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A Case Study

MFA and MEXICO

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MFA

The Multi-Fibre Agreement was set up in 1974 as a set of formalquota agreements and restrictions, governing textiles and theclothing trade between developing countries and the developedworld.

developed world using it as a form of protectionism to securetheir own textile industries against the threat posed by low-costcompetition from less developed countries.

implementation of the MFA led to a situation of consumerwelfare loss in developed countries, and a loss of potentialexport earnings for LDCs, and the inability to exploit theircomparative advantage in this area.

Beneficiaries- large scale and low cost producers

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Mexico

Mexico has a comparative advantage over othercountries due to its proximity to the U.S. market.After signing NAFTA Mexicos exports in the textile

and garment industry increased from 1,894 millionUSD in 1994 to 9,214 million USD in 2002.

Mexico and Canada are the two largest export

markets for U.S. textile products.

U.S. exports of textiles and fibers to Mexico haveincreased by 25 percent each year since 1986.

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1995 to 1999, Mexico's textile andapparel industries accounted for an

average 7 percent share of thecountrys manufacturing gross domesticproduct (GDP).

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Mexico- before MFA

No where in the textile export

Market was dominated by US, Japan &

other developed countries.

Lack of investment & infrastructure offor the mass production.

But fine human resource

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Mexico during MFA

Economic problems at the time whenMFA was launched

No use of quota due to very week Peso

Total export in 1980 was zero

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Mexico during MFA

1980- 1990 economy was in rescission

Economic instability in 1982

only 0.5% GDP growth in 1982-1989period

Again total export was only $0.5 billion

Start of Infrastructure development

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Mexico during MFA

Tremendous growth in 90s

Economic stability and several trade

treaties help to increase the growth oftextile sector. Eg. NAFTA

Total export increased to $4.4 billion

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Mexico during MFA

NAFTA has created tremendous newopportunities for U.S. fiber and textile

producers to expand sales and increaseproduction. In 1996, textile exports toMexico for garment fabrication

increased by 45% (US $160 million)reaching US $500 million. During thesame period, Mexican-made garmentexports to the U.S. increased by 32%.

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Mexico during MFA

Till 2005 enjoyed the quota

In 2003 total export was $7.3 billion

Second largest exporter to US

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Mexico after MFA

The Mexican textile industry has beensuffering a massive loss in global

market share;textiles and garments: they accountedfor 6.5% to the manufacturingcontribution to GDP.

It is a market that employs a significantamount of labor and accounts for 6.7%of all manufacturing exports.

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"The end of the quotas system hasbeen marked by factories closures,

increased uncertainty and, downwardpressure on working conditions,especially for those workers employed

in smaller factories and amongsubcontractors,- Milisa Villaescusa of MUTUAC, one of the co-organizer

of the forum.

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After three years of stiff job decline - from 2001 to2003 a quarter of a million Mexican garments andtextile workers lost their jobs - the situation, seemsto have stabilized.

Still, with overall employment in the industry downby 33.6% from the peak of 2000, the new free traderegime and anticipated shifts in global investment

and sourcing patterns continue to bring fears oflarge-scale job losses.

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The United States financial crisis impactedexports to the country by 14% during thefirst quarter of 2009.

Mexican exports increased their share in theUnited States market: 11.7% of the totalimports in suits in 2008.

Between 2007 and 2008, Mexico displacedCanada and became the second largestsupplier in volume to the United States,only behind China.

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Threat from China

Beginning in 2000, Mexico has facedgrowing competition from China. The

Asian giant has provided headaches notonly for the textile sector but for mostMexican businesses, taking a leadingmarket share in U.S. textile markets.

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From January through September 2004,U.S. imports of Mexican-made apparel

reached $5.069 billion, 4.3% below thetotal registered for the same period in2003, -CNIV, Mexicos textile industry association

Meanwhile, U.S. imports of Chinesegarments grew 21.7% during thatperiod to reach $6.69 billion.

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China is expected to establish itself asone of the main providers in the textile

and garment sector in the next fewyears to come, its exports in the textilesector occupies 47% of the worldmarket by 2010 end.

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Mexico and India

Total trade between Mexico & Indiawas of $1.8 billion

Both were competing for the big USmarket

India had done good and over passed

MexicoIs a good destination to capture the 1billion consumer base of Mexico

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Conclusion

Taking all of the previous informationinto consideration we can note that in

order to keep the Mexican textileindustry from shrinking, high-valueadded products, full package productionand market diversification is detrimentalto the subsistence of the industry.

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Thank You.!

Manoj Kr. Thakur (M/MFM/09/15)

Sunny Jain (M/MFM/09/28)

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