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NAFTA Case Study

NAFTA Case Study

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Published by Alvin Lim

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Published by: Alvin Lim on May 28, 2012
Copyright:Attribution Non-commercial


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This paper examines the impact of NAFTA on trade as well as migration flows between Mexico,Canada, and the United States in the textile industry. Several questions are being investigated: Whydid many textile jobs apparently migrate out of the United States in the years after the establishmentof NAFTA? Who gained and lost from the process of readjustment in the textile industry afterNAFTA? The act whether to protect or not to protect the textile industry when a free tradeagreements? The findings show that the migration of many textile jobs out, mostly Mexico wasmainly due to a cheaper and enhanced plants included with a flood of cheap labour compared to theUnited States. Certain quarters like the people of Mexico, people of the United States, apparelcompanies, and etc both benefits and lost at the same time. The impact on long-term trends werenoticeable, while the short-run impact is more difficult to assess due to competing factors such aschanges in business cycle patterns, immigration laws, economical climate, weather conditions, andexchange rate movements. Finally, there is the idea that protecting the textile industry from painfulfree trade agreement is not a perfect solution, bringing a solid and positive outcome to many with onlya little much to sacrific
e for the betterment of the countries’ wealth and dependency.
The first major international trade agreement in the world was the General Agreement on Tariffs andTrade (GATT) formed in 1947. Countries, including the United States and Canada, were members of this agreement. Mexico joined GATT several years later. Many countries had economies that hadcollapsed due to the World War II, so GATT was designed to increase trade liberalization betweencountries. The North American Free Trade Agreement (NAFTA) was implemented on January 1,1994, designed to take away tariff barriers between the U.S., Canada and Mexico. Under the NAFTA,all non-tariff barriers to agricultural trade between the United States and Mexico were eliminated. Inaddition, many tariffs were eliminated immediately, with others being phased out over periods of 5 to15 years. NAFTA is known in French as ALENA (
 Accord de libre-échange nord américain
), and inSpanish as TLC (
Tratado de libre comercio
) or TLCAN (
Tratado de libre comercio de américa delnorte
). NAFTA promises a lot of benefits but these benefits come at a high price for the participatedcountries. NAFTA is a very complex agreement containing many chapters and covers a wide range of topics essential in the establishment of the agreement but in this particular case the clause and sectionsin contrast to textile industries only applied here. NAFTA is not a simple agreement to complete freetrade between three countries, however desirable such an idea might have been at the time. The treatyis a complex series of documents compiled in thousands of pages and covering a wide variety of tradeareas, conditions and deadlines. This study will structurely define the ways in which the textileindustry has been affected positively or either way in the respected countries since the implementationof NAFTA in different degree of levels. Moreover, this paper will explain how it has affected firms instages either long term or short term and its results included with some prediction of the aftermath of 
the countries’ textile industry.
And finally the comparison textile industry after-1994 with the pre-1994 average annual growth rate in both Mexico and the States is stated.
Migration of textile companies to Mexico
Very according to the Whitehall Textiles Group and Fruit of the Loom Inc case study, the passage of NAFTA, prompted most textile and garment companies to migrate operations into the nation of Mexico. Numerically the most dramatic effect NAFTA has had on the textile industry is the increasein Mexican garment production for export. Critical review of textile and apparel's case studies sincethe implementation of NAFTA indicate that, until recently, the textile industry has been the largestUnited States manufacturing sector when it comes to employment. North Carolina has been one of thehardest hit states as a result of the effects of NAFTA on the economy. The textile industry in the stateof North Carolina showed specific decline, according to information provided by the North CarolinaDepartment of Commerce.
It’s a well known corporate fact that Mexico carries an abundance of 
nonunionized workers. However, it has also been noted that secondary reasons for the large scaleclosure of textile factories in North Carolina can be attributed to a failure to modernize and launchpolicy changes to remain competitive with foreign markets. Statistically, during the first seven yearsof NAFTA, 52,419 employees lost their jobs as a result of the closing textile factory. According to the
 Autex Research Journal
, the most notable impact of NAFTA on the industry's resource is a drop inemployment. In the year 1994, the US textile employment rate has been on a steady decrease. InMexico
the wages for worker were much lower and ‘disunionize’.
The Mexican industry's wagesand benefits don't even top $2 per hour versus $13 to $14 per hour in the States. Textile and garmentcompanies could save more on vast production than manpower where are easily available. However,it is important to note that a reduction in textile employment is U.S is not due solely to the effects of NAFTA on the industry. It is worth mentioning that cheap advancements in technology have alsosignificantly impacted the job migration in the textile industry to Mexico. Mexico has a strongcapability when it comes to skilled and professional labour as such engineers and technician in textileindustry have been operating in the country for over 30 years before even NAFTA was been put intoeffect which is cheaper to hire, providing equal level of consultation with the States. Aside from that,technological advancement and machinery has increased productivity and efficiency in the industry,but has decreased the need for tangible human interaction in terms of production.

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