The Impact of NAFTA on Textiles and Apparel Exports of Asian Countries to the United States

Abstract

The Textile and Apparel (T&A) exports of Asian Countries have been notably affected by the formation of North American Free Trade Agreement (NAFTA). This paper examines the influence of NAFTA on T&A exports of selected Asian countries to the US. Since NAFTA came into effect in 1994, all tariffs on T&A products have been deprived of its member countries, while Asian producers have been faced with high MFN tariffs and quota limitations on exports to the NAFTA countries. NAFTA also imposed strong rules of origin (ROO) to protect preferential trade in the Free Trade Area (FTA). As a result, the two NAFTA partners, Canada and Mexico have been sending almost all their T&A exports to the US, while Mexico sources most of its textile inputs from the US. In 1992, 52% textiles and 70% apparel of US imports came from Asia, the percentages decreased parallel with the enactment of the NAFTA. In contrast, Mexico’s T&A exports to the US expanded substantially under the free trade agreement. It is obvious that Mexico has gained market share in T&A at the expense of the Asian exporters and a pattern of trade diversion has been created. This paper in delineating the changing patterns of T&A trade between the US and fourteen selected Asian countries before and after the formation of the NAFTA is intended to provide empirical evidence for the trade diversion. A regression model of sectoral-level analysis is used to examine the effect of the FTA on export commodity trade between member and non-member countries. Determinants of comparative advantage are applied in the model to capture the trade effect of T&A trade partners. By comparing the regional indicator variables, the phenomenon of trade diversion is identified for T&A products in the bilateral trade among NAFTA members and between US and the Asian countries.