Mexican and American brands continue to be hurt by contraband trade in apparel from Asian manufacturers that enters Mexico without paying duties. Estimates are that six in 10 garments sold in Mexico are imported illegally.
Observers said there is little hope of near-term improvement, adding that textile and clothing cargoes are also being used to funnel narcotics and weapons between the two neighbors.
Their comments come as President Trump recently demanded Mexico tighten its border security, adding that the country has done “very little, if nothing” to stem illegal immigration and narcotics from flowing across the border. He reiterated previous warnings that successful NAFTA renegotiations would hinge on Mexico making greater efforts to secure its border side.
Despite that, U.S., Canada and Mexico officials this week said talks to revise the 23-year-old accord are making progress. Mexican Economy Secretary Ildefonso Guajardo was particularly sanguine, saying that a breakthrough, preliminary deal could be unveiled as early as next month.
Javier Tarin, founding partner of Tijuana-based customs and immigration law firm Garcia and Tarin, said efforts to fight the contraband and fakes trades have not made real progress. In late 2010, the U.S. and Mexico were said to be boosting joint customs operations to thwart the ballooning contraband trade that, at that time, was costing textile and apparel manufacturers across the two borders billions of dollars.
“Nothing has changed,” said Tarin. “There has been no radical change in customs enforcement. Apparel and other commercial cargoes are still carrying drugs, weapons and laundered funds.”
To assuage Trump and win some NAFTA concessions, Mexico is offering to toughen customs enforcement and deepen U.S. collaboration to forge some sort of bilateral enforcement deal, said Jose Cohen, the country’s textile and apparel lead negotiator. Due to confidentiality agreements, however, he could not provide more details.
During the accord’s eight negotiating rounds, Mexico has pressed the U.S. to maintain the Tariff Preference Level provision enabling it to import scarce garment parts from Asia to boost its competitiveness. However, pressured by the U.S. National Council of Textile Organizations and other groups claiming the TPL hurts American industry, the Trump administration continues to deny such requests, according to Cohen.
“If we can come up with a stronger customs agreement, that could open up space for other negotiation compromises,” Cohen said. “Mexico and the U.S suffer from the same triangulation, illegal commerce practices and sub-valuation problems so if we can come up with a stronger customs agreement I think we can make progress in the next round.”
A rising tide of Asian merchandise is increasingly reaching the U.S. as Mexico-bound, NAFTA-labeled goods, skipping duties on U.S ports including Long Beach, Calif., which has seen a sharp increase in the activity, Cohen said. The garments are then declared as U.S. goods when reaching Mexico, doubly avoiding tax payments.
Some U.S. trade lobbies bristled at the idea of Mexico using border security as a weapon to win NAFTA breaks.
“The National Council of Textile Organizations would not be supportive of making concessions in return for better Mexican customs enforcement,” said an NCTO spokesman. “Adequate customs enforcement of NAFTA or any other trade agreement should be expected as a condition of participation.”
NCTO is urging U.S., Mexico and Canada customs officials to meet regularly to reconcile import and export data for goods claiming NAFTA benefits as an ideal mechanism to bolster enforcement.
Meanwhile, an NCTO insider agreed the contraband trade remains a big headache for the U.S. and Mexican industries alike. “Customs enforcement and the drug trade are interlinked and clearly NAFTA trade is being used to launder drug money from the cartels,” said the source.
Textile and apparel-related import duties totaled $13.5 billion last year, the NCTO said, without disclosing how much cross-border smugglers steal from this sum. However, it also blamed “lax U.S. customs enforcement” for allowing “unscrupulous importers to avoid duty payments.”
Mexico could do more to halt illegal commerce in its border, both by hiring more customs officers and raising salaries to avoid rife mordidas or bribers, encouraging impoverished border staff to break the law, Tarin said.
This, however, would require big structural investments to change the country’s random inspection system, which Tarin described as a “coin flipping” arrangement where individual vehicles get stopped, though most don’t. While cargo shipments are more heavily scrutinized, the random checks have enabled thousands of individuals to earn an income from smuggling both new and increasingly used clothing south of the border.
This activity has fueled anger with Mexican trade organizations, which claim Mexico City is not doing enough to staunch the used and off-price clothing trade, which accounted for $700 million in imports last year.
To shore up the struggling apparel industry, Mexico introduced a textiles aid package in 2016 aimed at stamping a flood of Asian sub-valued garments. The cents-of-a-dollar items were triggering huge losses for both local and top-selling U.S. labels such as Abercrombie & Fitch, Hollister and American Eagle, officials claimed.
While the trade diminished last year, fashion executives say it remains a headache.
Eric Levy, commercial director at Industrias Cavalier, which makes tailored Tommy Hilfiger suits, said, “The [Asian] competition is still here. [The government] installed the reference prices but officers still don’t know what they are doing. They still use any price they want.”
Mexican makers are also fretting about the TPP-11, the fledgling Trans-Pacific Partnership agreement excluding the U.S. The nation worries that Vietnam will gain unfair competitive advantages and continue to dent Mexico’s share of U.S. imports. Simultaneously, it has flagged concerns that Vietnam will triangulate Chinese garments into Mexico, crowding it with more cheap clothing and bankrupting local producers.
If Mexico City fails to roll out free-duty exemptions on Vietnamese and Malaysian apparel, 30 percent of the textiles and apparel sector could disappear, taking 150,000 jobs with it, according to Canaive’s new president Victor Rayek Mizrahi.