1July 2003

The Mexican textile and garment industry under the Mexico – European Union

Free Trade Agreement

The Mexican textile and garment industry under the Mexico – European Union

Free Trade Agreement

2

The Mexico-EU FTA

The Mexico-EU FTA is part of a broader Global Agreement (Economic Partnership, Political Coordination and Cooperation Agreement).

The trade aspects of the Global Agreement were adopted through two decision of the EU-Mexico Joint Council: The Decision 2/2000 known as the FTA in goods effective

since July 1, 2000, and The Decision 2/2001 called the FTA in Services effective

since March 1, 2001.

3

The Mexico-EU FTA. Decision 2/2000

The Mexico-EU FTA provides that by 2007, around 96 per cent of bilateral trade will be duty free.

The bulk of tariff dismantling for industrial products will be completed by January 1, 2007.

Specific packages were agreed for products considered sensitive such as textiles.

4

The Mexico – EU FTA acknowledges differences in levels of development:

Mexico received asymmetric treatment: the EU completely eliminated its import duties in 2003, while Mexico will do it in 2007.

Elimination of all the prohibitions and quantitative restrictions (e.g. import or export permits), but retention of the right to adopt measures to protect the life of humans, animals, plants of the public moral.

Market accessMarket access

5

Market accessMarket access

At the entrance into force of the Mexico – EU FTA (July 1, 200), the estimated percentage of duty free imports in the textile and garment sector in Mexico was 21.4%. This percentage went to 21.5% by 2003 and will be 53.1% in 2005. By 2007 all Mexican imports of the EU textile and garment sector will be duty free.

At the entrance into force of the Agreement, the estimated percentage of duty free imports in the textile and garment sector for Mexican products to the EU was 11.9% and went to 100% by 2003.

6

11.1

7.85.4

3.6 3.01.8 1.3 0.0

7.2

4.82.4

0.0 0.0 0.0 0.0 0.00.02.04.06.08.0

10.012.0

2000 2001 2002 2003 2004 2005 2006 2007

Mexico's exports to the EU

EU's exports to MexicoPe

rce

nta

ge

July 1

Duty phase-outDuty phase-out

Phase-out of weighed average duty in the textile and garment industry /*

* Includes products from chapters 50-63 of the HS.Base rates were calculated with Mexico’s MFN duty and GSP for the EU. Source: ME, with data from BANXICO and EUROSTAT

7

6.7

5.14.1 3.2 3.1

2.20.8 0.01.7 1.1 0.6 0.0 0.0 0.0 0.0 0.0

0.0

3.5

7.0

July 1,2000

2001 2002 2003 2004 2005 2006 2007

Mexico's exports to the EU

EU's exports to MexicoPe

rce

nta

ge

Duty phase-out for “yarn and thread”Duty phase-out for “yarn and thread”

Weighed average duty in yarn and thread /*

* Includes products from chapters 50-56 of the HS.Base rates were calculated with Mexico’s MFN duty and GSP for the EU. Source: ME, with data from BANXICO and EUROSTAT

8

18.0

12.08.0

5.0 5.0 4.03.0 0.0

8.95.9

2.90.0 0.0 0.0 0.0 0.0

0.0

4.5

9.0

13.5

18.0

July 1,2000

2001 2002 2003 2004 2005 2006 2007

Mexico's exports to the EU

EU's exports to MexicoPer

cent

age

Duty phase-out for “garments”Duty phase-out for “garments”

Weighed average duty in garments/*

* Includes products form chapters 61-63 of the HS.Base rates were calculated with Mexico’s MFN duty and GSP for the EU. Source: ME, with data from BANXICO and EUROSTAT

9

9.0

6.6

4.53.2

2.10.7 0.5 0.0

7.2

4.82.4

0.0 0.0 0.0 0.0 0.00.0

3.0

6.0

9.0

July 1,2000

2001 2002 2003 2004 2005 2006 2007

Mexico's exports to the EU

EU's exports to MexicoPe

rce

nta

ge

Duty phase-out for “textiles”Duty phase-out for “textiles”

Weighed average duty in textiles/*

* Includes products form chapters 50-60 of the HSBase rates were calculated with Mexico’s MFN duty and GSP for the EU. Source: ME, with data from BANXICO and EUROSTAT

10

The Mexico – EU FTA grants better market access The Mexico – EU FTA grants better market access conditions for Mexican products in the EUconditions for Mexican products in the EU

Duty phase-out in the Mexico-EU FTA of some Mexican products that faced high duties in the EU

11.6

8.5

5.72.8

0.0

12.8

8.4

5.6

2.8

0.0

10.8

7.75.2

2.6

0.0

12.0

7.7

5.12.6

0.0

10.4

7.44.9

2.5

0.0

8.85.9

3.92.0

0.002468

101214

EU'sMFN2000

2000 2001 2002 2003

Denim

Carpets of textile materials

Cotton shirts

Velvet and toweling

Cotton trousers

Carded wool fabric

Per

cen

tag

e

*/ Base rates were calculated with Mexico’s MFN duty and GSP for the EU. Source: ME, with data from BANXICO and EUROSTAT

11

Rules of originRules of origin

The MEUFTA provides specific rules of origin for the sector.

The rules of origin comply with the objective of:

increasing exports of those products that include inputs and originating materials from the region;

avoiding that the agreed rules turn into trade barriers;

guaranteeing that the benefits of the agreement remain within the region.

12

Rules of OriginRules of Origin

The agreed rules of origin guarantee that regional

products will benefit from the preferential treatment

(Decision 2/2000) upon submission of either:

(a) a movement certificate EUR.1; or

(b) an invoice declaration, given by the exporter

which describes the products concerned in

sufficient detail to enable them to be identified.

13

Rules of origin for “thread”Rules of origin for “thread”

Yarn of natural fibers (silk, wool, cotton and vegetable fibers):

manufactured without carded or brushed fibers from outside the region

Yarn of artificial or synthetic fibers:

manufactured with non-originating chemical substances or textile pulp.

14

Rules of origin for “Cloth”Rules of origin for “Cloth”

Fabric: thread of natural fibers, synthetic or artificial (S/A) filaments and fibers carded or brushed must originate in the region. For exports from the EU to Mexico of up to 2 million m2 of printed cotton fabrics; 3.5 million m2 for textiles of synthetic or artificial filaments and 2 million m2 of synthetic or artificial textiles:

Non-originating raw material can be used, if its value does not exceed 47.5% of the price of the printed fabric, and the printing is done in the region plus two preparation or finishing operation.

This quota will be reviewed in 2003.

15

Rules of origin for “Cloth” Rules of origin for “Cloth”

Carpets: Synthetic or artificial (S/A) fibers must originate in the region, except nylon and polypropylene.

Velvet, toweling and ribbons: S/A fibers must originate in the region, with the option to the printing rule up to 500,000 m2.

Weaved Leather for tires: S/A fibers must originate in the region.

Knitted fabric: manufactured from natural fibers or chemical materials (S/A fibers from the region).

16

Rules of Origin for “garments” Rules of Origin for “garments”

Acrylic material Sweaters: S/A fibers must originate in the region.

Knitted garments: fabric must originate in the region. As of 2003 it is not necessary that the S/A fabrics originate in the region.

Not knitted garments:

For men/boy the fabric must originate in the region;

For women/girl/babies the fabric must originate in the region with the option to import cloth without being embroiled and realize the embroilment in the region if and only if the aggregated value is 60%;

For both cases the S/A fibers must originate in the region until December 2003.

17

Commercial development of the Mexican Commercial development of the Mexican

textile and garment industry textile and garment industry

under the Mexico-EU FTAunder the Mexico-EU FTA

Commercial development of the Mexican Commercial development of the Mexican

textile and garment industry textile and garment industry

under the Mexico-EU FTAunder the Mexico-EU FTA

18

2.4

3.3

2.7

3.2

4.1

2.9

5.5

3.2

7.6

4.1

8.7

4.8

9.9

5.5

11.0

5.9

9.9

5.6

9.9

5.7

0

5

10

15

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Bill

ion

Dol

lars

Liberalization policies have contributed to increasing Liberalization policies have contributed to increasing the commercial potential of this industrythe commercial potential of this industry

Mexico is one of the world’s leading exporters of textiles and garment. Between 1993 and 2002, these exports grew 312%.

Mexican Total Tradeof Textile and Garment products*

* Includes products from chapters 50 to 63Source: ME with data from Banxico

Mexican Imports

Mexican Exports

19

In 2002, Mexico’s top ten textile and garment exports accounted for 53% of the total exports of the sector

Product Total US EU Rest

Men’s cotton trousers, bib and brace overalls and shorts 1,436.8 1,378.7 1.2 56.9

Women’s cotton trousers and breeches 1,244.4 1,191.1 1.3 52.0

Cotton T-shirts 882.8 836.7 2.9 43.2

Other man made up articles 318.3 316.7 0.4 1.2

Women’s cotton polo or turtle neck jumpers 289.5 264.3 0.1 25.1

Women’s polo or turtle neck jumpers of man made fibers 270.7 237.1 0.1 33.5

Trousers and brace overalls of synthetic fibers 222.0 220.3 0.3 1.4

Garments made up of fabrics headings 56.02 or 56.03 205.5 205.5 0.0 0.0

Brassieres 190.0 174.9 1.6 13.5

Men’s trousers and breaches of synthetic fibers 146.9 119.7 0.5 26.7

Source: ME

Top ten textile and garment industry productsexported by Mexico in 2002, million of US$

20* Includes products from chapters 50 to 63 ** Estimated data for 2002Source: Ministry of the Economy with data from Banxico and Eurostat

Trade between Mexico - EU oftextiles and garments*

Trade between Mexico and the EU in the textile Trade between Mexico and the EU in the textile and garment sector represents 5% of Mexico’s and garment sector represents 5% of Mexico’s

total trade in this industrytotal trade in this industry Mexico-EU trade has increased since the implementation of the FTA

68

184

78

182

155

112

135

111

125

160

99.1

209.1

78.2

212.8

79.7

223.2

85.6

299.5

91.2

358.8

0

50

100

150

200

250

300

350

400

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002**

Exports Imports

Thousand d

olla

rs

252 260 267246

285312 301 310

388450

21* Includes products from chapters 50 to 63 **Estimated data for 2002Source: Ministry of the Economy with data from EUROSTAT

Participation in extra-EU importsMain EU suppliers of textile and garments* (2002**)

0.12

3.4

4

4.1

4.6

5

6.1

12.5

15.1

México (56*)

Poland (8*)

Bangladesh (7*)

Morocco (6*)

Tunisia (5*)

Romania (4*)

India (3*)

Turkey (2*)

China (1*)

Percentage

The Mexican industry has the potential to increase its The Mexican industry has the potential to increase its position as an EU supplierposition as an EU supplier

22* In 2003, duty for Mexican products in the EU and the US is zero.Source: Ministry of the Economy with data from EUROSTAT and USDOC

Product EU imports

2002

Imps. From Mx

2002

US imports from Mx.

2002

Duty forMx. in the EU* 2003

Duty for Mx. In the US*

2003

Part.%

Part.%

The preferential access to the EU market gives Mexico The preferential access to the EU market gives Mexico the opportunity to diversify its exports....the opportunity to diversify its exports....

T-shirts, singlets and other vests 3,834.2 5.8 0.0 0.0 788.7 27 0.0

of cotton

Women’s or girl’s trousers and 1,704.2 1.0 0.0 0.0 1,290.7 27 0.0

breeches, of cotton

Men’s or boy’s shirts of cotton 1,699.4 2.7 0.0 0.0 60.8 0.03 0.0

Men’s or boy’s trousers and 1,466.0 1.0 0.0 0.0 1,501.9 33.2 0.0

breeches of cotton Women’s or girl’s polo or turtle 1,206.0 2.8 0.0 0.0 366.8 11.5 0.0

neck jumpers of cottonWomen’s or girl’s polo or turtle 1,160.6 0.6 0.0 0.0 414.7 6.7 0.0 neck jumpers of man made fibers

23Source: ME with data from EUROSTAT and USDOC

1° Tunisia

2° Rumania

3° Morocco

(53) Mexico

1° Bangladesh

2° Turkey

3° Rumania

(38) Mexico

1° Turkey2° Hong Kong3° Bangladesh

(46) Mexico

1° Mexico

2° Dominican R.

3°Hong Kong

1° Hong Kong

2° South Korea

3 °Mexico

1° Guatemala

2° Honduras

3° Mexico

14.4

11.2

10.9

0.07

12.6

12.6

7.6

0.18

23.5

9.6

6.4

.008

T-shirts, singlets and other vests of cotton

Women’s or girl’s trousers and breeches of cotton

Men’s or boy’s shirts of cotton

Product EU’s Supplier

1° Mexico

2° Honduras

3° El Salvador

1° Mexico

2° Hong Kong

3°China

1° Hong Kong

2° Bangladesh

3° India

(11) Mexico

1° Turkey

2° Bangladesh

3° India

(43) Mexico

1° Turkey

2° Tunisia

3° Hong Kong

(41) Mexico

1° India

2° Rumania

3° Bangladesh

(51) Mexico

Men’s trousers and breeches of cotton

Women’s polo or turtle neck jumpers of cotton

Women’s polo or turtle neck jumpers of man made fibers

US’s SupplierPart%

29 16.9

8.9

0.15

19.7 12.410.7

0.16

13.4

11.4

9.4

0.05

Position Part%

Position

EU’s SupplierPart%

Position Part%

Product

27.2

19.9

10.7

25.6

10.8

4.1

US’s SupplierPosition

33.2

11.9

5.0

14.8

13.7

11.6

7.5

7.3

6.7

... in fact, our textile and apparel products ... in fact, our textile and apparel products compete successfully in other marketscompete successfully in other markets

14.0

10.4

8.4

3.2

24

The Mexico – EU FTA has triggered new investments The Mexico – EU FTA has triggered new investments and consolidated strategic alliancesand consolidated strategic alliances

In 2002, 998 firms with foreign capital operated in Mexico’s textile and apparel industry.

Between 1994 and 2002, Foreign Direct Investment (FDI) in this sector reached US$ 1billion;

In the same period, the main investors in the sector were the US (79.4%), Dutch Antilles (7.8%), Taiwan (3.3%), the UK (2.1%) and Canada (1.4%).

The main EU investors in Mexico´s textile sector are: Dutch Antilles (7.8%), UK (2.1%), France (1.1%), Spain (0.8%), and Germany (0.2%).

•Does not include utility re-investment and inter companies accounts •Source: Ministry of the Economy

25

The textile and garment industry plays an important role in The textile and garment industry plays an important role in the Mexican economythe Mexican economy

In 2001, this sector:represented 1.2% of Mexico’s GDP;

represented 7.1% of the manufacturing GDP;

contributed with 17.5% of the employment;

attracted 2.4% of the Foreign Direct Investment (FDI) in the manufacturing industry.

Most firms in this sector are small and medium-sized enterprises.

26

Clusters in the textile and garment industryClusters in the textile and garment industry

Source: ME

Fiber-textile-garment industry cluster

I North Durango

II Bajio Aguascalientes

Jalisco

Queretaro

III Center Federal District

Hidalgo

State of Mexico

Morelos

IV Center - South

Oxaca

Puebla

Tlaxcala

North

Bajio

Center

South Center

27

Mexico has launched a program to enhance the Mexico has launched a program to enhance the competitiveness of the fibers - textile – garment chaincompetitiveness of the fibers - textile – garment chain

The program seeks to:

consolidate the concept of “complete package” production

recover and expand the domestic and foreign markets

transform Mexico into a design center

The main goals of the program are to:

increase production to supply more than 40% of the domestic market (around 7bd) by 2006

increase exports

increase re-investments, and recover 2000 FDI levels (857 md)

generate more and well-paid jobs

28

The competitiveness program for the The competitiveness program for the fiber - textile – garment chainfiber - textile – garment chain

Strategies:

fight illegal trade and promote the use of formal channels to commercialize in the domestic market and broaden the access to key foreign markets

promote “complete package” operations to provide clients with integral solutions, which include the joint development of innovative products, with design or superior technical performance

adjust domestic regulations

29

Challenges for the new millenniumChallenges for the new millennium

The Mexico – EU FTA gives the opportunity to:

continue expanding and diversifying exports and production;

attract more FDI and promote strategic alliances with key players;

incorporate more small and medium-sized companies into the export sector;

generate more and better paid jobs.

30

To obtain further information visit:

www.economia.gob.mxwww.economia-bruselas.gob.mxbruselas@economia.gob.mx

Mexico’s Mission to the EUMexican Ministry of the Economy

94, Av. Franklin Roosevelt1050 Brussels, Belgium