By  on June 11, 2007

WASHINGTON — Increased apparel shipments from some southern neighbors, as well as a drop in yarn imports to the U.S. in April, indicate the Central American Free Trade Agreement might be starting to alter trade flows, as its architects imagined.

The 2005 trade agreement eliminated tariffs on apparel and textiles, drawing the U.S., El Salvador, Honduras, Nicaragua, Guatemala and the Dominican Republic economically closer and bolstering a key market for U.S.-made yarns and textiles. Costa Rica is part of CAFTA, but has yet to ratify the pact.

A staggered start to the program, with countries implementing the deal at different times, muted its initial benefits. But that might be changing.

Honduras and El Salvador, among the top 10 apparel importers to the U.S., increased shipments here by more than 50 percent in April, versus a year earlier. Apparel imports from all the CAFTA countries, including Costa Rica, jumped 25.7 percent in April, to 260.8 million square meters equivalent, valued at $609.8 million, according to a Commerce Department report released Friday.

That is the first significant rise since countries began to go live with CAFTA and it was accompanied by a 13.2 percent drop in yarn imports, to 282 million SME, suggesting a boost for U.S. producers. Yarn exports to CAFTA countries, by value, were up 24.7 percent, to $303.6 million, for the first four months of this year, according to a separate set of Commerce figures.

"There are a lot of yarn spinners shipping a lot of goods to Central America," said Jim Chesnutt, president and chief executive officer of the National Spinning Co. "Based on that, I think it [CAFTA] has probably been OK."

The company has a sweater operation in El Salvador that it supplies with yarns it makes in the U.S. Chesnutt said the benefits of the pact, however, were threatened by a trade agreement with South Korea that the U.S. negotiated, but that has yet to be considered by Congress.

"Our last great hope in this Western Hemisphere is in the CAFTA countries," he said.

Even with the duty-free treatment, the region is under serious pressure from China, which is by far the number-one exporter of apparel and textiles to the U.S. and increased those exports 7.4 percent in April, to 1.4 billion SME valued at $1.9 billion. Taken separately, Chinese apparel imports shot up 31 percent, to 431 million SME for the month.Despite the chilling effect of quotas on 34 types of apparel and textile products, China has continued to pick up share as other countries struggle to adjust to the shifting market.

Among countries losing ground in April was Pakistan, the number-two apparel and textile supplier to the U.S.; its shipments were off 12.3 percent, to 256 million SME. Dramatizing the transient impact trade policy can have on actual commerce, the U.S.'s two North American Free Trade Agreement partners continued to lose ground during the month. Mexico was off 9.8 percent, to 243 million SME, and Canada was down 14.9 percent, to 176 million SME.

Total apparel and textile imports to the U.S. inched up 0.4 percent in April, to 4 billion SME. On net, fashion contributes to the trade deficit, since the U.S. imports more apparel than it sells in other countries. A decrease in total imports, particularly in the energy area, and an increase in exports caused the U.S. deficit in goods and services to narrow to $58.5 billion in April from $62.4 billion in March.

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