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government-trade

Warnaco’s New Mexican Plant a Nod to NAFTA

WASHINGTON -- The Warnaco Group will open its fourth bra assembly plant in Mexico today.<BR><BR>The venture illustrates the growing appeal of Mexico under the North American Free Trade Agreement, and represents a move for Warnaco's expanding sourcing...

WASHINGTON — The Warnaco Group will open its fourth bra assembly plant in Mexico today.

The venture illustrates the growing appeal of Mexico under the North American Free Trade Agreement, and represents a move for Warnaco’s expanding sourcing outside the Caribbean, where offshore bra manufacturing has been booming.

“If it’s a question between opening a factory in the Caribbean or Mexico, it’s Mexico,” said Linda J. Wachner, Warnaco’s chief executive officer, in a telephone interview Wednesday from her New York office before departing for Mexico.

There she will the attend the ribbon-cutting for the new factory, located in Tlaxcala, about two hours east of Mexico City, a ceremony that will include an appearance

by Mexican President Carlos Salinas de Gortari.

Wachner, a long-time booster of free trade with Mexico, said a fifth Mexican assembly operation will be added in early 1995 in the town of Puebla, the country’s textile center, southeast of the capital.

The 140,000-square-foot factory in Tlaxcala will employ 2,000 workers, who will fashion American-made and -cut materials into bras for Warnaco’s Olga, Fruit of the Loom and Warner’s lines.

Wachner expects that 1 million dozen bras annually will be produced at the factory and shipped to the U.S. and other foreign markets for sale. The company’s three other Mexican bra assembly factories sew a total of about 1.4 million dozen bras for shipment outside of Mexico. Another factory does full production of bras for the Mexican market.

Until NAFTA went into effect on Jan. 1, Warnaco’s Mexican assembly plants operated under special U.S. trade programs giving quota and duty breaks for goods sewn from U.S.-made and -cut materials. Now, under free trade, these shipments are completely duty- and quota-free because bras were among the first apparel items to receive total NAFTA benefits.

In the Caribbean, where until now Warnaco has focused its production expansion, there remains an effective duty rate equal to about 5 percent of a bra’s value. This lower than usual tariff is based on a trade program similar to the one Mexico previously operated, under which the typical U.S. duty rates on bras of 18 percent and 32 percent are reduced, to be levied only on the value added during assembly.

These Caribbean duty breaks are largely responsible for the almost total shift of offshore production of intimate apparel to the region. Last year, Caribbean nations shipped 11.5 million dozen bras to the U.S., compared with 3.5 million dozen from Mexico.

Wachner said the decision to open factories in Mexico instead of the Caribbean, where it operates plants in Costa Rica, the Dominican Republic and Honduras, wasn’t based on the duty difference.

“It’s much more attractive to open a factory with a trading partner,” Wachner said, noting how the Mexican economy under the five-year tenure of Salinas has become more stable and attractive to foreign investment.

The Mexican government was eager for Warnaco’s business. It helped in the construction of the factory, locating the site and training workers — typical inducements by most foreign governments and the U.S. to attract business. Wachner declined to affix a dollar amount to the government assistance.

Salinas’s scheduled appearance today at Warnaco’s new factory is “a sign of his endorsement of the free-trade agreement and the fact we kept our word that we were going to be expanding to Mexico,” Wachner said.

The president’s ruling political party, known by the Spanish acronym of PRI, is also facing strong opposition in the upcoming presidential election on Aug. 21. In the campaign, PRI has used job-generating endeavors like Warnaco’s to show how NAFTA is helping to strengthen Mexico. NAFTA has been characterized by PRI opponents as benefiting only big business.

In touting Warnaco’s expansion to Mexico, Wachner is quick to point out that about 350 U.S. jobs at Warnaco, in distribution and cutting, will be created in connection with the Tlaxcala factory.

The U.S. textile industry also gets a boost, Wachner points out, citing the lace and tricot sectors, in particular. During the heated NAFTA debate, Wachner and other business leaders lobbying Congress to pass the pact insisted that free trade would create jobs on both sides of the border.

The company has had an affiliation with Mexico for about 25 years, since the founding of its Warner’s de MÄxico SA division in Toluca, where bras are made for sale in Mexico. That business was strengthened earlier this year when Warnaco began selling Fruit of the Loom bras to Mexico discount giant Cifra SA and its Mexican joint venture partner, Wal-Mart Inc.

Regarding that business, Wachner said the company is developing a strategy to increase its share of the Mexican bra market from its current 8 to 10 percent.

Wall Street analysts saw Warnaco’s expansion in Mexico as a solid step for a company that is adding labels and increasing sales.

“It’s a low-cost labor market. It’s relatively stable and is an attractive place to locate, since under NAFTA, duties are going down and eventually out,” said Laurence Leeds Jr., an analyst with Buckingham Research in New York.

Consultant Clint Stack, president of International Development Systems here, said, “The whole element of free trade is the ability to make decisions based on the hard facts instead of a situation where you’re faced with tariff and non-tariff barriers.”