Nafta And The Us Textile Industry

Running Head: NAFTA and the US Textile Industry

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NAFTA and the US Textile Industry

Introduction

The North American Free Trade Agreement – NAFTE was approved by the US congress after long political debates. The accord was meant to reduce trade barriers among the nations in North American like Canada, US and Mexico. NAFTA eliminated many barriers that had stood in the way of free textile industry trade. Since its inception in 1994, NAFTA has greatly benefited the Mexican textile industries as they opened up free market to the US market, more exports have been observed. It’s estimated that the value of apparel and cotton textile exports from

NAFTA and the US Textile Industry

Mexico to the US increased from 3 billion dollars to 8.4 billion dollars 1995 to 2002 with highest record in 2000; 9.4 billion dollars.

Job Migration Out of US Following NFTA Formation

The North American apparel and textile industry has undergone drastic changes over the paste decade. The formation of the North American Free Trade Agreement (NAFTA) prompted the formation of the apparel supply networks in the western countries bring together the textile industries and retailers in the United States of American with the Mexican textile and apparel industries to computer against the Asian nations (Oh & Suh 2003). In contrast to what was widely acclaimed of intention of forming NAFTA in the North America, the increase in apparel industry has not translated to equal growth in the apparel industry of the United States. Instead, the US apparel and textile industry has constantly deteriorated in the international market, succumbing to competition and giving up a very large percentage of its production.

The decline of the apparel industry in the US has lead to job migration to the Mexican north border. Currently, the Apparel industry in the US in experiencing negative profits, innumerable plant closures, job layoffs and ultimate bankruptcies; the textile industry is failing (Oh & Suh 2003).

The shift of jobs started in the mid 1960s when the Mexican government greed with the US that they would adjust their regulations to allow the US to export material to Mexico for procession then pay a certain tariff on only a very small value and also the low wage availability in Mexico. These seemed attractive to the US firms. Since then the apparel industry in Mexico received a boost and was able to export more of its products to the US than previously. The workers in the US could not compete because this would lead to a surge of imports bearing in mind that the Mexican offered low wages. Jobs moving to the Mexican companies because of NAFTA; For instance in 1991, hourly pay in Mexico was about 2.17 dollars only compared to 15.45 dollars inn the US. Due to such factors, many companies shifted to Mexico to exploit cheap labor furthermore, the US had agreed to export its yarn so that manufacturing could be done from Mexico then exported back to the US (Burfisher et al 2001).

NAFTA and the US Textile Industry

Who Gained from Readjustments in Textile industry after NAFTA?

There are a lot of effects of trade in the North America related to NAFTA implementation. Many of these effects are due to the US readjustments of the textile industry and their patterns of investments with regard to Mexico. By the time NAFTA was being instituted, many firms between US and Canada were already integrated. However since the formation of NAFTA many changes have taken place in apparel and textile industry, and automobile industry like the trade flows which have greatly affected the US employment in these industries.

The readjustment sin the textile industry have not been very even in their impact on the US and Mexico. For these reasons I mean that one of the countries has benefited from the changes more than the other. The trade between the US and Mexico has grown to greater heights more than it has with any other country elsewhere. Mexico is a more significant partner to the US since the inception of NAFTA. Several readjustments have been made to the apparel industry that has affected the growth of industries in both countries. As a consequence, the share of Mexico of the US total market has increased considerably while that of the US has reduced. Research studies have indicated that Mexico is now supplying the US with apparel products that would otherwise be obtained by Asian count (Oh & Suh 2003).

The major beneficiary of these readjustments in textile industry after NAFT is Mexico. Basically, the major provision of NAFTA concerning textiles and apparel was the removal of the tariffs and quotas for goods that came from Mexico and also remove tax on those from the US apparel industry. For the companies between the nations in B+NAFTA agreement to benefit from the trade provision, the products were required to meet rules of origin which meant that apparels products in the area were to be manufactured from the yarn also obtained from the same region (Burfisher et al 2001). These rules were intended to make sure that the US textile producers still benefited even as most of the firms had moved to Mexico without which the textile industry would have imported cheaper yarn from Asia and export product to US under free trade accord.

NAFTA and the US Textile Industry

Cheap labor in Mexico and free trade meant that textile production was cheaper in Mexico and so there was labor shift to northern border of Mexico by many US firms. Furthermore the trade provisions allowed export of yarn from US to be used in Mexico for production. This led to more industrial growth in Mexico and increased exports to the US. The different benefits are attributed to the different in trade dependence and structure of tariffs. In 1993 for instance, Mexico’s imports and exports to the US accounted for only leas than 10%. Contrastingly, Mexico’s exports of 83.3% and imports of 72.3 % were with the US (Oh & Suh 2003).

Protecting Vulnerable Industries from Free Trade Agreements

It’s very important to protect vulnerable industries like the apparels industries from the effects of free trade agreement since in some cases it can result into unfair trade practices. Different nations have different economic backgrounds and policies that guide their dealings. Other factors of production also may challenge the way investors do their investments. For instance, the cheap labor in Mexico attracted a lot of industries out of the US as the labor in US was extremely high cost. On the other hand, for the firms in Mexico to benefits from the free trade agreement they had to comply with the product of origin rules where the yarn they were to use was supposed to be from the same region. The yarn from the US was more expensive than that from the Asian which could have made production even cheaper (Oh & Suh 2003).

Protection benefits would be that the industry would grow in a balanced way just conforming to their own preferences and free access of raw materials and exploitation of labor without necessarily having to comply with free market demands. The free market then seems that it’s not free at all since there are strict regulations for the companies to benefit from the free market.

References

NAFTA and the US Textile Industry

Burfisher, Robinson S & Thierfelder. (2001). The impact of NAFTA on the US. Journal of Economical. Vol 15. No. 1 pp 123 – 148

Oh H & Suh. M. (2003). What Is Happening To The US Textile Industry? Reflections on NAFTA and US Corporate Strategies. Journal of Fashion Marketing and Management. Vol. 7 No. Issue 2 pp 117 – 139