1 July 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 è The Mexico-EU FTA is part of a broader Global Agreement (Economic Partnership, Political Coordination and Cooperation Agreement). è 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 è The Mexico-EU FTA provides that by 2007, around 96 per cent of bilateral trade will be duty free. è The bulk of tariff dismantling for industrial products will be completed by January 1, è 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 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 access

5  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 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 Duty phase-out Phase-out of weighed average duty in the textile and garment industry /* * Includes products from chapters 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 Duty phase-out for “yarn and thread” Weighed average duty in yarn and thread /* * Includes products from chapters 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 Duty phase-out for “garments” Weighed average duty in garments /* * Includes products form chapters 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 Duty phase-out for “textiles” Weighed average duty in textiles /* * Includes products form chapters 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

10 The Mexico – EU FTA grants better market access conditions 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 Percentage */ 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 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 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”  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”  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 m 2 of printed cotton fabrics; 3.5 million m 2 for textiles of synthetic or artificial filaments and 2 million m 2 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”  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 m 2.  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”  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 textile and garment industry under the Mexico-EU FTA Commercial development of the Mexican textile and garment industry under the Mexico-EU FTA

18 Liberalization policies have contributed to increasing the 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 Trade of Textile and Garment products* * Includes products from chapters 50 to 63 Source: 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 ProductTotalUSEURest Men’s cotton trousers, bib and brace overalls and shorts1,436.81, Women’s cotton trousers and breeches1,244.41, Cotton T-shirts Other man made up articles Women’s cotton polo or turtle neck jumpers Women’s polo or turtle neck jumpers of man made fibers Trousers and brace overalls of synthetic fibers Garments made up of fabrics headings or Brassieres Men’s trousers and breaches of synthetic fibers Source: ME Top ten textile and garment industry products exported by Mexico in 2002, million of US $

20 * Includes products from chapters 50 to 63 ** Estimated data for 2002 Source: Ministry of the Economy with data from Banxico and Eurostat Trade between Mexico - EU of textiles and garments* Trade between Mexico and the EU in the textile and garment sector represents 5% of Mexico’s total trade in this industry  Mexico-EU trade has increased since the implementation of the FTA

21 * Includes products from chapters 50 to 63 **Estimated data for 2002 Source: Ministry of the Economy with data from EUROSTAT Participation in extra-EU imports Main EU suppliers of textile and garments* (2002**) The Mexican industry has the potential to increase its position 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 Duty for Mx. in the EU* 2003 Duty for Mx. In the US* 2003 Part. % Part. % The preferential access to the EU market gives Mexico the opportunity to diversify its exports.... T-shirts, singlets and other vests 3, of cotton Women’s or girl’s trousers and 1, , breeches, of cotton Men’s or boy’s shirts of cotton 1, Men’s or boy’s trousers and 1, , breeches of cotton Women’s or girl’s polo or turtle 1, neck jumpers of cotton Women’s or girl’s polo or turtle 1, neck jumpers of man made fibers

23 Source: ME with data from EUROSTAT and USDOC 1° Tunisia 2° Rumania 3° Morocco (53) Mexico 1° Bangladesh 2° Turkey 3° Rumania (38) Mexico 1° Turkey 2° Hong Kong 3° 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 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 Supplier Part % Position Part % Position EU’s Supplier Part % Position Part % Product US’s Supplier Position in fact, our textile and apparel products compete successfully in other markets

24 The Mexico – EU FTA has triggered new investments and 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 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 industry Source: ME Fiber-textile-garment industry cluster I NorthDurango II BajioAguascalientes Jalisco Queretaro III CenterFederal 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 competitiveness 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 fiber - 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 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: Mexico’s Mission to the EU Mexican Ministry of the Economy 94, Av. Franklin Roosevelt 1050 Brussels, Belgium