That Humming Sound : NAFTA has turned Mexico into a steppingstone to the U.S. market, and what you’re hearing now is. . .That Humming Sound

Each month, the Florimon family reconsiders whether to keep its 225-worker garment factory open or to join the scores of Dominican exporters that have closed their doors in the last year.

In 1995, the factory, F International, operated at 35% of capacity. For the moment it’s up to 60%, thanks to some new contracts, but, President Juan Florimon acknowledges, “our production is not profitable.”

Like manufacturers throughout the Caribbean and Central America, the Florimons are feeling the aftershocks of the North American Free Trade Agreement.

When NAFTA was signed by the United States, Mexico and Canada, American union leaders warned that U.S. jobs would pour into Mexico. However, nearly three years after the agreement took effect, it appears that some of the biggest job losses are being felt by the tiny countries of the Caribbean Basin.

Encouraged to set up export factories by tariff breaks and other incentives offered during the Reagan administration, these 24 nations are now finding they cannot compete with Mexico and the benefits that country enjoys under NAFTA.

As an export haven, NAFTA tipped the scale in favor of Mexico, which already had other advantages: lower transportation costs, faster delivery time and a 1994 peso devaluation that cut labor costs nearly in half the same year the trade agreement took effect.

In addition, thanks to the accord, tariffs on Mexican goods are being gradually reduced to nothing. Mexican-made clothing is also free from the garment quotas that limit other countries’ access to the U.S. market.

Ironically, because the Dominican Republic moved quickly to take advantage of Reagan’s Caribbean Basin Initiative--designed to relieve poverty in the region through trade--it has felt the effects of NAFTA most sharply. Dominicans have lost an estimated 60,000 of their 166,000 export jobs, most in the textile industry, over the last year as U.S. companies have decided not to renew contracts.

Their pleas for help went largely unheard in the roar of U.S. election-year politics. But in an election night celebration here, U.S. Ambassador Donna Jean Hrinak expressed the hope of many Dominicans: that President Clinton will now pay attention to the problems NAFTA has created for the Caribbean Basin countries.

“Textile companies just finish up their contracts here and move to Mexico,” said Orlando Jorge Mena, a Dominican lawyer whose clients are mainly export contractors.

U.S. importers can move their operations virtually overnight because rather than setting up their own plants, most simply award contracts to foreign factories to deliver a specific number of goods within a certain time at an agreed-upon price.

Caribbean countries want the same benefits that Mexico negotiated--what’s known as NAFTA parity. Such legislation foundered in Congress. Sponsors say they will introduce a parity bill again next year, but many manufacturers worry that may be too late for them.

On the other hand, some are proving nimble.

In order to compete, Leopoldo Nunez has completely reorganized the production system in his 450-employee garment plant in an industrial park just outside Santo Domingo. “We have switched from an assembly line system to a modular system,” he said.

Each assembly line worker sews one or two seams and passes the garment along. In a modular system, by contrast, half a dozen workers sit together dividing up the work, and among them they completely sew a shirt or dress.

The new system has increased productivity 20% while allowing workers to raise their pay 25% with bonuses, Nunez estimates. But it is not enough.

“Unless there is an arrangement to give us conditions more or less equal [to Mexico], we are not going to get through this,” he said.

In addition, economists are beginning to worry that the problems with parity are more than a matter of time. “Parity would, in practical terms, be annexing other countries to NAFTA,” said Luis Vargas, director of the Institute of Dominican Studies here.

The U.S. Congress has been notably reluctant to expand NAFTA beyond the original three partners, despite early predictions that the agreement would be the cornerstone of a hemisphere-wide free-trade zone.

As that promise has failed to materialize, manufacturers throughout the region are facing serious problems.

A study conducted last year by the El Salvador Chamber of Commerce found that a fifth of that country’s 60,000 export manufacturing workers had lost their jobs when 38 companies closed down--virtually all because garment contracts were shifted to Mexico.

Closures and cutbacks have continued, said Jose Mario Magana, the chamber’s technical manager, because “there has been a noticeable reduction in the number of contracts.”

Many companies have tried to make up the loss of export contracts by manufacturing for the domestic market, only to find that market saturated by Asian imports, he said.

Alfredo Amory, who owns a 270-employee garment factory in Santa Ana in western El Salvador, believes that going to the domestic market is a step backward. He started his factory by supplying El Salvador and Guatemala in 1978. A decade ago, he entered the international market. And he does not intend to be chased out by NAFTA.

Amory has begun to specialize in children’s clothing and entered a Dutch-sponsored program to improve his quality so he can manufacture for the European market.

“We should not be placing so much emphasis on NAFTA,” he said. “The Asian countries do not have NAFTA and they seem to do well. We should not worry so much about Mexico, Canada and the United States, much less beg for parity.”

What companies should learn from this experience is the danger of depending on contracts rather than developing their own marketing capacity, he added.

“Contract manufacturing is a fly-by-night business,” Amory said. “It is a house of cards.”

But for manufacturers who built businesses based on the promises of the Caribbean Basin Initiative, changing markets and product lines is not that simple.

“Unless we get parity,” predicted Florimon, “half of [the Dominican] export industry is going to disappear.”