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WASHINGTON — The Bush administration has stepped up its pursuit of trade agreements following last month’s congressional approval of Trade Promotion Authority.
Industry executives are closely watching the negotiations, including several in the Western Hemisphere, as the commercial alliances the U.S. is forming are expected to play a key role role in managing global trade after the 2005 phaseout of quotas.
TPA, which had expired in 1994 when it was known as fast track, gives foreign countries assurance that Congress won’t amend trade negotiated by the administration, since it only allows for an up or down vote on such agreements.
The administration is using what U.S. Trade Representative Bob Zoellick calls a policy of “competitive liberalization,” by which the U.S. taps countries to enter into trade-barrier-lowering pacts or risk being left behind as their neighbors sign up.
For example, Zoellick has said a free-trade agreement with Chile that should be completed by year’s end should “create competition” among its neighbors to spur creation of a Free Trade Area of the Americas. In addition, an almost-completed Singapore FTA “may serve as a model for the Asia-Pacific region, encouraging trade liberalization and regulatory reform,” Zoellick wrote members of Congress last month.
The return of presidential trade negotiating authority has pumped new life into four-year-old talks among 34 countries to create an FTAA encompassing all Western Hemisphere nations, except Cuba. Separate free-trade talks with Singapore and Chile, stalled since the Clinton administration, are now expected to be wrapped up soon. Negotiations with Morocco, South Africa and Australia are on deck and Zoellick has said more countries will follow.
“The President has certainly charged me…to move, move” on securing trade agreements, Zoellick told reporters last week.
The first free-trade pact initiated by the Bush administration expected to be completed is one creating a free-trade zone with the Central American nations El Salvador, Honduras, Costa Rica, Guatemala and Nicaragua. Negotiators said talks could be completed as early as next summer and expect the deal to have a significant effect on the U.S. apparel and textile supply chain.
There’s an urgency among those five Central American countries to complete a free-trade deal with the U.S. before the elimination in 2005 of global apparel and textile quotas among World Trade Organization nations. A shift of market share among apparel and textile supplying countries is expected once restrictions on imports are lifted.
“The race is on. Nobody can deny that,” said Alfredo Milian, a coordinator with Fundatex, El Salvador’s textile and apparel association. “This game is a game of who starts first and who maintains trade preferences before anybody else gains preferences.”
In Nicaragua, which is just getting its footing as an apparel exporter to the U.S., a Central American FTA is seen as much-need economic boost.
“We all have to wonder what will happen to our industry in 2005″ when global textile-apparel quotas fall, said Joe Stephenson, president of the Nicaraguan apparel association, ANITEC. Stephenson owns two factories in Nicaragua. He moved there in 1993 when his family’s apparel factories in Georgia closed in the face of low-cost import competition.
“A Central American trade agreement, perhaps, would help to soften the blow or at least make for a transition period rather than to just open the door to competition from China,” Stephenson said.
Negotiators expect an agreement to be reached easily since these countries already have existing trade deals with the U.S., such as the Caribbean Basin Trade Partnership Act of 2000, and have harmonized their trade regimes through a common market.
Central American countries want to increase their hefty 16 percent share of the U.S. imported-apparel market. The region has become a key hemispheric apparel supplier thanks to a succession of trade breaks granted by Congress, the most recent allowing for duty-free importation of apparel made from U.S. textiles through CBTPA. Now, local suppliers hope to fortify their market share further under an FTA by using their own textiles without limits.
U.S. retailers and importers advocate a Central American FTA that would become an appendage of NAFTA and allow Mexican and Canadian textiles to be used as well, and give some leeway for non-North or Central American fabric.
Many factories in the region, particularly those owned by Asian investors, import fabric from the Far East.
U.S. textile mills have supported a yarn-forward rule for FTAs in which apparel receiving duty-free treatment must be made of yarn and fabric produced by signatories of an agreement. This is the rule used in NAFTA.
Kevin Burke, president of the American Apparel & Footwear Association, said in negotiating a Central American FTA, as well as a hemispheric FTAA, the challenge will be “how do they construct a deal that will help this hemisphere, post-2005.” He said fabric rules of origin need to be flexible in order to keep apparel business in this hemisphere.
Belize and Panama have been left out of the proposed Central American free-trade pact. Caribbean countries are also excluded. Until now, all of Central America and the Caribbean have been treated by the U.S. as a unit when granting trade breaks. The decision to exclude these countries could spell a setback, in particular, for the Dominican Republic, which has a 5 percent share of the U.S. imported apparel market.
“We would certainly like to see more countries wrapped into a Central American trade agreement,” said Erik Autor, international trade counsel for the National Retail Federation. “But in order to get this done quickly, and if the political calculus means they have to exclude some countries, we’ll wait for the Free Trade Area of the Americas to include them.”
USTR Zoellick said the five Central American countries were chosen for free-trade talks because they joined forces and proposed participation as a trading bloc and because they are U.S. allies in FTAA talks. The Dominican Republic has been at odds with the U.S. on trade in FTAA negotiations and WTO matters, he said.
“We certainly want to have a good trade relationship with the D.R.,” Zoellick said, adding that U.S.-Dominican Republic relations have recently been on an “upswing.”
The five Central American countries “have been some of our strongest supporters.”
“We want to see that same support from the Dominican Republic at the [WTO] negotiations and the FTAA,” he added.
The Central American FTA is expected to be reached by 2003. Negotiators for the FTAA hope to reach a deal by 2005, but many observers consider that deadline to be ambitious.
Whatever lead time Central America gets with its FTA, “will give us the opportunity to consolidate some strategic alliances with the U.S. industry,” El Salvador’s Milian said.
FTAA negotiators will face many hurdles. In addition to the politically sensitive issue of textile and apparel tariff phaseouts in the U.S. and other countries, they will have to decide how to drop trade barriers on agricultural products.
Brazil, the geographical size of the continental U.S. and the largest economy in South America, is considered a potential spoiler in FTAA talks. Brazilians have resisted efforts to speed FTAA negotiations out of concern that rapid trade liberalization could injure the restructuring Brazilian economy. Brazilians have said their priority is strengthening regional trade blocs, like the Mercosur common market it shares with Uruguay, Paraguay, Argentina and Chile. Still, the nation is expected to exert its influence as co-chair of the negotiating process with the U.S.
“The FTAA is more difficult because of the number of countries involved. You also have countries like Brazil that look at themselves as equals to the U.S.,” said Julia Hughes, vice president of international trade at the U.S. Association of Importers of Textiles & Apparel. “It’s going to be a tough negotiation.”
The various FTA negotiations march along as work continues among the 144 WTO nations on a new round of trade-liberalizing talks launched last November. The Doha Round is already causing sparks as developing countries, including many that are engaged in FTA talks with the U.S., are banding together to pressure the U.S. and European Union to agree to more market access, particularly with textiles, apparel and agricultural products.
The Doha Round is scheduled to be wrapped up in 2005, though the deadline is expected to be extended. The previous Uruguay Round concluded in 1994, three years past its target date.
WTO talks could get a boost from U.S. allies gained in the current flurry of FTA trade negotiations with developing countries, said Ron Sorini, president of trade negotiations and legislative affairs with the law firm Sandler, Travis and Rosenberg. Sorini was the U.S. chief textile negotiator during the Uruguay Round and in negotiating NAFTA.
“The U.S. will do more FTAs outside of this hemisphere to encourage countries to engage more seriously at the Doha Round,” Sorini predicted.
Charles Bremer, director of international trade at the American Textile Manufacturers Institute, said he expects the U.S. to complete FTA talks with Singapore, Chile, Central America and other countries, but he doubts a consensus on tariff phase-outs among all countries in the Western Hemisphere, which would be necessary for the FTAA, can be reached.
“It’s just not going to happen,” he predicted.
In any case, the ultimate decision on whether to approve the U.S.’s joining of any negotiated FTA rests with Congress, where lawmakers must balance a variety of concerns.