Chinhoyi University of Technology

SCHOOL OF ENTREPRENEURSHIP AND BUSINESS SCIENCES GRADUATE

BUSINESS SCHOOL MASTER OF SCIENCE IN SUPPLY CHAIN MANAGEMENT

TRADE AND CONTRACT MANAGEMENT - MSCSCM626- WEEKEND CLASS

JUSTICE PILOT TAPERA C17131549B

NYASHA BHOBO C17131113N

SITHULISIWE MTHIMKHULU C21147931R

ALBERT T. ZUZE C21148068V

PHILLIP MUKONO C21147938H

CALVIN MUTAZO C21148076E

NATASHA CHAKAMANGA C21148287P

DOMINIC MANUEL C21148187S

FARAI M. CHIPETESE C21148195J

ADMIRE TSATSI C21147965S

 1. Why did many textile jobs apparently migrate out of the United States in the years after
the establishment of NAFTA?

Cheap labour and inputs

The migration of many textile jobs and garment companies out of the United States, mainly to
Mexico to operate there was due to the cheaper advancements in technology included with
cheap workers compared to the United States. Labour rates in Mexico average between $10 and
$20 a day, compared to $10 to $12 an hour for U.S. textile workers. So they will save more on
huge production than manpower where are easily available. Mexico has a strong capability when
it comes to skilled and professional labour as such engineers and technician in textile industry.
There are many textile factories in North Carolina closed because of the failure to modernize and
launch policy changes to remain competitive with foreign markets. The increase in Mexican
garment production for export has an effect as well.

To reduce textile prices.

NAFTA increased trade between the three countries by abolishing all barriers. It also established
international accords on commercial investor rights. This reduced the cost of doing business. It
encourages investment and expansion, particularly among small enterprises. Import prices fell as
a result of lower tariffs. This reduced the possibility of inflation, allowing the Federal Reserve to
maintain low interest rates. Since 1994, clothing prices in the United States have decreased as
textile production has transitioned from high-cost American producers to lower-cost Mexican
producers. Consumers profit since they now have more money to spend on other things. A typical
pair of designer jeans, for example, has dropped in price from $55 in 1994 to around $48 now. In
1994, a dozen blank T-shirts cost $24 wholesale. They are now they sell for 14 in lots of twelve.

Increase exports for fabric and yarn

States and Mexico has increased at a faster rate than trade between the United States and the
rest of the globe, but Shoesmith claims that this trend began long before NAFTA. Cotton and yarn
exports from the United States to Mexico increased from $293 million to $1.21 billion between
1994 and 2004. Furthermore, while the textile industry in the United States has lost jobs,
supporters of NAFTA maintain that the US economy has benefited from decreased apparel prices
and increased exports from fabric and yarn producers. NAFTA advocates say that trade has
resulted as a result of the agreement.

Fabric and yarn manufacturers have increased their exports. NAFTA advocates say that the
agreement has increased trade. Despite the shift in fabric and apparel production to Mexico,
exports for American yarn manufacturers, many of whom are in the chemical business, have
increased. Before NAFTA, yarn makers in the United States, such as E. I. du Pont, only sent limited
amounts of goods to Mexico. Fabric and yarn exports to Mexico have increased as clothing
industry has shifted to the country. 70% of the raw material used in Mexican sewing shops comes
from the United States.

2. Who gained from the process of readjustment in the textile industry after NAFTA? Who
lost?

NAFTA gave both sides advantages and disadvantages. Mexico, like American enterprises, has
skilled and professional labour and technological breakthroughs, but the difference is that
the Americans have a long history of technical competence. To teach their personnel, Mexico
has R&D centres as well as technical centres of excellence. It also competes with Asian
imports. Also, in terms of market-based economic reforms, NAFTA contributed to Mexico's
economic recovery directly and indirectly following the 1995 currency crisis, resulting in
increased investor confidence in Mexico. Because of the easier access to external finances,
Mexican consumers began to enthusiastically satisfy their demand for a wide range of items
and brands from other countries.

The structural economic dependency on imports in Mexico has expanded dramatically. The long-
term income elasticity of demand for imports (basically manufactured items) like textiles, i.e.
cotton, clothes, and so on has more than doubled during this time, according to these findings.
Nonetheless, after NAFTA was signed, U.S. FDI in Canada and Mexico more than tripled to $348.7
billion, including the textile industry. FDI from Canada and Mexico into the United States
increased to $219.2 billion. The biggest result has been a massive growth in agricultural exports
from the United States to Mexico, with the US now supplying more than 75% of Mexican
agricultural products. Cotton, apples, pears, cattle, and dairy were the most rapidly growing US
exports to Mexico in terms of volume change. A minor increase in agricultural jobs in the United
States has been a positive impact. This was attributed to an increase in agricultural product
supply.

NAFTA eliminates the middle class in the United States and allows businesses to decrease their
pay, threatening to relocate to Mexico. The textile and garment industries in the United States
have seen a drop in labour supply and employment. Indeed, NAFTA expanded the maquiladora
program, in which U.S.-owned businesses hired Mexican employees near the border to assemble
products for export to the United States at a low cost. "These labourers have no labour rights or
health protections," according to the report. When workers were given the option of joining the
union or losing their jobs, they picked the factory. Workers had limited bargaining leverage
without union assistance.

Due to Mexico's economic dependence on the United States has grown significantly, the biggest
loser should eventually be Mexico. Despite the fact that Mexico has implemented a dozen trade
agreements with over 40 nations, more than 80% of Mexican trade is still with the United States.
NAFTA has had an impact on both parties' international investment, the United States and
Mexico. With the lifting of Mexican restrictions on foreign investment and tariffs, investing in
Mexico has become considerably more profitable for Americans. Nonetheless, it is clear that the
debate over NAFTA continues to this day, making it difficult to reach a consensus on whether the
overall impacts of NAFTA are favourable or detrimental for the countries involved.
 3. With hindsight, do you think it is better to protect vulnerable industries such as textiles,
or to let them adjust to the painful winds of change that follow entering into free trade
agreements?

Finally, safeguarding the textile sector from harsh free trade agreements is not a perfect answer,
but it does provide a favourable outcome for many with only a small amount of sacrifice for the
improvement of the countries' prosperity and reliance.

In terms of pursuing free trade vs defending domestic industries like the textile industry, I believe
that seeking a free trade deal without considering vulnerable industries like textiles is a much
superior strategy.

Many smaller developing countries, such as Bangladesh and Sri Lanka, have relied on quotas to
establish their own textile businesses. Their poor and insecure economic and political
mechanisms have made them reliant on textile exports, and they may be severely harmed if they
are forced to compete with China and India. Textile industry workers in these countries—those
who will lose their jobs soon—represent one of society's most vulnerable groups.

They include the poorest and least educated inhabitants in countries with almost no social
welfare safety nets. However, it will raise the price of garments and other fabrics for American
consumers. In terms of exports, the textile and clothing industries in the United States are heavily
reliant on the NAFTA free trade agreement, with roughly half of total exports flowing to either
Canada or Mexico in 2001. Imports are a different story: NAFTA countries account for less than a
fifth of sector imports.

In contrast, NAFTA has benefited the US textile industry by increasing exports to both Mexico
and Canada, particularly of high and good quality textiles. It will be difficult to advance the free
trade agenda in the current political and economic climate. However, if free trade accelerates
the development process by increasing output, leading to a convergence of relative commodity
prices, and ultimately reducing poverty and inequality in all three countries, it is critical to
institutionalize and extend this free trade process to the rest of the hemisphere
It will provide the best trading terms while increasing government (tariff) income, preserving
infant industries, and so on. The act of shielding a vulnerable sector, the textile industry, will
plainly reveal a revenue loss in the future for a free trade agreement.

3.1. What would the benefits of protection be?

The practice of adhering to protective trade policies is known as protectionism. By imposing

tariffs or otherwise limiting foreign goods and services in the marketplace, a protectionist trade
policy helps a country's government to encourage home manufacturers and therefore stimulate
domestic production of goods and services. Protectionist policies also enable the government to
safeguard domestic businesses against established international competitors.

Protectionism is where a nation places strict regulations on imports coming into the country. A
nation may adopt protectionist measures in order to protect domestic jobs, industry, national
security, and to protect the consumer. There are many types of protectionism such as subsidies,
restrictions on FDI, exchange rate controls, regulations, tariffs, and import quotas. In mid-May
2021, the Government of Zimbabwe introduced a ban on maize imports, suspending import
licenses for maize grain, maize meal and other maize products from June 2021. SI 124/2017
provided for a six-month suspension of duty on fertilized poultry eggs for hatching imported by
six approved importers Irvine's, Supa Chicks, Chinyika Chicks, Dr Henn, Zim Avian and All Avian

Domestic producers benefit from protectionist policies, while domestic consumers suffer since
they may have to pay higher costs for inferior goods or services. As a result, protectionist
measures are popular among businesses but unpopular among consumers.

Advantages of Protectionism

More growth opportunities

Protectionism provides local industries with growth opportunities until they can compete against
more experienced firms in the international market. Zimbabwe is a high cost country due to
reduced financing for Capital Equipment or long term financing. Since the year 2000 when
Zimbabwe was put on sanctions, lines of credit have dwindled. This was exacerbated by the fact
that government took over the domestic and foreign debt by banks when they borrowed during
the USD era after 2009. The government took over the debt but was not servicing it, hence the
credit rating for the country went down. As a result of this very few companies invested in Capital
Equipment in order to improve production capacity and efficiencies. In 2017 Simbisa Brands
Bakers Inn invested in a 120,000 loaves a day plant.

Zimbabwean companies can no longer compete at a global scale due to high

manufacturing costs as such the government from time to time moves in to protect the
local industry. The surtax imposed on second hand cars is meant to protect the local
industry.

Lower imports

Protectionist policies help reduce import levels and allow the country to increase its trade
balance. The balance of payments BOP) is the way through which countries track all foreign
monetary transactions during a given time period. The BOP is usually estimated every quarter
and every year. To assess how much money is coming in and out of a country, the BOP accounts
for all exchanges done by both the private and public sectors. A credit is a transaction in which a
country receives money, whereas a debit is a transaction in which a country pays or gives money.
The BOP should theoretically be zero, indicating that assets (credits) and liabilities (debits) are
equal, although this is rarely the case in practice. As a result, the BOP can tell an observer whether
a country is in deficit or not or a surplus, and where the inconsistencies come from in the
economy.

The government introduces protectionist policies to discourage importation of goods and

promote export so as to increase inflow of foreign currency in order to have a positive
BOP. The creation of Export Processing Zones was meant to promote inflows of foreign
currency.

More jobs
Higher employment rates result when domestic firms boost their workforce. Statutory
Instruments boost economic activity. There has been talk of beneficiation of platinum in the
mining sector since the first republic. There is talk that if the refinery plant is commissioned it will
create not less than 2000 jobs. Chrome mining has been affected by these Statutory Instruments.
The ban of raw export has impacted positively on Zimasco and it has seen the Chinese
establishing their processing plant in Zimbabwe.

Higher GDP

Protectionist policies tend to boost the economy’s GDP due to a rise in domestic production. If
the Platinum Refinery is set, Zimbabwean economy will be boosted because there is reduction in
unemployment through employment creation. Increased level of employment entail more taxes
to the treasury which increases government revenue which results in better services in health,
education, transport and communication as well as an improved quality of life for its citizenry.

3.2. What would the costs of protection be?

Disadvantages of Protectionism

Stagnation of technological advancements

As domestic producers don’t need to worry about foreign competition, they have no incentive to
innovate or spend resources on research and development (R&D) of new products. Organization
tend to be complacent in terms of quality improvements.

Limited choices for consumers

Consumers have access to fewer goods in the market as a result of limitations on foreign goods.
This results in the creation of an oligopoly market structure. An oligopoly is a market arrangement
in which only a few enterprises can prevent the others from exerting considerable influence. The
concentration ratio quantifies the largest companies' market share.

Increase in prices (due to lack of competition)

Consumers will need to pay more without seeing any significant improvement in the product.
The oligopoly market structure can result in supplier collusion to disadvantage the consumer.

Economic isolation

It often leads to political and cultural isolation, which, in turn, leads to even more economic
isolation.
References

1. C. Burritt, “Seven Years into NAFTA, Textile Makers Seek a Payoff in Mexico,” Atlanta Journal-
Constitution, December 17, 2000, p. Q1.
2. I. McAllister, “Trade Agreements: How They Affect U.S. Textile,” Textile World , March 2000,
pp. 50–54.
3. J. Millman, “Mexico Weaves More Ties,” The Wall Street Journal, August 21, 2000, p. A12.
4. J. R. Giermanski, “A Fresh Look at NAFTA: What Really Happened?” Logistics, September 2002,
pp. 43–46.
5. G. C. Hufbauer and J. C. Schott, NAFTA Revisited: Achievements and Challenges, Institute for
International Economics, 2005.
6. O. Cadot et al, “Market Access and Welfare under Free Trade Agreements: Textiles under
NAFTA,” The World Bank Economic Review, 19, 2005, pp. 379–405.
7. American Textile Manufactures Institute at www.atmi.org/index.asp; and U.S. Department of
Commerce Trade Stat Express Web site at http://tse.export.gov/.