MEXICO LOOKS GOOD AS CBI PARITY STALLS
Byline: Georgia Lee — with contributions from Jim Ostroff, Washington
MIAMI — With free-trade parity for the Caribbean in a political stalemate, major U.S. manufacturers and retailers are questioning the long-term growth potential for sourcing in the area and are looking to Mexico as an increasingly viable alternative.
At an industry roundtable hosted by Bobbin Contexpo, a trade show here that has primarily served the needs of companies doing business in Caribbean Basin Initiative countries, panelists were grim about the outlook for CBI parity.
The measure would give those countries the same free trade benefits as Mexico and Canada under the North American Free Trade Agreement, which went into effect at the start of 1994. Nevertheless, most of the panel, which included representatives from manufacturers such as Sara Lee Corp. and retailers such as Kmart Corp., said they would continue to support CBI parity.
“Our people think parity won’t happen before this presidential election, and if [Republican presidential hopeful Patrick J.] Buchanan has a strong showing, it will probably make it more difficult to pass it in the next few years,” said Rick Hyde, managing director of international sourcing at J.C. Penney Co. “As Mexico gathers more steam and financial backing, it will become more of a major factor.”
Norman Fryman, retired executive vice president of Bidermann Industries and chairman of the American Apparel Manufacturers Association, said the AAMA would continue to “push hard” for CBI parity in Washington, but added that it has become increasingly difficult, given the public perception that the bill would cost the U.S. jobs.
“We have some support in Washington for CBI parity, but as long as it’s perceived to mean a loss of U.S. jobs, no congressman wants to stand up and say he’s in favor of it,” said Fryman.
On Monday, Secretary of State Warren Christopher said in a meeting with Central American leaders in El Salvador that the Clinton administration once again will seek to give CBI nations free trade parity with Mexico.
He said President Clinton intends to include the request this month in his proposed fiscal 1997 budget, but Christopher also went on to express pessimism that the measure would pass Congress this year.
Since 1993, House and Senate measures that would have granted this parity either died in committee or were stripped out of larger trade bills. Domestic labor unions, supported by some textile firms and most notably Roger Milliken, chairman of Milliken & Co., have fought staunchly against further textile-apparel trade liberalization.
In an interview after the Bobbin Contexpo seminar, Fryman said more AAMA member companies were looking to Mexico, particularly as uncertainty over the economy there lessens. He added that well-established Caribbean Basin businesses would continue to perform as usual, but that future growth would suffer without a level playing ground with Mexico.
Whatever the future of CBI parity, panelists agreed the trend to a strong trading block of the Americas would continue.
Fryman and others urged U.S. companies to look at the bigger picture, beyond the search for the cheapest labor. “We’ve chased cheap labor all over the world, but that is only one part of the equation,” he said. “Quality, service and delivery are just as important.”
Fryman applauded the growth of warehousing facilities in Caribbean countries, which help offset the cost of handling goods in the U.S. “We need to get product from the yarn stage to the consumer’s back and passing through fewer hands,” he said. “That’s where the true savings come, not just from the pennies saved in sewing labor.”
Among other panelists, Luis Torres, senior vice president of underwear manufacturing for Sara Lee Knit Products, noted in an interview that his operation currently does 90 percent of its sewing in the Caribbean and Central America. He said operations there would continue, but the lack of parity would affect future growth. Sara Lee has limited operations in Mexico now, but that might grow in the future.
In addition to the standoff in CBI parity, Caribbean Basin countries have other obstacles to overcome, including a lack of raw materials and sufficient financial institutions to back U.S. investments, said panelists.
“People in Latin America aren’t used to worldwide sourcing,” said David Greene, director of sourcing and technical services for Kmart. “Banking facilities are much more sophisticated in the Orient, where they’ve been doing this much longer.”
Greene said Latin America, including Mexico, now represented between 5 and 10 percent of Kmart’s international sourcing, but he projected a tenfold increase in the next three years.
Norman Abels, director, international sourcing, Oneita Industries, agreed that Asia had the advantage of strong financing, but that distance and long lead times made the Orient increasingly difficult. Currently, 80 to 95 percent of the firm’s total offshore sourcing is done in Latin America, with the remainder in Southeast Asia. Alfonso Hernandez, chief executive officer, Argur International, a Miami-based apparel sourcing operation with factories in Central America, said that countries with the strongest textile base, the capacity for complex needle operations and a large consumer segment had the biggest long-term growth potential in Latin America. He cited Brazil, Mexico and Colombia as examples.
“Whatever country you do business with, there has to be the same commitment to quality,” he said. The thinking to date has been, ‘We don’t have to go first class in Latin America because the labor is cheap.’ But that approach is a big mistake.”