Topic Category: Manufacturing

Sharing different stages of the manufacturing process with producers in different countries has many benefits. For example, it can result in lower manufacturing costs while increasing your level of global competitiveness.

Importantly, this process can help retain jobs that would have been lost due to competition and even grow them in capital-intensive manufacturing, product development, design, and marketing related activities here in the United States. During periods of slow economic growth, these advantages are worth considering.

Topic: Manufacturing
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Revolutionary technologies combined with production sharing have transformed the U.S. manufacturing industry. As a result, levels of productivity and competitiveness during the 1990s increased significantly.

The Manufacturing Process Is Evolving

In the 1990s, the manufacturing industry grew faster than the U.S. economy and generated 29% of gross domestic product (GDP) growth. This is significantly greater than its 21.5% contribution in the 1980s, according to the National Association of Manufacturers (NAM). In addition, manufacturing productivity (output per man hour) grew by 3.1% annually from 1991 through 1998. This was considerably higher than productivity in non-manufacturing sectors.

Topic: Manufacturing
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The September 11th terrorist attacks on the United States and additional potential attacks here and abroad require the business community to reassess its international strategies and practices. For many, this will involve accommodating change and managing disruptions in supply chains, inventories, travel frequency and destinations, overseas buying patterns, accounts receivable risk, and shipping and insurance costs. A number of new issues will need to be considered and important questions answered for any business preparing to do business internationally in 2002.

Is Your Supply Chain Vulnerable?

U.S. companies that rely on foreign-made components or material to complete their manufacturing process need to establish a plan should their supply chain become disrupted. And for those companies that rely on just-in-time deliveries, it may be wise to maintain larger just-in-case inventories or identify additional suppliers.

In 2000, U.S. companies imported more than $1.2 trillion in merchandise. Of this, $367 billion was purchased from suppliers in the Western Hemisphere and $257 billion from suppliers in Europe. Asian suppliers provided $485 billion in goods, representing the largest share at 40% of total U.S. imports. Since the September 11th terrorist attacks, the U.S. State Department has identified related security threats in Indonesia, the Philippines, Pakistan, and many other countries. Should ocean shipping lanes be affected in the South China Sea or in the Strait of Malacca — a particular vulnerable point due to its narrow passage between Malaysia and Indonesia — imports from countries in the region and marine vessels en route may be required to take circuitous routes, thereby delaying delivery.

Is Your Product at Risk for Delay?

Manufacturers and distributors who rely on merchandise worth $80 billion from Singapore and Malaysia (the United States’ 10th and 12th largest suppliers), the Philippines, Indonesia, and India might consider alternative strategies for guaranteeing timely deliveries. The dominant products imported by U.S. companies from Malaysia, the Philippines, and Singapore include computer equipment and parts, as well as semiconductors and other integrated circuit devices. However, delays resulting from sabotage in the Strait of Malacca are mitigated since most of these products are shipped to the United States by air and not by sea.

Many of the components used in the assembly of these products originate in the United States, reflecting production-sharing arrangements. Popular U.S. imports from Indonesia include footwear, apparel, natural rubber, and other goods which are often delivered by ship.

Should Orders Be Placed Sooner?

Due to potential civil unrest in particular countries, as well as new U.S. customs and transportation security procedures delaying ocean and air shipments, purchase order lead times on overseas custom-made goods are likely to increase.

Consequently, custom designed electronic components ordered from Malaysia or private label apparel knitted in Pakistan may need to be ordered weeks or even months earlier than normal to ensure delivery by a specific date. This will undoubtedly add to inventory costs. But as many manufacturers well know, unavailable or delayed inputs can slow production schedules to the point of jeopardizing customer relationships.

Will Your Importers Continue Buying at Current Levels and Pay On Time?

During this period of unusually slow global economic growth, coupled with regional political instability and civil unrest, overseas buying patterns may be disrupted. As a result, it is important to identify your most vulnerable target markets and reassess export destinations, focussing on economic strength and political stability.

Importantly, the level of international receivable risk may climb. Commercial risks, mainly viewed in terms of the credit strength of the buyer, involve the buyer’s ability to pay, terms of payment, and the credibility of the buyer’s bank. If the commercial risk is questionable, consider more secure payment vehicles.

Has Foreign Country Risk Increased?

In various parts of the world, country risk, as well as commercial risk, have risen. Country risk involves economic, political, and social risks that are largely beyond the control of the buyer, but can seriously impede or prevent payment. Generally, economic conditions are reflected by growth, inflation, unemployment, balance of trade, and taxes.

Political risks are often assessed in terms of country stability, and sometimes measured by the level of confidence in a government. Social factors usually include social unrest and violence. Should social turmoil envelop a nation, the disruption of activities could put your foreign buyer’s business at risk. And, a new government may impose economic policy that could prevent you from being paid for goods shipped.

Additionally, currency volatility can have a major impact on country risk and could affect your ability to collect anticipated payments. For example, if your buyer’s currency is devalued by half its value and you are collecting in U.S. dollars, it will take twice as much of your buyer’s currency to pay you. On the other hand, if you are collecting payment in the foreign currency, you’ll receive half of what you expected.

Various methods of payment exist that serve as an alternative to an open account without insurance. From least to more risky, these include letters of credit, open account with insurance, documents against payment, and documents against acceptance. In addition to payment concerns, don’t underestimate the need to reassess the short and long-term stability factors of countries in which you have foreign subsidiaries or investments.

Will Higher Shipping and Insurance Rates Be Built into Your Prices?

Due to security surcharges on cargo in a riskier business environment, shipping and insurance costs are anticipated to rise. In fact, some insurance companies have increased the number of countries subject to “war risk” surcharges. This means shipping lines must notify marine underwriters before their vessels move into designated waters, as these vessels may be subject to significant additional insurance premiums. Much of this added expense will be passed along to customers.

September 11th Impact on Trade

Since September 11th, the number of business people traveling by air dramatically declined, but then it began to pick up. How will all the fear of flying combined with additional costs of doing business impact international trade?

At least in the short term, fear probably will continue to keep a segment of business travelers from attending far away meetings in the U.S. and abroad. This, combined with flight delays due to extra time required for security checks, plus the declining cost and adaptability of telecommunications equipment to internet technology, likely will result in an increase in video conferencing.

Consequently, international trade will slow in the short-term partly due to the impact of terrorism and slower economic growth. And although there is no substitute for face-to-face rapport building, improved electronic communication is likely to keep international trade on track.

This article appeared in December 2001. (BA)
Topic: Manufacturing
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Globalization and new technologies are having a profound impact on the U.S. manufacturing industry. This is affecting business worldwide and may demand new strategies for your firm.

Topic: Manufacturing
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On October 10, 2000, Permanent Normal Trade Relations (PNTR) status for China was signed into law. This was necessary for U.S. companies and farmers to benefit from China’s commitment to reduce or eliminate tariff and non-tariff barriers as a prerequisite to joining the World Trade Organization (WTO).

As a result, U.S. exports to China are estimated to increase by $13 billion annually by 2005, according to Congressional Research Service. And, the U.S. Department of Agriculture projects an increase of $2.2 billion annually in agricultural exports alone. How will this affect your business?

Upon China’s accession to the WTO, its duties and quotas are scheduled to be reduced at different rates. The phase-out period could be rapid or stretched out over several years. Consequently, the impact on your business will vary depending on the product or service you export to China, or the industry you choose to invest in. Below are sectors we believe will be significantly impacted.

The Computer Industry

According to the U.S. High-Tech Coalition on China, a group of leading U.S. technology associations, U.S. exports of computers to China increased more than 500% from 1990 through 1998. The Chinese computer market is growing by 20% to 30% each year, and the PC market is growing twice as fast as the world average. By the end of 2000, China is projected to become the second-largest PC market. Plus, China has agreed to adopt the Information Technology Agreement (ITA), which eliminates China’s 10% - 15% duties on computers and peripherals by 2003.

Additionally, China is expected to extend full trading and distribution rights to foreign firms within two years of WTO accession. This means U.S. computer companies, and others, can import and export without going through a Chinese middleman, and can provide direct after-sales service and support. As a result, U.S. producers and distributors of computers could benefit significantly.

e-Commerce and the Internet

The number of Chinese internet users jumped from 1.1 million in May 1998 to 9 million by December 1999, according to the U.S. High-Tech Industry Coalition on China. And, it is anticipated to climb to 20 million by December 2000.

As part of China’s commitment to join the WTO, it also has agreed to open its information technology sector. Consequently, it is expected to reduce tariffs from 13.3% to 0% by 2005 on a wide range of information technology products — laying the groundwork for e-commerce. Importantly, the Chinese liberalization of financial services, express delivery, air courier, and freight forwarding services will help support e-commerce growth.

The Telecommunications Sector

U.S. exports of telecommunications equipment to China rose more than 900% from 1990 through 1998, according to the U.S. High-Tech Coalition on China. This includes optical fiber, telephone and cellular equipment, satellite services, and networking equipment that ties communications devices together.

By December 1999, China claimed to have 40 million cellular subscribers, one of the world’s largest markets. As cellular use increases, the number of fixed telephone lines also is anticipated to rise from 100 million to 175 million, while the number of wired households is predicted to climb from 12% to 22% by 2003.

According to the WTO accession agreement, China is expected to open its telecom market by eliminating duties on most telecom imports within three years. Additionally, it is anticipated to phase-in: foreign participation in paging and other value-added services, allowing up to 50% foreign ownership; mobile/cellular services, allowing up to 50% foreign ownership; and fixed line/international long-distance services, allowing up to 49% foreign ownership. China also signed onto the WTO Agreement of Basic Telecommunications Services. This grants public telecom networks access on a nondiscriminatory basis. Plus, technology choices are to be made as commercial decisions, rather than government mandate.

The Software Industry

The software sector is one of the fastest growing and largest job creating industries worldwide. In fact, according to the U.S. High-Tech Industry Coalition on China, the U.S. industry has grown 18% annually, and is projected to contribute more to the economy than any manufacturing industry, including the automobile sector.

In 1998, China’s packaged software industry market was valued at $756 million. It is expected to grow to $5 billion by 2003. And, as part of its decision to join the WTO, China has agreed to abide by the Agreement on Trade Related Aspects of Intellectual Property (TRIPs), the best vehicle available to combat software piracy. This is essential, since in 1998 it was estimated that 95% of business software used in China was pirated.

The Medical Industry

China is anticipated to eliminate its quotas on medical equipment upon WTO accession and reduce tariffs on medical equipment from its current rate of 9.9% to 4.7% over a three-year period. Due to China’s agreement to allow foreign firms to import, export, distribute, and provide after-sales service, its medical imports are anticipated to increase.

The Chemical and Pharmaceuticals Sector

As part of its WTO commitment, China has agreed to reduce tariffs on chemicals from an average rate of 14.74% to 6.9%, and eliminate almost all chemical quotas upon accession. Additionally, it is expected not to enforce export performance, local content requirements, or similar requirements as a condition of importation or investment approval.

China agreed to reduce its average tariff on pharmaceuticals from current levels of 9.6% to 4.2% over a three-year period.

The Agricultural Industry

Based on the WTO accession agreement, China should reduce agricultural tariffs from an average of 22% to 17.5%. Duties on “U.S. priority” agricultural goods are anticipated to fall from 31% to 14% over a four-year period.

China is committed to eliminating non-tariff barriers and will use a tariff-rate quota (TRQ) system for wheat, corn, rice, cotton, and soybean oil, thus expanding market access. Chinese imports above the quota level will be subject to a higher duty rate. China said it will not use agricultural export subsidies and will reduce domestic subsidies.

The Emerging Economic Power

“China will increasingly become a regional economic power and trading hub after its WTO entry,” said Frank Gong, Bank of America Vice President and Senior Research Analyst for Asia. “As its trade barriers fall, China’s labor-intensive exports will become more competitive. This will put pressure on China to reduce prices, especially on agricultural products, which are 15% to 20% higher than world prices, and could worsen its unemployment rate leading to social instability.”

“Due to greater competition for foreign direct investment, China will increase its competitiveness in value-added exports in the medium to long-term,” Gong added.

Currency Convertibility

Within five years of WTO accession, Beijing’s commitment to allow foreign banks to deal in the Chinese currency, the renminbi, will increase pressure for interest rate liberalization and accelerate movement toward full currency convertibility. According to Gong, “A free-floating foreign exchange system is the only feasible alternative.”

Chinese Economic Growth

China’s gross domestic product growth rate is projected to reach 8% in 2000, and 8.5% in 2001, one of the world’s highest. As growth continues, and as China liberalizes its economy, demand for your products and services is likely to rise.

This article appeared in December 2000. (BA)
Topic: Manufacturing
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In today’s consumer driven economy, you must fully satisfy your customer’s needs or your competitors will. But as customers’ needs grow increasingly diverse, keeping up with their demands can be overwhelmingly difficult.

In the 21st century, customer differentiation is based more and more on market segmentation, not national borders. Consequently, your target market — which is more like a moving target — may span dozens of countries. This brings rise to the concept of the “global consumer.”

What Is Mass Customization?

Dynamic global markets, rapidly changing consumer needs, and emerging technologies have challenged the existing manufacturing paradigm of mass production. Instead of large plants turning out mass quantities of the same product, a highly flexible manufacturing process that can efficiently produce small lots of specialized products at a low cost is required. This is called “mass customization.”

In order to achieve this, you’ll need a sophisticated system of communications among all levels of distribution. This is made possible by advanced information technology that closely links the producer all the way up the chain to the customer. So you’ll know exactly what to produce and when to produce it.

And that’s not all. New technologies, like CAD/CAM, make possible instantaneous changes in the specifications and customized adjustments in production without any machine downtime.

Mass Customization Is Not New — But the Elimination of the Waiting Period Is

Mass customization has been going on for years. What is changing today is the elimination of the waiting period.

In some stores, you can now have shirts made to order in 24 hours. And in Japan, the majority of men’s suits are sold door to door. Salesmen employed by department stores carry 10 sizes for fitting and they customize by color, fabric and style.

Years ago only a few TV channels were available. Today, cable networks cater to very select interests, including food preparation and fitness. Even birthday cards can be tailor-made satisfying your interests.

Some large eyewear retailers now allow their customers to build a pair of glasses, choosing the lens shape and style, nose bridge, hinges and arms. The design system takes a digital picture of the customer’s face, analyzes the attributes and customer-provided information, and prints out a photo-quality picture of the customer wearing the proposed eyeglasses.

Some auto manufacturers can even deliver a custom-built car in just a few weeks with no extra cost. Mass customization can and will be applied to every industry — even agriculture, which now offers custom-blended fertilizers.

You Must Achieve Economies of Scope — Not Economies of Scale

The message is clear. Industries must learn how to engineer for economies of scope rather than economies of scale. Thus, the more your company can deliver customized goods on a mass basis, the greater your level of competitiveness.

With the emergence of globalization, and the global consumer, manufacturers in every industry will need to mass customize their products. And distributors and retailers must be in a position to sell them — domestically and internationally.

This article appeared in October 2000. (CB)
Topic: Manufacturing
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If global competition is making your company vulnerable, production sharing may be right for you. It can improve your level of competitiveness, keep your higher wage jobs and capital intensive processes in the United States, and provide an important market for your component exports.

U.S. firms engage in production sharing (also referred to as co-production) to reduce overall costs, as well as to gain access to unique technology, raw materials, specialized intermediate inputs and/or labor skills.

This often allows companies to retain product development and design, capital-intensive manufacturing, and marketing-related activities in the United States, while shifting labor-intensive operations to lower labor cost countries.

Production Sharing Is Not Unique to U.S. Companies

Production sharing is used throughout the world. For example, companies in Japan, Korea and Taiwan co-produce in China, Indonesia, Malaysia, Thailand, and the Philippines primarily to reduce their labor costs.

In the European Union (EU), most co-production involves apparel, auto parts, and electronic products and occurs mainly in Poland, the Czech Republic, Hungary, and Slovenia — countries with inexpensive but well-educated labor forces. A growing share of EU co-production is also taking place in Northern Africa.

Chapter 98 Can Help You

Production sharing is sometimes the only viable strategy to make your products more competitive abroad — and in the United States.

Under Chapter 98 of the U.S. tariff code (tariff classification 9802.00.60, 9802.00.80 and 9802. 00.90), U.S. materials assembled, processed or improved abroad, can be shipped back to the United States, incurring duty only on the foreign labor and non-U.S.-made materials.

As a result, these imports — which often contain substantial U.S. content — are more price competitive than other imports with no U.S. content. Importantly, this process promotes exports of U.S. components.

Production Sharing Saves U.S. Production and Jobs

In the late 1980s, the U.S. International Trade Commission (ITC) conducted a survey of 900 U.S. firms that co-produced utilizing Chapter 98. When asked what they would do if this Customs provision was eliminated, the firms said they would:

  • Turn to foreign suppliers of components
  • Drop labor-intensive products and import them from East Asia
  • Move all manufacturing to Asia
  • Cut back U.S. production and target a market niche not threatened by imports
  • Go out of business.

Since then, production sharing has become even more important to U.S. companies and workers. According to the ITC, it has been responsible for generating new jobs and retaining those that would have been lost due to intense foreign competition.

Mexico: The Largest U.S. Partner

In 1997, Mexico ranked as the United States’ largest production sharing partner, accounting for 36% of total U.S. imports under Chapter 98. And on average, U.S. content comprised 58% of the value of these products. Mexican co-produced products include apparel, motor vehicles and parts, machinery, and electronic products, to name a few.

However, since an increasing portion of these products is entering U.S. Customs under North American Free Trade Agreement (NAFTA) provisions, and not Chapter 98, real production sharing activity is under reported.

Canada Is Number Two

Canada is the second largest U.S. production sharing partner. In fact, according to the ITC, it is likely that one-third of all Canadian exports to the United States are manufactured using U.S.-made components.

Yet, this is not reflected in Chapter 98 statistics. Instead, motor vehicles frequently enter U.S. Customs under the Automotive Products Trade Act of 1965; aircraft equipment is often entered under the Civil Aircraft Agreement; and other products enter under NAFTA provisions.

U.S. - Caribbean Production Sharing Expanding

In 1997, apparel represented 90% of U.S. imports from the Caribbean Basin entering U.S. Customs under Chapter 98. Medical equipment, which only represented 4%, is the second largest category — but it’s growing.

This has allowed many large U.S. medical equipment manufacturers to compete worldwide in less technology-intensive hospital goods by co-producing these products in the Dominican Republic, Costa Rica, and Mexico.

U.S.-Asia Co-Production Is Strong

The Philippines, Malaysia and Korea are principal suppliers of electronic products to the United States under Chapter 98. As a whole, Southeast Asia is a major U.S. co-producer of semiconductors. In fact, in 1997, semiconductors represented 74% of U.S. imports from the region. Footwear comprised 8%; motor vehicles represented 5%.

From 1996 to 1997, Japan increased its value of U.S. content by 134% in vehicle exports to the U.S. under Chapter 98. During this period, U.S. exports of vehicle parts to Japan also rose — reflecting a benefit to U.S. component suppliers.

Conduct Sound Research and Be Aware of Pitfalls

While co-production has been a panacea for many U.S. firms, some manufacturers have reported a different story.

Many companies have invested in foreign-based production sharing facilities only to find unexpectedly low levels of productivity, excessively high turnover, poor infrastructure, and a corrupt legal system. Consequently, several firms have abandoned their efforts.

To successfully engage in production sharing, it’s essential to fully understand your co-production partner’s needs, culture and environment. And make certain you are knowledgeable of the U.S. tariff codes under which you will operate.

This article appeared in April 1999. (BA)
Topic: Manufacturing
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In today’s consumer driven economy, you must fully satisfy your customer’s needs or your competitors will. But as customers’ needs grow increasingly diverse, keeping up with their demands can be overwhelmingly difficult.

As we enter the 21st century, customer differentiation is based more and more on market segmentation, not national borders. Consequently, your target market — which is more like a moving target — may span dozens of countries. This brings rise to the concept of the “global consumer.”

What Is Mass Customization?

Dynamic global markets, rapidly changing consumer needs, and emerging technologies have challenged the existing manufacturing paradigm of mass production. Instead of large plants turning out mass quantities of the same product, a highly flexible manufacturing process that can efficiently produce small lots of specialized product at a low cost is required. This is called “mass customization.”

In order to achieve this, you’ll need a more sophisticated system of communications among all levels of distribution. This is made possible by advanced information technology that closely links the producer all the way up the chain to the customer. So you’ll know exactly what to produce and when to produce it.

And that’s not all. New technologies, like CAD/CAM, make possible instantaneous changes in the specifications and customized adjustments in production without any machine downtime.

Mass Customization Is Not New — But the Elimination of the Waiting Period Is

Mass customization has been going on for years. What is changing today is the elimination of the waiting period.

In Hong Kong, you can now have shirts made to order in 24 hours. In Japan, 60% of men’s suits are sold door to door. Salesmen employed by department stores carry 10 sizes for fitting and they customize by color, fabric and style.

Years ago only a few TV channels were available. Today, cable networks cater to very select interests, including food preparation and fitness. Even birthday cards can be tailor-made satisfying your interests.

Paris Miki, the largest Japanese eyewear retailer, now allows its customers to build a pair of glasses, choosing the lens shape and style, nose bridge, hinges and arms. Its Mikissimes Design System takes a digital picture of the customer’s face, analyzes the attributes and customer-provided information, and prints out a photo-quality picture of the customer wearing the proposed eyeglasses.

The Japanese can even deliver a custom-built car in just a few weeks with no extra cost. Mass customization can and will be applied to every industry — even agriculture, which now offers custom-blended fertilizers.

You Must Achieve Economies of Scope — Not Economies of Scale

The message is clear. U.S. industries must learn how to engineer for economies of scope rather than economies of scale. The bottom line: The more your company can deliver customized goods on a mass basis, the greater your level of competitiveness.

With the emergence of the global consumer, manufacturers in every industry will need to mass customize their products. And distributors and retailers must be in a position to sell them — domestically and internationally.

This article appeared in April 1997. (PN)
Topic: Manufacturing
Comment (0) Hits: 2087



Production sharing occurs when various aspects of an article's manufacture are performed in more than one country. U.S. companies regard this as an important tool allowing them to improve the relative price competitiveness of their products, help them keep higher wage jobs in the United States, and provide an important market for U.S. exports of components. The growth in U.S. production sharing imports (primarily under HS 9802.00.80) in 1994 resulted mainly from larger shipments of motor vehicles and parts, televisions, and other electronic products from Mexico; apparel from the Caribbean Basin and Mexico; and semiconductors from Southeast Asia.

Mexico is the largest U.S. production sharing partner—and growing. After the implementation of NAFTA, U.S. imports from Mexico, entered under provision 9802.00.80, continued to rise in 1994 and 1995. The 50 percent devaluation of the Mexican peso which began in December 1994, and the resulting 25 - 30 percent decline in Mexican wages, were the principal cause of an 8 percent growth in production sharing imports from Mexico in 1995 to an estimated $25 billion. Reportedly, as of October 1995, this had helped produce 89,900 new maquiladora jobs and added 400 new plants to the then existing 2,134 assembly facilities.

Production Sharing Is Good for U.S. Suppliers and Workers

Production sharing benefits U.S. suppliers of components and workers to a large extent. For example, the use of U.S. components in motor vehicle parts imported from Mexico contrasts sharply with their use in vehicles imported from Germany and Japan. While U.S.-made parts accounted for 39 percent of the value of finished vehicles imported from Mexico under provision 9802.00.80, they made up only 1 percent of the value of vehicles imported from Japan and 2 percent of those from Germany.

Since 1989, U.S. apparel imports have grown by 62 percent to almost $40 billion in 1995, and now supply roughly half of U.S. demand. Developing countries in Asia supply the vast majority of U.S. apparel imports. NAFTA and the peso devaluation have made sewing operations in Mexico more globally competitive. In the first quarter of 1996, the top five exporters of textiles and apparel to the United States were Mexico, Canada, China, Taiwan, and Hong Kong. For the first time, Mexico and Canada took over the number one and two spot, respectively.

During the first quarter of 1995, U.S. textile and apparel imports from China, measured in square meter equivalents (sme), continued their downward trend, falling 38 percent. During the same period, U.S. imports from South Korea, Hong Kong and Taiwan declined by 9.8 percent.

"NAFTA is working and the shift of apparel imports from the Far East to Mexico and the Caribbean Basin nations is concrete evidence. Our industry and the U.S. economy benefit because... more than 80 percent of apparel from Mexico is made from fabrics produced in the United States and largely from U.S. yarns, while apparel from the Far East is primarily from Asian fabrics and yarn," said James M. Fitzgibbons, President of the American Textile Manufacturers Institute.

Overall, U.S. production sharing-imports from Mexico accounted for nearly half of all U.S. imports from Mexico. And on average, 50 percent of their value are components of U.S.-origin.

In 1995, U.S. exports to Mexico climbed in textiles and apparel. Duty-free treatment under NAFTA of apparel sewn in Mexico from U.S.-cut fabric led to a significant rise in U.S. exports of textiles/apparel pieces to the maquiladora industry. This expansion, however, was nearly offset by lower U.S. exports of finished apparel resulting from the reduction in Mexican consumer purchasing power following the peso devaluation.

The result last year was a 7 percent ($162 million) net increase in U.S. exports of all textile and apparel products to Mexico, reaching $2.4 billion. Compared to 1993, the year before NAFTA was implemented, 1995 U.S. exports to Mexico in yarns, fabrics, apparel and other related manufactured goods were substantially higher — by 32 percent, 25 percent, 81 percent, and 12 percent respectively.

The first quarter of 1996, compared to the same period last year, also showed positive increases. U.S. exports to Mexico of textile and apparel products increased 27.2 percent reaching $440 million, and exports of textile mill products (a subcategory) rose by 13.7 percent to $240 million.

Canada and Mexico have become the top U.S. destinations for textile and apparel exports. These markets, which currently sustain over 800,000 export related jobs in the United States, are growing rapidly.

NAFTA Continues to Work

NAFTA has provided a sound framework and foundation that has helped preserve and promote the growth of U.S.-Mexican trade and business ventures throughout the economic crisis of last year. It remains a strong anchor to ensure those commitments to ongoing tariff cuts and elimination of trade restrictions among NAFTA nations. This partnership continues to fulfill its objective of improving the growth and competitiveness for the entire North American marketplace.

This article appeared in The Exporter, October 1996.
Topic: Manufacturing
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After 2 years under NAFTA, North America’s automotive industry is registering strong increases in both production and regional trade growth. NAFTA’s reduction of tariffs and other trade barriers, along with liberalized investment rules and preferential rules of origin, are spurring an expansion of production and sales by the automotive sector throughout North America, and indeed, throughout the hemisphere.

Because of increased global competition, U.S. automaker’s share of the domestic market has declined from 95% to 65% in the past three decades. In order to sustain competitive market share, automotive companies have been forced to rethink their strategies and form regional core networks.

Under NAFTA, automotive producers in the North American region are integrating their production strategies, strengthening their position in the domestic market, and increasing their competitiveness compared to other auto producers located in Asia and Europe.

The results have been clear. Total automotive trade levels within the NAFTA region grew by 17.6% from 1993 to 1995, and in 1995 represented 23.9% of overall trade between Mexico, Canada and the United States. Over the same period, total vehicle production by North American-based auto producers increased by 14.3%.

Although Canada is currently the largest trading partner with U.S. auto producers, it is Mexico which perhaps holds the greatest potential for increasing regional auto industry competitiveness. Trade between the United States and Mexico in this sector has grown substantially in recent years, totaling $25.68 billion in 1995. U.S. auto and automotive parts exports to Mexico totaled $8.64 billion last year, and U.S. automotive imports from Mexico totaled $17.04 billion.

Furthermore, the evidence indicates that rising U.S. imports from Mexico are increasingly replacing imports from other countries in a number of automotive sectors. For example, according to the U.S. Department of Commerce, recent trade data show that Mexico’s share of U.S. imports for small cars increased from 10.7% in 1994 to 15.9% in 1995. At the same time, total U.S. imports of these vehicles from all sources actually declined.

The growth of U.S.-Mexico production sharing in the automotive sector accounts for a large part of this trend. The benefit of this for both countries is confirmed by data from the U.S. International Trade Commission, which shows that U.S. imports from Mexico that result from production sharing contain a much higher share of U.S.-made content than similar imports into the U.S. from Asia.

Two factors are playing a key role in the growing success of U.S.-Mexico production-sharing partnerships. Both NAFTA and Mexico’s close proximity to the United States are yielding reduced costs and economies of scale, substantially increasing the competitiveness of North American-made vehicles vis a vis other global producers.

Automotive production partnerships now account for 34% of all U.S.-Mexico industry production-sharing ventures, and are providing important bi-national growth opportunities in the sector. For example, partnerships between assembly plants in northern Mexico and auto plants in the central U.S. (where final auto assembly takes place), have allowed Mexican firms to gain technological know-how, and U.S. firms have benefited from increased efficiencies in production.

Another significant trend for the success of the region’s auto producers lies in utilizing Mexico as an export base for other Latin American markets. Because of Mexico’s other regional free trade agreements, vehicles and parts produced in Mexico now have preferential treatment in Latin American countries such as Bolivia, Chile and Costa Rica.

In 1995, General Motors (GM) exported 12,000 Cavaliers to Chile from Mexico according to recent reports, and sold a record 130,000 vehicles throughout Latin America in the first quarter of 1996, a 14.4% increase over the previous year.

Navistar International recently announced that it will begin building heavy-and medium-duty trucks in Monterrey, Mexico for export to Chile. By using Mexico as a production base, Navistar avoids the 11% tariff imposed on exports from the United States and is able to export trucks to Chile tariff-free.

The potential for exports from this region is evidenced by the recent record automotive production levels in Mexico, which registered a 37.5% increase in the first half of 1996. Fully 81.7% of the 625,167 units produced in Mexico during this period were marketed as exports.

Although domestic automotive sales in Mexico declined in 1995 during the economic crisis, U.S. producers were able to register a 16% increase in market share in Mexico last year, compared to 11.3% in 1994. With Mexico’s economic recovery underway, sales to its domestic market in the first half of 1996 rose 57% over the same period in 1995, with total sales reaching 140,090 units.

Chrysler, for example, has seen a 10% rise in exports to Mexico in 1996, with its domestic sales in Mexico increasing from 12% to 15%. Recently, Chrysler announced plans to invest $100 million over the next ten years in the construction of a metal stamping plant in Coahuila, Mexico - a further vote of confidence for the long-term potential of NAFTA and the advantages of doing business in Mexico.

This article appeared in The Exporter, September 1996.
Topic: Manufacturing
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