Within the next ten years, we will likely see an expanded free trade agreement that will encompass the entire Western Hemisphere.

The goal to establish a free trade agreement of the Americas was agreed on by 34 Western Hemisphere leaders at the Summit of the Americas, held in Miami last December. With approval from Congress, U.S. businesses can look forward to greater opportunities and risks throughout Latin America.

The last decade has seen a period of remarkable economic reform and growth in the Americas. For the first time in history, Latin America, with a population of about 440 million, is now a community of democratic nations. The Summit of the Americas was dedicated to promoting this prosperity through open markets, hemispheric integration, and sustainable development.

Many Foresee Benefits

Many manufacturers see a real benefit. Frank Stucke, co-owner of Perfect Fit Glove Company in Buffalo, New York, agrees. "We've increased our exports to Mexico under Nafta, and through a free trade agreement of the Americas, we intend to gain greater market share in Latin America over our Asian competitors."

Perfect Fit has been manufacturing knit industrial and safety gloves for 21 years. Exports to Canada and Europe have been strong over the past five years. But sales to Latin America have increased the most, showing greater promise for the company.

Perfect Fit's success is on par with the experiences of many U.S. businesses. In fact, Latin America is the United States' second fastest growing export market, increasing at a high average annual rate of 14% since 1988. What's more, in 1994 U.S. exports to 20 Latin American countries increased by 16% from the previous year, achieving 2% above the average annual rate, reaching $88 billion. A free trade agreement that eliminates Latin American tariffs and non-tariff barriers will undoubtedly result in an even greater export performance by the United States.

According to a survey by KPMG Peat Marwick, an international consulting firm, U.S. direct investment in Latin America during the first quarter of this year totaled $1.9 billion. This represents an increase of 46% from the same period last year.

Many organizations and economists project solid growth in the region. According to a recently released survey from the Association of American Chambers of Commerce in Latin America, Brazil, Chile, Colombia, Peru, El Salvador, and Trinidad and Tobago are expected to average 5% or more growth through 1996. The Association said that despite the Mexican economic crisis and its spillover effect on other Latin America countries, the region should remain attractive for foreign investors well into the future.

U.S. Trade Representative Mickey Kantor says that by the year 2010 the United States will export more goods to Latin America than to Japan and Europe combined.

U.S. consumers will also benefit through lower prices on consumer goods here in the United States. The elimination of import duties on goods entering the United States from Latin America will result in many consumer goods becoming less expensive to purchase here. Retail prices on clothing are expected to decrease more than most other goods, according to Ralph Watkins of the U.S. International Trade Commission.

A Free Trade Agreement of the Americas Will Likely Boost Textile Exports South

Apparel production, which is labor intensive, difficult to automate and requires few skills, has continually moved to developing countries where labor rates are very low. Consequently, U.S. production has declined.

According to a U.S. International Trade Commission report released in January, the U.S. apparel production index declined from its base of 100 in 1987 to a low of 92.2 in 1990. It increased to 95.0 in 1992 before declining slightly in 1993 to 94.9. Over the last 10 years, U.S. imports of apparel grew by 90% to $34 billion.

This trend is not unique to the United States. Stated in the Commission report, from 1980-1993, apparel output decreased by 24% in developed countries but increased by 39% in developing countries. During this period, employment in this sector fell by 19% in developed countries and rose by 110% in developing countries.

The United States is one of the world’s largest and most efficient producers of textile mill products. However, over the years domestic output has also dropped. This is primarily due to a reduction in apparel production in the United States -- the single largest market for the textile industry. Thus, East Asian producers of apparel, major suppliers to the United States, source their textiles in East Asia, not in the United States.

In an attempt to sustain remaining domestic market share, U.S. apparel producers have expanded their production-sharing operations in Mexico and the Caribbean -- benefiting from the lower wages and tariff preferences. This activity also benefits the U.S. textile industry.

Macfarland Cates, president of Arkwright Mills and former president of the American Textile Manufacturing Institute, says that a under a free trade agreement of the Americas, more apparel production will move to Latin America as opposed to East Asia. Cates believes that U.S. textile mills will likely supply Latin apparel producers, where Asian producers will continue to source their textiles in Asia. This is good news for the industry, he says.

Importantly, a free trade agreement of the Americas will secure Latin American market share for U.S. firms vis-a-vis European and Asian firms.

Argentine Business Environment Positive

For the first time in more than a generation, the environment for American business in Argentina is positive. This is a result of a political decision by the Menem government to embark on a course of free market reform that includes fiscal responsibility, an open market, privatization and deregulation. A free trade agreement of the Americas will support and further strengthen these commitments.

The Menem government has reversed the isolationist, import substitution policies of the past half century. In only a few years, respectable growth and confidence in the future have been established. The country has achieved a high degree of economic and political stability.

With a population of 32.6 million, a per capita income of almost $9,000, and an annual growth rate of about 4.5%, Argentina has a great deal to offer the United States. Its consumers welcome American products and its business sector has increasingly become a firm commercial ally of the United States. Thus, last year the United States exported almost $4.5 in goods to Argentina, achieving an 18% increase over 1993, and a positive trade balance of $2.7 billion.

Mercosur, the regional trade bloc, includes Brazil, Paraguay, Uruguay and Argentina. NAFTA accession, or a bilateral trade agreement with the United States, which would precede a Western Hemisphere free trade agreement, is currently being debated in Argentina.

Colombia Has Undergone Dramatic Changes

The Colombian economy has been undergoing dramatic changes during the past several years as a result of the Government's new policy of aperatura or opening. Additionally, the Government has pursued a leadership position in forging free trade agreements in the region. Free trade agreements have been signed with Venezuela, Ecuador, Chile, and Mexico, while negotiations with others continue. Colombia has given notice to the United States that it wishes to become part of the North American Free Trade Agreement in the short-term -- in addition to becoming a member of a more powerful and influential trade agreement of the Americas in the long-term.

With a long history of democracy, sustained economic growth since the 1950's, and the aperatura process that is well underway, which includes the privatization of many state-owned enterprises, the Colombian economy will continue to grow well into the future. The economy, which registered a 3.5% GDP in 1993, increasing to 5.3% last year, is expected to grow at a rate of about 5% this year.

Since the Government implemented its liberal economic policies, Colombian imports have grown substantially. In 1994, Colombia imports from the United States reached almost $4.1 billion, a 25.8% increase over 1993. This represented approximately 36% of total Colombian imports.

Colombia, a major trading partner in Latin America, has demonstrated a preference for U.S. goods. While that country's image is often one of violence as a result of the illegal drug trade, it has achieved a very attractive investment and commercial climate. A trade agreement of the Americas will improve this.

The Venezuelan Market Will Provide Greater Opportunities

U.S.-Venezuelan trade is expected to grow substantially over the long term, despite declines of U.S. exports to Venezuela since 1992. In 1994, U.S. exports to Venezuela exceeded $4 billion, down from $5.4 billion in 1992. The U.S. has traditionally been Venezuela's most important trading partner, receiving about 57% of Venezuela's total exports and accounting for about 42% of its imports in 1993.

Venezuelan reforms begun in 1989 form a basis for movement away from a petroleum-based economy toward one that is diversified and market-driven. Tariffs fell sharply from a ceiling of 135% to a maximum of 20% (with some exceptions), and free exchange of currency was established. Driven by the reforms and economic expansion, imports grew rapidly during 1990, 1991 and 1992.

Since early 1992, Venezuela has endured a series of political and economic crises that have shaken business confidence within the country and have led to increased caution by international investors. Although new investments and marketing initiatives have suffered greatly since mid-1993, business efforts launched during the 1989-92 boom have largely continued to thrive.

In 1993, the Venezuelan economy went into recession. President Rafael Caldera suspended certain constitutional guarantees and decreed exchange and price controls on June 27, 1994. As the new currency control mechanism was being designed and put in place during July, foreign currency was generally not available to importers. As a result, orders from Venezuelan buyers slowed significantly.

This year will likely be difficult as the new Government deals with the struggling economy and policy challenges. Oil income, the main source of government funding, will probably not recover significantly from 1993 lows.

As the Venezuelan economy recovers from recession and low economic growth, imports from the United States will rise. A free trade agreement of the Americas will help to solidify Venezuelan economic liberalization policies, and will invariably secure Venezuelan market share for U.S. and other firms of the Western hemisphere.

This article appeared in Americas Textile International, June 1995.

John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the ManzellaReport.com, is a world-recognized speaker, author of several books, and a nationally syndicated columnist on global business, emerging risks and economic trends. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.

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