By  on February 8, 2007

WASHINGTON — The full benefits of the Central American Free Trade Agreement have proved elusive, but the pact still has the potential to spur economic growth, experts said.

Although the accord has been a boon for some companies, others have been forced to exercise patience and keep faith that freer trade with the region will lead to a better business climate.

The trade pact was the focus of intense debate. Proponents saw CAFTA as an opportunity for the U.S. to get improved access to the Central American market for U.S.-made goods and to strengthen poor countries. Opponents argued that the U.S. would impose unfair trading conditions on its neighbors.

Even the U.S. textile industry was split, with key lobbyists campaigning for the deal as an opportunity to bolster the industry's most important export market and others criticizing loopholes that would open a backdoor to competition from China and elsewhere. In the apparel area, the deal was intended to generally eliminate tariffs on apparel made of native materials and produced in one of the six signatory countries.

The House approved CAFTA by just two votes and President Bush signed it into law in August 2005. Although the agreement was targeted to take effect in January 2006, the U.S. and one of the six signatories, El Salvador, didn't first implement the deal until last March.

A month later, Honduras and Nica­ragua flipped on the CAFTA switch, but it took Guatemala until July. The Domin­ican Republic is on deck for implementation, while the Costa Rican legislature still has to ratify the pact.

For a time, the staggered start caused some firms to pay higher-than-expected duties, though Congress eventually passed legislation allowing them to apply for refunds.

"The fundamental lesson is absolutely learned there, which is if you're going to do a plurilateral [free trade agreement] you better be prepared for rolling implementation," said Special Textile Negotiator Scott Quesenberry in the Office of the U.S. Trade Representative. "We now know that is an issue that has to be considered."

Quesenberry was appointed after CAFTA had been negotiated, although he has worked on completing details of the agreement's implementation."It's too early to really talk about how much of a success or failure it's going to be, but I would say that if you look at the numbers, they seem to bear out the argument that this will help the region stay competitive," he said. "While the overall numbers are down over the last year, they're not down as much as other regions."

Apparel and textile imports from the CAFTA countries fell 10.6 percent for the year ended Nov. 30, to 3.5 billion square meter equivalents valued at $8.5 billion, the Commerce Department said. By comparison, Mexico's imports to the U.S. declined 11.2 percent and imports from Sub-Saharan African nations slid 13.6 percent.

In addition to not spurring apparel and textile imports to the U.S., the pact has failed to halt declines of domestic exports to the region.

Apparel and textile exports from the U.S. to the other CAFTA countries slid 8.4 percent for the 12 months through November to $3.5 billion. However, yarn imports to CAFTA countries were up 30.8 percent to $796.5 million.

"CAFTA's a work in progress and it can be a better work in progress if we realize we need different tools to make it a better agreement," said Kevin Burke, president and chief executive officer of the American Apparel & Footwear Association.

Burke wants the government to intensify efforts to implement free trade agreements after they are approved.

"You have to treat a trade agreement like an investment," he said. "An investment in time and energy on the part of our country to open up markets around the world. If you don't take care of the product or tweak it when it needs to be tweaked, then you run the trouble of making it useless."

Some progress has been made recently.

Last month, in a move applauded by importers, U.S. Trade Representative Susan Schwab signed an accord with Mexico, marking a significant step toward allowing Central American producers to use Mexican materials and still get duty-free access to the U.S. market.

In December, U.S. negotiators concluded pocketing fabric agreements with the CAFTA countries, helping to ensure that fabrics originate in the region, a key goal of domestic textile interests.These changes have yet to take hold largely because of the complex legal requirements of the CAFTA countries, but they give some sense of what the trading landscape should ultimately look like.

Despite implementation problems, there are indications that CAFTA has had a positive impact in the region on several areas, including foreign direct investment and trade procedures, said Jaime Granados, trade specialist at the Inter-American Development Bank.

"CAFTA is part of a wider development strategy that seeks to promote structural development based on specialization and value added throughout the economies of the six countries," Granados said. "Therefore, the countries cannot claim success judging just by results in one single sector."

There are no reliable statistics on fashion companies leaving or entering the region, but the history of apparel manufacturing has proved it to be mobile and willing to pick up to find greener pastures. Some companies have moved in to take advantage of the promise of the trade pact.

"We're investing down there, which hopefully is a statement to some of our customers about keeping production in this hemisphere," said Joseph Gorga, president and chief executive officer of International Textile Group, which includes Burlington Worldwide and Cone Mills. The company is putting about $90 million into a new plant in Nicaragua, which is to be operating by the end of this year.

"We're still very bullish on the region," Gorga said. "We still think CAFTA's going to benefit this hemisphere. We just hope that the enactment and the implementation and any changes that are made could be done in as efficient a manner as possible."

Changes in trade policies, such as the planned duty free treatment for apparel from Haiti, which could siphon business from Central America, makes the dynamic more complex, Gorga said.

"Sometimes, I wish once they cut a deal and put a stake in the ground — let's get the initial stages of it enacted before we start amending," he said.

There are brands producing in Central America that are likewise reaping the benefits of the pact.

"On balance, I think some people are very happy," said Jonathan Fee, a partner at the Washington law firm Alston & Bird, who has helped clients make use of the agreement. "It's relatively user-friendly. It works. The goods are coming through Miami and other ports with full benefit of CAFTA and there are a lot of participants. That said, there's still a distressing amount of unsuccessful business in Central America."The textile lobbyists who helped pushed to get the deal through Congress and signed by President Bush see CAFTA as one fight among many to keep the U.S. producers afloat.

"[CAFTA] has been very helpful in some products and not quite as helpful in others," said Missy Branson, senior vice president of the National Council of Textile Organizations. "I wouldn't say it has had a negative effect. It's been 10 years since NAFTA was implemented and I don't think people could tell you what the final outcome is going to be. These things are kind of moving targets as the global trade dynamic changes."

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