Mexico was the second largest importer of U.S. textiles in 1991 and the fifth largest exporter of apparel to the United States, representing 5.6% of total U.S. apparel imports. Although U.S. imports of Mexican textiles and apparel is a small percentage of U.S. total imports, they represented an estimated 91% of Mexican textile and apparel exports in 1989.

The U.S.-Mexican textile and apparel trade is oriented toward each country's natural comparative advantage. For example, rolls of textiles are usually manufactured in modern U.S. plants, exported to Mexican apparel plants, transformed into finished apparel items, and exported back to the U.S. for sale.

The Mexican Maquiladora Apparel Industry Is Growing

Apparel production is generally labor intensive. As a result, Mexican apparel production has grown considerably. Mexican apparel maquiladoras, which have prospered over the years, generally produce extremely long runs, have access to financing and U.S. distribution channels, and have achieved a level of quality much higher than producers in Mexico's domestically oriented facilities. Some 80% of Mexican exports of apparel to the United States is produced in 300 maquiladora plants employing about 45,000 workers.

In total, however, about 650,000 Mexicans work in some 11,000 Mexican-owned apparel firms. Most Mexican non-maquiladora facilities are small, inefficient, utilize obsolete production methods, and produce low-quality, inexpensive goods for the Mexican market. These domestically oriented plants typically produce in small lots, resulting in lower productivity. Consequently, these facilities have difficulty in justifying investment in new technology. Nevertheless, because wages and turnover are higher in the apparel maquiladora plants along the border, plants in the interior have increased their share of all maquila employment from 20% in 1981 to 40% in 1988. Given current production methods, lack of skills is not a serious problem in the maquiladoras. However, skill deficiencies will make it difficult to implement new competitive strategies, such as plant modernization.

U.S. Standardized Apparel Production Is Not Competitive

Due to the nature of apparel production, it is most susceptible to low-wage competition. Consequently, Much U.S. apparel production has moved to low-wage countries.

The industry is categorized by two types of goods: standardized commodities and fashion-sensitive foods. Standard commodities involve large runs of goods such as blue jeans and underwear, and is very sensitive to foreign competition. Fashion-sensitive goods, which involve short runs of primarily women's wear, is not as sensitive to imports and is mostly produced in the garment districts of New York and California -- reflecting the importance of close proximity to the centers of fashion design. Most imports of fashion-sensitive apparel originate in Asia; very little comes from Mexico.

The U.S. Textile Industry Is Competitive Internationally

The U.S. textile industry, producing yarn, thread and fabric, is quite competitive internationally. The industry is automated to a much greater extent than the apparel industry, which is consequently less competitive. In 1991 the United States registered a trade deficit with Mexico $70 million of in textiles and apparel. In 1992 the U.S. registered a surplus of $48 million, mostly due to strong exports of textiles and fibers.

U.S. Employment and Wages Are Down

Over the years, both the U.S. textile and apparel industries have suffered a decline in employment for different reasons. Due to the labor intensive nature of production in the apparel sector, it became increasingly difficult to compete with low-wage developing countries. Employment dropped in the textile sector due to a reduction in apparel production and rapid growth in automation and labor productivity. Employment in the U.S. textile industry peaked at 1 million in 1973 and declined to 672,000 by 1991. Employment in the apparel industry peaked at 1.4 million in 1973 and declined to 1 million by 1991.

As a percentage of overall nonagricultural employment, textile and apparel industry employment dropped from 3.6% and 2.9%, respectively, in 1940, to 0.6% and 0.9% of the U.S. work force, respectively, in 1991. Wages have also dropped. In 1991, average hourly earnings for textile and apparel workers were 80.3% and 65.5%, respectively, of all private nonagricultural industries.

U.S. Imports from Mexico

In 1988 average U.S. duties on Mexican textiles and apparel were 10.1% and 18.4%, respectively. Goods destined for the maquiladoras entered Mexico duty-free, and when finished were shipped back to the United States. They primarily entered the United States under the U.S. tariff code 9802.00.80, requiring an assessment of duty only on the non-U.S. content. Because the large percentage of U.S. imports of textiles and primarily apparel from Mexico are produced in the maquiladoras, which mostly source their goods from the United States, the U.S. combined average effective tariff on these imports from Mexico was 6% in 1991.

U.S. imports of clothing from Mexico have been concentrated in a few standardized items, such as inexpensive men's wear like trousers and coats, and similar items for women. Conversely, U.S. imports of more expensive, fashion-sensitive apparel, such as women's dresses, skirts, blouses, men's suits, jackets and shirts, primarily come from Asia. Imports of apparel from Asia have steadily risen, and in 1991 reached 40% of total U.S. apparel imports.

U.S. imports of textiles and apparel from developing countries are subject to quotas under the Multi-fiber Arrangement (MFA). According to the Office of Technology Assessment, these quotas have the impact of an effective average duty of 28%. As of June, 1993, the Arrangement covered 44 countries. The most significant restraints are imposed on imports from Asia. In the past few years, quotas on Mexican imports have not been binding and have been rising to accommodate larger shipments. Mexican exporters, however, have not been able to predetermine if the quotas will be constantly reassessed and therefore have not been able to rely on secure access.

Mexican Trade Barriers

Since Mexico significantly reduced its trade barriers as a result of joining GATT in 1986, it has experienced much difficulty in competing with Asian imports. To illustrate, in 1985 Mexico's tariffs on apparel averaged nearly 50% and all imports were subject to import licenses. By the end of 1987, Mexico's average tariff on apparel dropped to 20% and import licenses were eliminated. In 1991, its effective trade weighted tariffs on textile and apparel imports from the United States averaged 14% and 20%, respectively. While such tariff liberalization facilitated greater trade, it has also subjected Mexican workers to greater competition in these industries.

Textile and Apparel Rules of Origin Under Nafta

Under Nafta, for textiles and apparel to be considered North American, it must generally be made from North American yarn -- allowing only the fibers to be imported from outside North America. This is termed the "yarn forward" rule, and requires "triple transformation:" fiber transformed to yarn, transformed to fabric, transformed to apparel.

A limited number of products must meet more stringent requirements, and be made from North American fiber. This is termed "fiber forward" requiring "quadruple transformation." This applies to yarns of cotton, knit fabrics, non-woven fabrics, and most textiles composed of man made fibers. This rule also applies to sweaters, felt and tufted carpets of man-made fibers.

Exceptions to the above rules exist. For example, apparel of silk and linen, brassieres, women's nightwear and underwear of certain cotton knit fabrics, men's shirts of specified cotton or cotton-blend fabrics, and apparel of specified fabrics in short supply may be made from non-North American fabric.

Nafta's Impact on the U.S. and Mexican Textile and Apparel Sector

Under Nafta, duties on almost all North American textiles and apparel traded between the United States and Mexico will be eliminated within 6 years. The remainder will be eliminated within ten years. All quotas will be phased out.

Due to origin requirements, the "yarn forward" rule makes it likely that almost all Mexican apparel will be made from yarn and textiles that are produced in the United States. Thus, U.S. exports of textiles to Mexico will continue to increase. The fact that Mexico does not have a competitive textile industry, leaves Mexico without a comparative advantage relative to the United States. Consequently, U.S. producers of textiles are not likely relocate in Mexico. Thus, the U.S. textile industry is expected to benefit.

The U.S. apparel producers of long-run standard commodities, however, will be hurt. The negative impact will be less for U.S. producers of fashion-sensitive garments. Mexican apparel producers of long-run standard commodities, especially in the maquiladoras, will benefit the most.

In early 1992, sewing machine operators in the United States earned an average of $6.25 per hour. In Mexico, sewing machine operators earned $7 to $10 per day. Due to the fact that the U.S. industry is labor intensive requiring little skill, is not internationally competitive, and equipment is relatively inexpensive (ex., sewing machines in many apparel factories cost under $1,000), more job will likely move to Mexico.

U.S. imports of apparel from Mexico doubled between 1987 and 1991. Even without Nafta, this trend will continue. According to the Office of Technology Assessment, the number of Mexican garment workers in the maquiladora sector may jump from 45,000 currently to 130,000 by the end of the decade.

Even under Nafta, Mexican producers of fashion-sensitive non-basics are unlikely to ship large volumes of tailored clothing to the United States in the near term. Their poor turnaround time, low quality, and detachment to U.S. design centers will continue to present obstacles to Mexican advancements in this area. According to the Office of Technology Assessment, Nafta will not make a large enough difference for Mexico to challenge Asian producers of fashion-sensitive clothing.

Payment Terms

Mexican importers of textiles prefer to have exclusive arrangements with their U.S. suppliers, often have warehouses along the U.S.-Mexican border, and prefer CIF services to these warehouses. High volume sales are usually made through letters of credit. Small value sales are either made with cash, or 50% advance payment when the order is placed and 50% upon delivery. If permitted, Mexican importers much prefer to work on 60 to 90 day credit terms -- making the offer extremely attractive.

U.S. Textiles in Demand

Textile yarns, fashion fabrics and home decorator fabrics that have the greatest demand in Mexico include natural and stamped cotton fabric, stamped mixed cotton and polyester fabrics, stamped rayon fabric, natural wool fabric, and natural acrylic fabric. Mexican imports of poplin, silk, gabardine, nylon, and linen are growing at 6% per year, and are anticipated to continue growing.

Getting Started

The traditional method of selling textile yarns, fashion fabrics and home decorator fabrics to Mexico is through importers and distributors. Companies new to the Mexican market may also consider finding a sales representative, participating in trade exhibitions held in Mexico, and placing advertisements in industry magazines. Sales, however, are usually best promoted by having a permanent showroom and warehouse in Mexico.

Mexican sales representatives, distributors and agents can be identified through one of several services offered by the United States & Foreign Commercial Service.

About The Author John Manzella [Full Bio]

John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.




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