A new US trade agreement, CAFTA-DR, could open up new opportunities for the textile and clothing industry in Central America and the Dominican Republic, according to a new report in Textile Outlook International.

The Bush Administration believes that the agreement will enable the US textile manufacturing industry to compete more easily in a quota-free world against China and other large suppliers such as India and Pakistan. Officials are also confident that it will help to enlarge and strengthen a viable textile and clothing industry in the Western Hemisphere, with strong production ties to US textile manufacturers.

Most US imports of textiles and clothing from Central America and the Dominican Republic already benefit from preferential access to the US market under the Caribbean Basin Trade Partnership Act (CBTPA). However, the CBTPA is due to expire on September 30, 2008. CAFTA-DR makes permanent the trade benefits already provided to garment exporters in Caribbean countries under CBTPA -- as well as the US companies which supply them with textile materials.

Until recently, the US textile industry refused to back the CAFTA-DR, claiming that the agreement would be a “job killer” for US manufacturers. It is argued that the agreement contains various “loopholes” which will lessen the need for manufacturers in Central America and the Dominican Republic to make their clothing out of textiles supplied from the USA.

One of the US industry’s concerns is that CAFTA-DR allows producers in member countries to export, duty-free, garments made from yarns and fabrics produced within the region rather than specifically in the USA. Also some garments -- woven boxer shorts, woven pyjamas and nightwear, woven girls’ dresses, brassières, and textile luggage -- can even be made from yarns and fabrics sourced anywhere, including Asian countries such as China. Furthermore, limited amounts of garments made in Nicaragua and Costa Rica can be made from non-American materials.

In May 2005, however, the largest US textile industry association -- the National Council of Textile Organizations (NCTO) -- voted to support the agreement, and others followed. The support came after the US administration agreed to impose quotas on a wide range of imports from China. On May 23, 2005, quotas were applied to imports of cotton knitted shirts and blouses (Category 338/339), cotton trousers (Category 347/348), and cotton and man-made fibre underwear (Category 352/652). Four days later additional quotas were imposed on cotton yarn (Category 301), men’s and boys’ cotton and man-made fibre woven shirts (Category 340/640), man-made fibre knitted shirts and blouses (Category 638/639), and man-made fibre trousers (Category 647/648). The import quotas were imposed under a special textile safeguard provision which had been included -- at the USA’s insistence -- in China’s WTO accession agreement.

The industry’s change of stance was a wise one, according to Textile Outlook International. As much as 39.3% of US yarn exports and 24.3% of its fabric exports went to Central America and the Dominican Republic in 2004. These materials are used by clothing makers in Central America and the Dominican Republic to produce garments for export to the US market.

The CAFTA-DR will reinforce the two advantages that Central American and Dominican suppliers have over China and other Asian countries, namely duty-free access and proximity to the US market.

CAFTA-DR will also create a more predictable environment for US clothing companies -- given the uncertainties created by the elimination of quotas at the end of 2004. It will also foster foreign investment in the region. In addition, by easing restrictions on the use of foreign materials in certain cases, CAFTA-DR will make it more feasible for US clothing companies to remain competitive by sourcing garments from Central America and the Dominican Republic.

However, the CAFTA-DR agreement is likely to deal a major blow to Mexico, and to countries in the Andean region and Sub-Saharan Africa. All enjoy preferential access to the US market and the CAFTA-DR agreement will put many companies in Central America and the Dominican Republic on a more competitive footing.

Ends.

Note to editors
1. President Bush has signed the CAFTA-DR agreement into law, and so have three other countries (Guatemala, Honduras and El Salvador). The Dominican Republic, Costa Rica and Nicaragua have yet to formally approve the agreement. However, the USA, Guatemala, El Salvador and Honduras do not need to wait for the remaining countries to approve the agreement. These four countries can proceed by providing for an effective date for the agreement to enter into force, although this has not occurred.

2. Certain provisions of the CAFTA-DR are due to be implemented retroactively to January 1, 2004. However, the USA will only provide retroactive treatment to partner countries which afford reciprocal treatment to US products. It is still uncertain which countries, if any, will be able to provide such treatment.