of the American workers in the textile industry was becoming critical. They began to lose their jobs as they were being replaced with cheaper workforce. As such, a paradox was created in which the U.S. textile and apparel industry was flourishing, but its workers were out of jobs and forced to re-specialize in different fields.

In time however, the created situation began to resolve itself as the harsh conditions at the border line and the increasing demands of the aboriginals made it more difficult for the maquilas to properly function. "While wages south of the border were lower than within the United States, lower productivity and higher costs for critical elements such as power and water made Mexico less viable than many originally thought" (Sinclair, 2004). But even so, the factories continued to operate, causing job loses for the American workers. It is rather difficult to give a clear number of the jobs created, according to NAFTA advocates, or the number of jobs lost, according to disclaimers of NAFTA. "When NAFTA was established, it was promised that this trade agreement would create hundreds of thousands of jobs for U.S. workers. However, it is very difficult to determine how many U.S. textile and apparel jobs have been created or lost as a direct result of NAFTA. When looking at a pro-trade source, over a hundred thousand jobs have been created because of NAFTA; when viewing a pro-labor source, however, over a hundred thousand jobs have been lost because of NAFTA. It is nonetheless safe to assume that the jobs that have possibly been created are not in the U.S. textile industry." (Parrish and Oxenham, 2003) the image below presents the workforce occupation in the U.S. textile and apparel industry between 1985 and 2001, revealing a net decreasing trend in the latter years.

Source: Parrish, E.D., Oxenham, W., September 2003, the Effect of NAFTA on the U.S. Spinning Industry, AUTEX Research Journal, Vol. 3, No. 3

It can be observed that the number of jobs in the U.S. textile industry increased slightly in 1994, the year of NAFTA's implementation, but they continued to decrease following 1995. Specialists explain that however the North American Free Trade Agreement is a primary cause for the job loses, other factors also contributed; the major secondary factor is represented by the technological advancements made, which increase the efficiency of the operational process and require the assistance of fewer employees (Parrish and Oxenham, 2003). In Canada on the other hand, the apparel industry managed to grow nationally after the implementation of the NAFTA and even created more jobs. The number of textile jobs had increased from 82,800 in 1994 to 93,700 in 2000. In Mexico, the number of jobs in the industry has also increased. The statistics of the jobs in the textile industry adherent to the three countries of the NAFTA are presented in the table below: