NAFTA
The regional division of labour and allocation of export roles has changed dramatically with the entry into force of the North American Free Trade Agreement (NAFTA). Because NAFTA imposes no duties on goods produced within its territory, it places Caribbean States at a disadvantage relative to Mexico, which now enjoys lower tariffs in the highly competitive textile and clothing products sector. There has been a dramatic growth in Mexico's exports to the United States thanks to the fact that they enter duty free, while those from Caribbean Basin Initiative (CBI) countries are subject to duty on the value added offshore. In addition, the 50 per cent devaluation of the Mexican peso at the end of 1994 effectively reduced the price of Mexican exports in dollar terms.
The Caribbean has been the hardest hit by NAFTA and the increasing competitiveness of other regions. Recent currency devaluations in Asia will reduce the cost of exports from those countries and most likely intensify the competition in major markets even further. The Caribbean Textile and Apparel Institute reports that, since the introduction of NAFTA, over 150 companies and 123,000 jobs have been lost in the apparel industry in the Caribbean, and that many of those firms have relocated to Mexico. While the value of Mexican clothing exports to the United States rose from US$709 million in 1990 to US$3.8 billion in 1996, those of the Dominican Republic rose only from US$723 million to US$1.7 billion in 1996 and those of Jamaica from US$235 million in 1990 to US$505 million in 1996.
Asian apparel exporting countries may be next to suffer from the residual NAFTA effect. The Limited, for example, manufacturer of Victoria's Secret underwear, recently opened a plant in Mexico. Martin Trust of The Limited was quoted in Forbes Magazine (10 February 1997) as saying that, despite the fact that wages are three times higher in Mexico than in Sri Lanka, it was nonetheless more economical to produce in Mexico because of savings in time, transport costs and duties. In fact, there has been a steady reduction in apparel imports from Asia over the last quarter century, from 83 per cent of the total in 1980 to 41 per cent in 1996. Not only is it cheaper and quicker to operate within the Western hemisphere, but it allows United States textile manufacturers to supply the bulk of the fabric, something they cannot do with Asian suppliers. With the vertically integrated operations some United States companies are now establishing in Mexico, we can expect to see the same trend towards competition based on the combined factors of speed, cost and quality rather than simply on labour costs.