NAFTA NUMBERS ON TARGET

Byline: Jim Ostroff

WASHINGTON--The numbers are in and the North American Free Trade Agreement appears to be doing exactly what it was expected to do.
"NAFTA is a success, based on the first five months of data, because people are increasing their apparel sourcing in Mexico and it seems to be in NAFTA-originating products" that receive free trade benefits, said Clinton Stack, president of International Development Systems, a Washington foreign trade consulting firm.
Stack's assessments are based on an analysis of U.S. import trade data compiled by the Commerce Department's Office of Textiles and Apparel (OTEXA) on imports of these garments from Mexico between January and May. The trade pact took effect Jan. 1. Although the report provides NAFTA import data for just five months, Stack, whose firm often analyzes trade data, said it indicates several emerging trends:
The growth rate of apparel exports to the U.S.--made in Mexico from yarns and fabric originating there, the U.S. or Canada--is 50 percent higher than exports in the prior year's period, without NAFTA.
The trade pact is promoting so-called production sharing of apparel manufacturing, where each input--yarn, fabric, cutting or sewing--is sourced or assembled where it is most economical, either the U.S. or Mexico.
U.S. imports of Mexican-made apparel are now rising at a 30 to 40 percent clip, compared with 20 to 25 percent annual increases since 1990 under 807 and the now defunct Special Regime program.
The bedrock of Stack's analysis is the OTEXA report indicating the U.S. imported 146 million square meters equivalent (SME) of apparel from Mexico from January through June that would have met the Special Regime's requirements, or still qualify for 807.
The total includes 133.12 million SME of apparel that would have satisfied the Regime's requirement that clothing assembled in Mexico be of U.S.-made and cut fabrics, in exchange for duty and quota breaks. Regular 807 provides quota preferences for apparel assembled from foreign fabrics cut in the U.S.
While NAFTA did not exist last year, he said most of 105 million SME of Mexican apparel imported in the first five months of 1993 would have qualified for NAFTA benefits.
Based on this apples-to-apples comparison, Mexican apparel imports under special programs soared 39 percent during the first five months of 1994, versus the comparable 1993 span. By comparison, Mexican apparel imported under 807 programs rose 26 percent between 1991 and 1992 and by 24.6 percent from 1992 to 1993.
U.S. imports of Mexican apparel that were made without duty or quota benefits of 807 programs rose by 24 percent for the first five months of this year to 16.4 million SME.
Overall, NAFTA appears to be giving a boost to Mexican apparel shipments. U.S. imports rose about 24 percent annually in 1990 and 1991, 23 percent in 1992 and almost 20.6 percent in 1993. But for the year ended in May, including five months under NAFTA, these imports were up 28.5 percent.
Perhaps even more telling is the overall apparel import comparison, including those items imported under NAFTA, 807 and traditional channels, for the first five months of this year versus 1993 were up 37.4 percent.
Analysts within OTEXA declined to comment on the NAFTA trade data, while Carl Priestland, the American Apparel Manufacturers Association's chief economist, said he wanted to see at least a full year's data before discussing whether NAFTA truly has increased Mexican shipments substantially over the old Special Regime levels.
But Stack, at one time an economist with the American Textile Manufacturers Institute and former deputy director of OTEXA's international agreements division, ventured NAFTA is on track "with the theory that it will promote more trade and...has been a real boost to cross-border production sharing," based on the 39 percent increase in 807-type exports.
Stack also maintained the OTEXA report provides data that bears close watching by the trade community. Between January and May, Mexico shipped 7.7 million SME of apparel to the U.S. that received NAFTA benefits, but were not made under the 807 program.
"While there is no way to say how much 7.7 million SME is an increase over the same five months of imports in 1993, it represents (apparel) made from NAFTA-qualifying fabric that was not cut and not assembled in the U.S., and potentially could produce the biggest growth rates," Stack said.
"This makes sense, because if you get investment in Mexico for fabric production, or establish cutting facilities within assembly plants in Mexico, you cut out the cost of transporting piece goods from the U.S. So what you're likely to see is Mexican industry becoming vertically integrated, but from the top down. They have assembly and will add fabric-making and cutting operations."
In reviewing the new NAFTA data, Stack noted that virtually no Mexican apparel was imported into the U.S. using the Tariff Preference Levels. These TPLs permit the annual import into the U. S. of up to 71.5 million SMEs of Mexican apparel that doesn't meet the pact's requirements.
"One would expect that the TPLs will be utilized as companies gain experience in NAFTA trade," he said.
Stack also pointed out that the OTEXA report indicates basic shifts could be occurring in trade patterns for apparel, such as women's and girls' wool suits, category 444. Specifically, U.S. imports soared about 107 percent to 35,901 suits, or about 135,000 SME, for the first five months of this year versus the same period in 1993. However, 91 percent of these suits were made under the regular 807 program, which offers quota breaks for goods when non-U.S. fabric is cut here, assembled in a country such as Mexico and shipped to the U.S.

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