Foreign investment in apparel and textile production across Mexico is spreading like never before. The sector may not be the country's largest export, but it has become a vital part of the nation's development as a leading world exporter.

The growth can be attributed to the North American Free Trade Agreement.

Not only did NAFTA give Mexico the advantage once enjoyed by the Caribbean in investment, tariffs and quotas; the peso devaluation that occurred a year after NAFTA's enactment also made investments in Mexico that much more attractive to foreign companies. At least eventually. Capital and start-up costs fell immediately, but foreign investments hesitated until the economic situation stabilized.

As a prelude to NAFTA in 1993, the United States had established favorable conditions called the Caribbean Basin Initiative.

U.S. apparel and textile companies moved to the Caribbean to take advantage of lower labor costs and tariff and quota incentives as the United States sought to build up the economies of the nearby island nations.

But NAFTA evened the advantages for Mexico, and because of its closer proximity to the United States, Mexico has gained the upper hand.

"There's still a really strong apparel presence in the Caribbean; some companies have been in the Dominican Republic for a long time," said Kathy Pettit, a consultant for Columbia, S.C.-based Bobbin Blenheim, a trade show organizer specializing in apparel and textile trade. "The Caribbean nations are trying to keep what they have and are still trying to gain parity with Mexico through Congress. But it's on the back-burner for now."

As NAFTA gets older, and lower tariffs and higher quotas are phased in, Mexico will become even more attractive.

According to NAFTA, import quotas for "originating" textile and apparel goods were lifted upon the trade agreement's enactment and are being phased out of non-originating goods.

Moreover, tariffs and other barriers covering 80 percent of textile and apparel trade between the United States and Mexico will be eliminated by 2000, and possibly earlier.

So it's little wonder that Mexico this year surpasses China in textile and apparel imports to the United States. Last year, Mexico's $3.5 billion in exports to the United States was a close second to China's $3.6 billion. China apparel and textile exports still face 16 percent duties, compared to 8 percent for Mexico.

"We have noticed that more companies are coming because of the NAFTA advantage," said Arturo Lopez, director of industrial development for Yucatan. "This year we have had a 40 percent increase in maquiladoras. There are 17 companies that have placed plants or are about to build in Yucatan, and I'd say about 95 percent of those are textile companies.

"We offer land for free if the company installs its building outside of Merida (Yucatan's state capital). We supply the utility lines and roads. The state of Yucatan has 100 municipalities, and we are placing companies in these cities that have a good and stable labor pool," Lopez said.

The state also offers companies training scholarships for two months.

"We pay those two months," said Lopez. "We offer the stability of the state, the labor pool and the quality of life here in Yucatan."

Foreign companies operating in the Yucatan include Lee Jeans; Bali, a Sara Lee division that makes Maidenform products; La Perla of Italy, making women's bathing suits; Monty of Hong Kong, producing women's sports clothing for Liz Claiborne and Oxford Industries in Atlanta.

New companies coming include the Russell Corp. of Alabama, making sports clothing, and Poughkeepsie Corp. of New York, producing fabric and golf shirts, Lopez said.

"There is no problem with labor there," explained Aaron Castillo, assistant director of D.D.V. Division, a Queretaro-based consulting firm that helps U.S. companies locate or find matches in the two states. "If you are the only company in town, your turnover is going to be very low. There's nowhere else to work.

"Sometimes, if you are in an industrial park, and there's another plant in the same industry, if that plant offers five or 10 more pesos a day in pay, the workers will jump to the other plant," Castillo said. "Americans who have set up on the border understand that now, after years of working on the border. But even in a large city in Queretaro and Guanajuato, they will not have that problem."

U.S. companies that D.D.V. Division has assisted in the two states include Woolrich, L&L Manufacturing, Traci Lynn, Marlo Manufacturing, Levi's, Lee, Wrangler, Gap, Guess and Baby Guess.

Although Queretaro once was known for knits and woven clothing, and Guanajuato for denim, the two states are diversifying with plants that manufacture both types of apparel.

Confirming this is Jose Natra, marketing director for the Guanajuato trade office in Dallas, who pointed to the state's rising star in apparel manufacturing, the small town of Moroleon. One plant there makes sweaters for New York-based Phillips-Van Heusen.

"The sweaters are sold all over the world and the quality of the products is very high," Natra said. "Guanajuato has many things to offer. First is location. We are in the central part of Mexico. We are in the industrial corridor of Mexico. We are 14 hours from the border by truck.

"The government of Guanajuato is willing to do whatever it takes. What do you need? Facilities studies? Specific training? A plant site? The government will do what it takes."

Guanajuato promotes itself to outside industry through its agency COFOCE, Coordinator de Fomento al Comercio y las Exportaciones.

The northern state of Coahuila also has an aggressive program to attract textile industries, mainly to the capital city of Saltillo, the border city of Piedras Negras and to Torreon.

Coahuila already has attracted Sara Lee and Wrangler to San Pedro, near Torreon, and Red Kap to Torreon. Hanes is in Allende, and Fruit of Loom operates in Saltillo.

Coahuila also offers to pay minimum wages for 60 days to workers being trained, as long as the company agrees to use at least 70 percent of the trainees. The state labor tax of 1 percent also is waived for one year.

Construction permits may be negotiated with municipalities for favorable terms, said Mauricio Rivera Navarro, head of the Coahuila Department of International Promotion.

Meanwhile, Bobbin Blenheim will continue its trade shows to encourage textile and apparel investment throughout the Americas.

Late this summer, the firm announced two 1998 trade shows. Expotela, the Textile Expo for the Mexican Market, will be held February 24-26 at Mexico City's World Trade Center. And the Apparel Show of the Americas will be held March 18-20 at the Miami Beach Convention Center.