Executive Voices

The N.C. Textile Industry After NAFTA

By Dennis Julian

Is North Carolina's 186-year-old textile industry moving to Mexico? A spate of plant closing and permanent layoff announcements earlier this year might well have given casual observers that impression. But a mass exodus south of the border isn't likely.

While it's fact that the North American Free Trade Agreement (NAFTA) has resulted in a number of investments in facilities in Mexico by North Carolina yarn and fabric producers — either alone or in strategic partnerships — the result will be even stronger and more viable companies and perhaps the preservation of many North Carolina textile jobs.

Today, textiles remains an important force in the state's economy. So says a study by Dr. Gary Shoesmith, director of the Center for Economic Studies and a faculty member at the Babcock Graduate School of Management at Wake Forest University. The study indicated the following:

u Of the state's 100 counties, 71 have textile plants and in 43 counties textiles is the leading or second-place manufacturing employer;

u At 156,900 employees as of June, textiles was the state's largest manufacturing employer and was twice as large as the next largest industrial category, furniture and fixtures, at 75,700 employees;

u Textiles' average payroll going into North Carolina communities is $63 million per week or $3.3 billion per year, excluding benefits;

u Each year, North Carolina textile companies spend $210 million buying business services in the state, excluding the high-dollar categories of raw materials and utilities;

u Textile companies invest more than $717 million annually in new equipment and expanding facilities in the state;

u Annual state and local taxes paid by textile companies and their employees are $629 million.

Those are the direct impacts from textiles. There are also secondary benefits from textiles' connections to the fiber, apparel, chemical, agricultural and trucking industries.

Dr. Shoesmith's report also indicates that the total direct and indirect economic impacts for the textile industry in North Carolina include 367,459 jobs; $12.5 billion in annual income; $6.4 billion in retail sales, and $1.3 billion in state and local taxes.

Although the number of textile jobs in the state has declined since its 1973 peak of 289,900, companies are producing more volume and higher-quality products than ever before.

And as the Shoesmith study indicates, textile dollars continue to weave their way throughout the state and its communities.

The reduced employment is a result of the industry's capital investments in state-of-the-art technology and machinery. That spending, in turn, was fueled by the need to control costs and improve productivity in a highly-competitive international marketplace.

Other factors driving the industry are the continuing rising tide of textile and apparel imports, most of them low-cost and many of them illegal, which have captured a huge share of the American market; the Asian financial crisis; and the World Trade Organization.

The import surge began in the early 1980s and hasn't abated. For the first six months of this year, textile and apparel imports into the U.S. increased by 8 percent to $32 billion, and our exports declined by 1.2 percent to $8.8 billion.

The half-year trade deficit was $23.2 billion. In calendar year 1998 it was $49.1 billion.

The Asian financial crisis began in 1996 with the devaluation of Thailand's currency. Others followed, and Asian textile and apparel producers cut prices to boost exports.

Between 1996 and 1998, for example, Asian fabric prices were reduced by an average of 8 percent and for some products by as much as 45 percent. Prices of imported Asian yarn were cut by 23 percent.

The results were predictable. The volume of Asian fabric imports into the U.S. increased by 35 percent overall and by 51 percent for some categories. Imports of Asian yarn rose by 120 percent. U.S. textile and apparel exports to Asia fell by 24 percent. This translates into lost textile jobs in North Carolina and the U.S.

As the industry moves toward 2005, when under the world Trade Organization all textile and apparel quotas and tariffs are eliminated worldwide, companies are positioning themselves to best serve their customers and markets, wherever they might be, in the most cost-effective and timely way.

U.S. per-capita fiber consumption is approaching 80 pounds per year. The worldwide average is 15 pounds per year. The per-capita averages for Canada and Japan are 40 pounds, and for Europe, it's 53 pounds. The room for growth is outside the U.S.

While the intricacies of international trade may well result in fewer North Carolina textile jobs, notably in labor-intensive and commodity products, the remaining jobs will, as many do now, require more skills and pay higher wages.

And as Dr. Shoesmith's study reveals, the textile industry in North Carolina remains the state's largest manufacturing employer and in important part of the state's economy.

Dennis Julian is president of the N.C. Textile Manufacturers Association.