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Leveling the Playing Field: Mexico's NAFTA wary neighbors seek parity
Mexico Business / May 1995

By Larry Luxner

WASHINGTON -- During the raucous 1992 debate over NAFTA, presidential candidate Ross Perot warned -- in his trademark Texan drawl -- that Mexico would suck millions of American jobs away if the treaty ever became law.

Two years later, Perot's infamous "sucking sound" is still not being heard anywhere in the United States. But it is audible and growing louder in San Juan, Santo Domingo, San Salvador and two dozen other capitals throughout Central America and the Caribbean.

Suddenly, with the plummeting peso making Mexico an even cheaper place to manufacture, U.S. investors -- particularly apparel makers -- are being lured there at the expense of traditional low-wage countries like Jamaica, the Dominican Republic and El Salvador.

The big loser appears to be President Reagan's Caribbean Basin Initiative, proposed in 1983 as a way to fight Communist influence in the Western Hemisphere. Just as NAFTA was intended to help Mexico, CBI sought to bolster the economies of 24 Central American and Caribbean nations by giving them duty-free access to the U.S. market in almost all products except for apparel, canned tuna, footwear, leather goods such as handbags and work gloves, watches and petroleum.

Later on, apparel and textiles became eligible under the so-called Item 807 program, and the region's garment industry began flourishing. Last year, U.S. garment imports from the Caribbean Basin rose by 12.7 percent to $4.57 billion.

But garment exports from Mexico during 1994, the first full year of NAFTA, soared by 38.3 percent to $1.89 billion. By 1996, Mexico could even eclipse the CBI countries in apparel exports -- and that has a lot of people genuinely worried.

"An unfortunate result of NAFTA is that significant investment is being diverted away from the Caribbean region to Mexico," warns Rep. Philip Crane, an Illinois Republican and chairman of the House Trade Subcommittee.

Adds Peter Johnson, executive director of the Washington lobby Caribbean/Latin American Action: "Through NAFTA, Mexico's got all the benefits of CBI, and that diminishes CBI's advantages. In Guatemala alone, 70 companies have closed or moved to Mexico."

Similarly, New York apparel giant Warnaco recently laid off 523 of its 620 factory workers in Ciales, Puerto Rico -- and promptly opened a new facility in the Mexican state of Tlaxcala employing 2,000 workers.

Warnaco claims the layoffs were inevitable, following termination of its license to assemble 4,400 dozen shirts a week on contract for Christian Dior. That arrangement, the company says, accounted for 60 percent of the factory's production; the rest consisted of Hathaway dress shirts and the Chaps line for Ralph Lauren. But local unions accuse Warnaco of merely shifting production to cut labor costs. In Puerto Rico, the minimum wage is $4.25 an hour -- the same as the U.S. mainland -- compared to under $1 an hour in Mexico since the recent peso devaluation.

"Prior to December, it was about the same," said Johnson. "Everything being equal, companies would prefer to stay in Central America because they find a better work ethic there, and workers are more experienced. But now, Mexico is much cheaper."

Like apparel, agribusiness isn't escaping the effects of NAFTA either.

"It's definitely no secret that NAFTA awarded Mexico significant advantages that may have put them on par or given them a little advantage over the CBI countries," says Jodean Robbins, an international trade specialist for Chemonics Inc. in Miami. "Central American melon producers, for example, are very worried about how NAFTA will affect their crop."

Both Crane, a Republican, and Florida Sen. Bob Graham, a Democrat, want the United States to stop helping Mexico at the expense of the Caribbean. The two are sponsoring similar bills collectively known as the Caribbean Basin Trade Security Act. If passed, the Crane bill would extend NAFTA-like benefits to all 24 CBI signatories for 10 years and permit -- for the first time -- duty-free imports of previously dutiable items from the Caribbean Basin.

"This measure would help preserve our original commitment to help foster economic expansion and political stability in the Caribbean and Central America," said Crane in a recent statement. "By granting NAFTA equivalent tariff treatment to these countries ... we intend to put CBI countries on a clear path to assuming the reciprocal trade obligations of NAFTA."

Antonio J. Colorado, Puerto Rico's former secretary of state and a proponent of Caribbean economic integration, says the legislation would put the region on a "level playing field" with Mexico.

"The Caribbean needs parity," he said. "The cost of parity to the United States is very small. At the same time, it will give them the advantages they had under CBI but are losing with NAFTA."

Among other things, the Crane bill directs the president to convene a meeting between the U.S. Trade Representative's Office and CBI trade ministers to begin discussions on possible accession to NAFTA. It also requires the president to monitor NAFTA's effects on CBI access to the U.S. sugar market, and provides duty-free treatment to rum produced in a CBI country and shipped to the U.S. via Canada. Finally, it orders an assessment by USTR on economic development efforts and market-oriented reforms in CBI countries as part of the preparation process to join NAFTA.

Clinton administration officials agree that Central American and Caribbean countries -- which together have less than half the population of Mexico -- should have an equal crack at the U.S. market.

"We think it's important to bring the Caribbean Basin into the program," says Deputy Assistant U.S. Trade Representative Jon E. Huenemann. "We're approaching this from the point of view of a constructive player. The United States obviously has its sights set on bringing Chile into a Free Trade. If this legislation helps forward that goal, the administration would support it."

Labor unions generally oppose extending trade preferences to the Caribbean for the same reasons they opposed NAFTA -- competition with American jobs. They also criticize the track records of Central American countries such as Honduras, which was recently investigated by the U.S. government for alleged violations of workers' rights. Mexico, surprisingly, has been silent on the CBI-NAFTA parity issue, probably because the government has more urgent matters on its agenda.

Nothing, however, is more urgent for the C/LAA, which has been lobbying hard to get the Crane bill approved in the House. Also pushing for NAFTA parity are the ambassadors of all six Spanish-speaking republics of Central America, as well as the Caribbean Community (Caricom), which consists of 13 English-speaking Caribbean nations and Dutch-speaking Suriname on the South American coast.

"This is clearly an improvement on all the previous efforts," said Byron Blake, Caricom's assistant secretary-general. "In its present form, this bill offers the CBI countries all that they want beyond the year 2000."

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