By  on July 7, 2009

WASHINGTON — Apparel executives believe regional trade deals maintain their promise as a model for international trade relations, despite some data raising questions about the benefits.

Sourcing executives and trade experts said regional accords such as the Central American Free Trade Agreement and the North American Free Trade Agreement should be a key part of U.S. strategy because they deliver more benefits than bilateral pacts and are more manageable than larger multilateral agreements like the stalled Doha Round of global trade talks.

Doha has been delayed by a range of complex issues: from African countries and Brazil demanding cuts in U.S. cotton subsidies to the U.S. seeking a deeper reduction in duties on agriculture and food products from Europe, to Western nations urging better market access to China and India.

The regional agreements give “large American retail and wholesale operations…the opportunity to look not just at a small-to-medium-sized country” but to a far wider area, said Jeff Streader, senior vice president of global sourcing for Guess Inc.

Companies can consider the range of skill sets and capabilities of the entire region in evaluating where to set up a supply chain, he said.

The flexibility of a regional trade agreement makes the model preferable to a bilateral one, but there are some unintended consequences, said Mark Jaeger, senior vice president and general counsel for Jockey International.

“Every regional or bilateral trade deal brings with it a food fight between the impacted industries,” Jaeger said. “A lot of political capital is spent in negotiating each trade agreement.”

The chance to have one deal, like Doha, instead of many regional pacts is preferable, experts said. However, getting the support of scores of nations for a multilateral agreement is challenging, to say the least. The Doha talks began in 2001.

“Regional deals make sense.…They include more countries, have a bigger economic impact [than the bilateral model] and they bring the region together,” said Mickey Kantor, who was U.S. Trade Representative for President Bill Clinton from 1993 to 1996.

But there is not unanimity that regional agreements are beneficial.

“We would certainly argue that these trade agreements have not lived up to their promises,” said Thea Lee, policy director at the AFL-CIO. “I’m not sure that free trade agreements are the most useful form of economic engagement between two countries.”

Data shows some erosion of production in the existing free trade areas. In 2008, the U.S. imported $7.9 billion worth of textiles and apparel from the CAFTA region, according to statistics from the Commerce Department’s Office of Textiles & Apparel. In 2005, the year before CAFTA benefits were phased in, the U.S. imported $9.3 billion of textiles and apparel.

CAFTA has been slow to be fully implemented, creating frustrations for companies that might have shifted some sourcing to Central America and it is early to evaluate the accord’s impact, executives said.

Textile and apparel imports from the NAFTA region fell to $8.1 billion in 2008 from $11.3 billion in 1998, the most extensive data provided by the Office of Textiles & Apparel. NAFTA was initially deemed a success when imports increased after implementation in 1994, but low-cost competition in the apparel and textile sectors from Asia has eroded the region’s market.

Global forces triggered by the recession make recent trade figures difficult to interpret, but textile and apparel imports from the two largest regional trading areas were falling even before the downturn.

“Right now, people are so focused on finding the cheapest price that they’re willing to sacrifice speed to market,” said Carol Hochman, chairwoman of the American Apparel & Footwear Association and president and chief executive officer of Triumph Apparel Corp.

For critical replenishment needs, Central America is still attractive, Hochman said.

Industry experts said they expect the CAFTA region to rebound when global trade recovers from the recession.

“Until this year when everything fell off a cliff, CAFTA was going pretty well,” said Cass Johnson, president of the National Council of Textile Organizations.

The evolving political upheaval in Honduras, a CAFTA member, illustrates the benefits and the risks of regional trade agreements. Last month, a military coup deposed President Manuel Zelaya, creating civil unrest and concern for companies doing business there.

Guess’ Streader said if Honduras only had a bilateral agreement with the U.S. and the coup threatened the operation of the ports and factories in the country, production would be “crippled.” Shifting manufacturing to another part of the world like Asia would be difficult, but within the CAFTA region there is flexibility to adjust the supply chain, he said.

However, the situation in Honduras also illustrates the risks of manufacturing in volatile regions. Zelaya had not been allowed back into the country at press time and there was continued unrest in the capital city of Tegucigalpa. The potential for disruptions to the apparel supply chain hasn’t abated.

To Read the Full Article

Tap into our Global Network

Of Industry Leaders and Designers

load comments
blog comments powered by Disqus