Since 1995, both Mexico and DR-CAFTA have increased their exports of manmade fibre garments – with differing success

Since 1995, both Mexico and DR-CAFTA have increased their exports of manmade fibre garments – with differing success

Negotiators are preparing to meet for the sixth round of NAFTA trade talks next week – and as soon as this deal has been repackaged, the spotlight could turn to the US free trade agreement with Central America. Here, in the first of a series of articles showing month by month changes in US garment imports, David Birnbaum takes a look at Mexico and DR-CAFTA.

For the year to September 2017, US garment imports continued to decline.

Total US garment imports: YTD 09-2017 compared with YTD 09-2016:

DescriptionUnits (2016)Units (2017)% changeValue (2016) ($m)Value (2017) ($m)% change
ItemTotal US garment imports20,418,43020,614,9151.061,64260,756-1.4
338/339Cotton T-shirts269,068261350-2.984858366-1.4
347/348Cotton trousers146,1341478401.292088999-2.3
340Cotton shirts26,60725217-5.221992025-7.9
352/652Underwear197,217195192-1.028622791-2.5

However, the most recent trend indicates that US import declines may finally be coming to an end, with September, October and November all showing an increase.

US imports all garments monthly data 2017 vs 2016:

Units (%)Value (%)
January10.75.3
February-11.8-13.6
March7.94.2
April4.7-0.9
May3.70.3
June-2.2-4.3
July0.4-1.0
August-1.2-0.7
September2.12.2
October0.94.2
November2.25.6

Mexico and the countries in the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) – El Salvador, Honduras, Nicaragua, Guatemala, the Dominican Republic and Costa Rica – have much in common:

  • The US is by far their largest market;
  • They have the advantage of close proximity to that market;
  • They enjoy duty-free access;
  • Ironically, neither proximity nor the introduction of duty-free access to the US market has brought serious benefit. What little benefit there was, occurred only in Mexico and only recently in 2006-2007.
  • Mexico entered the North American Free Trade Agreement (NAFTA) in 1994, which did bring a substantial increase in exports to the US. However, market share peaked in 2000 and then went into steady decline until 2016. 2017 has shown some recovery;
  • The DR-CAFTA went into effect as different countries joined in 2006, 2007 and 2009. This did have the immediate impact of arresting the decline, which dated back to 2002. However, by 2009 the DR-CAFTA advantage had disappeared.

US market share:

Mexico

The long-term trend has shown serious secular decline.

The most recent data shows that between January 2005 (the date of the quota phase-out) and the year to September 2017, Mexico's market share of US garment imports has been reduced by nearly 50%. Part of this may be due to the extraordinary rise in FOB prices. During the period the average prices of US imports from all sources declined by 6.5%, while the price of imports from Mexico rose by 33.7%. Remarkably, over the same timeframe the exchange rate for the Mexican peso declined by more than 50% compared to the US dollar.

US garment imports – Mexico:

Despite these serious problems, the Mexican garment industry appears to be moving ahead. Stating in August 2016, Mexico's US market share has shown increases.

US garment imports (monthly) – Mexico:

JanFebMarAprMayJuneJulAugSeptOctNovDec
20154.14.54.65.14.94.43.73.43.64.04.64.0
20163.74.04.94.94.54.43.53.63.94.25.14.7
20173.54.75.24.55.24.94.03.84.2nullnullnull

This is not due to FOB price reductions. In fact, FOB prices for made-in-Mexico garments have accelerated their increase relative to the average prices from all supplying countries.

US garment imports (FOB prices) – Mexico:

JanFebMarAprMayJunJulAugSeptOctNovDec
201422.821.218.322.424.827.426.832.938.933.429.536.1
201524.720.519.717.123.127.428.934.434.632.328.532.5
201628.120.39.716.720.525.727.629.135.939.65155.2
201738.541.433.834.846.641.838.543.863.4nullnullnull

DR-CAFTA: Honduras, El Salvador, Nicaragua, Guatemala, Dominican Republic, Haiti

Market share for the bloc has moved to a state of decline in 2017.

US garment imports (monthly) – DR-CAFTA:

JanFebMarAprMayJuneJulAugSeptOctNovDec
20157.610.610.210.511.110.09.88.89.39.510.910.4
20167.69.411.911.311.511.19.68.89.58.911.411.2
20177.110.412.410.611.810.59.59.48.7nullnullnull

Much of this is due to rising FOB prices. While prices for the bloc remain at a discount to world average, that advantage is disappearing.

US garment imports (FOB prices) – DR-CAFTA:

JanFebMarAprMayJunJulAugSeptOctNovDec
2014-16.0-17.8-19.4-16.4-15.4-12.8-15.8-9.4-11.8-15.7-12.5-9.7
2015-14.9-12.9-13.0-13.0-12.1-14.2-14.2-7.0-9.0-15.1-12.0-12.6
2016-11.1-11.3-16.2-15.3-12.7-9.9-14.1-9.5-11.3-11.5-13.2-9.4
2017-7.1-11.5-16.5-10.4-8.5-7.0-6.7-8.1-5.8nullnullnull

Looking at the three big exporters – Honduras, El Salvador, Nicaragua – we see the same trend. While it would appear that they have managed to maintain market share in the post-quota era, 2017 has brought declines.

Honduras

From 2005 to year to date September 2017, Honduras's US market share has shown only a marginal decline. FOB prices have risen only 5%-10% while the exchange rate has fallen by 25%.

US garment imports – Honduras:

However, that market share decline continues.

US garment imports (monthly) – Honduras:

JanFebMarAprMayJuneJulAugSeptOctNovDec
20152.33.53.43.23.53.33.12.83.02.93.63.5
201622.93.73.23.63.732.73.02.63.73.7
201723.23.83.33.73.63.132.8nullnullnull

Part of this is due to rising FOB prices. While prices still remain well below world average, the difference is diminishing.

US garment imports (FOB prices) – Honduras:

JanFebMarAprMayJunJulAugSeptOctNovDec
2014-28.0-29.9-27.7-24.5-20.2-22.8-26.7-23.0-26.0-29.4-24.6-19.6
2015-32.2-21.9-20.9-24.1-23.3-23.9-25.8-18.3-19.7-27.7-21.2-22.3
2016-22.2-19.8-23.4-25.1-20.0-16.6-24.5-20.6-22.7-24.5-22.3-17.9
2017-18.6-21.3-26.3-21.0-18.9-13.5-14.4-18.0-17.9nullnullnull

El Salvador

From 2005 to year to date September 2017, El Salvador's US market share has risen by 10%, while at the same time FOB prices rose 10%-20%. (Since the US dollar is the official currency in El Salvador, there has been no change relative to the US dollar.)

US garment imports – El Salvador:

During 2017 its US market share has gone into decline.

US garment imports (monthly) – El Salvador:

JanFebMarAprMayJuneJulAugSeptOctNovDec
20151.92.42.32.32.62.32.51.92.22.22.32.5
20162.02.22.72.92.72.62.52.12.22.12.52.7
20171.72.43.02.42.72.42.42.32.0nullnullnull

As with Honduras, while prices still remain well below world average, the difference is diminishing.

US garment imports (FOB prices) – El Salvador:

JanFebMarAprMayJunJulAugSeptOctNovDec
2014-24.3-24.3-29.3-28.4-28.5-25.3-23.9-18.8-20.3-25.3-23-18.1
2015-17.2-24.1-22.6-21.1-24.2-27.4-24-19.1-22-26.9-24.4-23.8
2016-21.8-20.9-25.4-24.8-24.5-19.8-22.9-16.7-21.6-19.5-20.5-17.7
2017-15.2-20.1-22.5-18.8-16.7-15.4-14.9-13.9-13.6nullnullnull

Nicaragua

From 2005 to the year to September 2017, Nicaragua's US market share has shown only a marginal decline. FOB prices have fallen by 10%-20% while the exchange rate has fallen by almost 50%.

US garment imports – Nicaragua:

200820092010201120122013201420152016YTD 17-09
Units1.51.41.51.71.71.81.91.822
Value1.31.41.41.71.81.81.81.71.81.8

During 2017, US market share has gone into decline.

US garment imports (monthly) – Nicaragua:

JanFebMarAprMayJunJulAugSeptOct NovDec
20151.31.91.721.81.61.61.61.61.92.21.6
20161.51.72.222.11.91.61.61.91.72.11.9
20171.52.02.12.121.81.71.81.8

Once again, Nicaragua faces the same FOB price trends as Honduras and El Salvador. While prices still remain well below world average, the difference is diminishing.

US garment imports (FOB prices) – Nicaragua:

JanFebMarAprMayJunJulAugSeptOct NovDec
2014-3.4-7.4-8.6-1.4-6.71-3.97.15.40.1-0.5-2.3
2015-6.5-3.8-4.5-6.1-0.1-3.3-4.91.11.9-4.9-7-2.5
2016-4.3-4.4-13-9.7-7.4-7.6-7.2-7.8-4.3-1.8-11.2-8
2017-6.6-7.3-15.6-8-5.7-10-4.9-6.43.3

The contrast between Mexico and DR-CAFTA is of singular importance.

In 2005 both relied on cheap commodity products, with cotton trousers, cotton T-shirts and underwear accounting for 57.1% of exports from Mexico and 65.5% of exports from DR-CAFTA. By the year to September 2017 both had moved away from these products, to the point where they accounted for 47.6% of exports from Mexico and 47.1% from DR-CAFTA.

At the same time both Mexico and CAFTA-DR moved to increase exports of MMF garments to take advantage of their duty-free access to the US.

Yet as we have seen above, Mexico has done very well in 2017, while DR-CAFTA has gone into a state of decline, albeit limited decline.

While it is too early to draw a firm conclusion, the answer may lie in the value of the products shipped by the respective countries. The move to higher value-added products has allowed Mexico to increase its US market share despite FOB prices at a substantial premium to world average. CAFTA-DR is faced with a situation where its market share is declining while the FOB prices are still at a discount to world average.

One important factor is that unlike Mexico, which has moved from dependence on cotton garments to more MMF goods, DR-CAFTA has always shipped MMF goods. The answer lies in higher-value added. In 2005, DR-CAFTA exports of T-shirts, trousers and underwear – both of cotton and MMF – accounted for 78% of all garment exports. Thirteen years later, in the year to September 2017 these same products accounted for 80% of all garment exports. Clearly moving from cotton to MMF, while beneficial was insufficient to keep DR-CAFTA US market share on the plus side.

The next article will look at South Asia – India, Bangladesh, Sri Lanka and Pakistan.

The data shown above comes from the Birnbaum Report, a monthly compilation available on subscription.