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WASHINGTON — Concern is mounting among apparel manufacturers over the expiration of a special preference program in Nicaragua under the Central America Free Trade Agreement that allows companies to use a specified amount of third-country woven fabric in the trousers made in that country and receive duty free benefits when shipped to the U.S.
The American Apparel & Footwear Association outlined the concerns of some U.S. brands that benefit from the preference in a letter the association sent to U.S. Trade Representative Ron Kirk and Commerce Secretary John Bryson last week.
The special provision, which expires at the end of 2014, allows companies manufacturing in Nicaragua to match one square meter equivalent of woven fabric made in the U.S. or CAFTA region with one SME of third-country woven fabric. It caps the amount of one-for-one woven fabric qualifying for duty free benefits at 100 million SME. There is also a sublimit that allows companies to use 20 million SME of the woven fabric in trousers and ship to the U.S. duty free.
“This [tariff preference level] program has been a tremendous success for U.S. fabric and yarn mills, U.S. cotton growers, U.S. apparel companies and U.S. retailers,” Burke said in his letter to the two top trade officials.
Burke said the TPL program has led to increased apparel production in Nicaragua and supports about 25 percent of all U.S. apparel imports from that country. He also noted that U.S. fabric exports to Nicaragua have nearly doubled over the past five years the trade agreement has been in effect to hit $110 million in 2011.
But the AAFA has a tough road ahead in convincing the Obama administration to extend the program. Deputy USTR Demetrios Marantis told members of the AAFA at its executive summit on March 15 that he does not “envision” the TPL being renewed.
Tom Glaser, president of the global supply chain at VF Corp., said the company has invested a lot in CAFTA because of the TPL program in Nicaragua and asked Marantis why the administration objects to extending it.
“It’s lived its usefulness and its usefulness will end in 2014,” Marantis said. “The idea of CAFTA is to try to source locally from the region and that is not what a TPL does. The whole idea of it was to be a temporary transitional mechanism, which again will expire in 2014.”
Burke said in the letter that the expiration of the preference will “result in a loss of business for U.S. textile manufacturers, U.S. apparel companies and their Nicaraguan partners.”
The uncertainty over whether the preference will be extended has already forced apparel manufacturers to place new business in other countries, Burke said. Congress would have to approve an extension and the other CAFTA countries would each have to approve it as well.