WASHINGTON — As the regional trade talks between the U.S. and five Central American countries come down to the wire, apparel and textile issues are heating up.

Trade negotiators view resolving agriculture, and textile and apparel issues — politically sensitive sectors in all of the countries involved in the Central American Free Trade Agreement — as critical.

U.S. Trade Representative Robert Zoellick will be in Central America through Friday and is slated to meet with his counterparts from the five countries today in El Salvador to discuss the state of the talks, which they all hope to complete by the end of the year. Trade negotiators will also hold a special meeting in Washington to discuss textiles and apparel next Tuesday and Wednesday in advance of a crucial meeting of ministers in Houston the week of Oct. 20.

CAFTA has taken on a heightened sense of urgency for the Bush Administration, which is trying to recover from a major setback in its trade agenda with the collapse of global trade talks in Cancún last month. However, the regional deal already faces a tough battle for passage in Congress next year.

The battle over labor and environmental issues is also expected to be heated. On Wednesday, U.S. Trade Representative Robert Zoellick announced in San Jose, Costa Rica, that the U.S. has awarded a $6.75 million, four-year grant to the Foundation for Peace & Democracy, a non-profit organization, to help improve working conditions in El Salvador, Honduras, Guatemala, Nicaragua and Costa Rica.

The U.S. is currently negotiating a free trade agreement with the five Central American countries and labor issues are expected to fuel a heated debate on Capitol Hill, which will make passage of the trade deal difficult.

A number of controversial issues are building steam as the last two rounds of talks creep closer. The Central Americans have put forward a proposal on textile and apparel rules of origin that is creating an uproar in Washington. The five countries are said to be seeking something known as “cumulation,” which means they would like to define fibers, yarns and fabrics as qualifying inputs from other countries that are either free-trade partners or enjoy preferential agreements with them or the U.S.That means a company in Honduras, for example, could use fiber, yarns or fabric from any of the countries that have free-trade deals with the U.S. or the Central American countries and still get duty-free entry into the U.S. with the finished products. A U.S. trade official, who requested anonymity, said two weeks ago that the U.S. is still trying to determine whether the cumulation concept is legal and compatible with World Trade Organization rules.

“The Central Americans have proposed cumulation, as well as the Mexican industry and some players in the U.S., but it has not yet become a subject of the CAFTA talks,” said the official. “We’re still working through whether from both a policy and legal perspective this is something we want to pursue and how to pursue it.”

Domestic textile industry groups, which are fighting to limit the rules of origin to U.S.-only fabrics, fiber and yarns, staunchly oppose cumulation, while retailer and wholesale apparel importers champion it.

“The notion is absurd on the face of it and utopian in its reach,” said Jock Nash, Washington counsel for Milliken & Co. “Our agreement is with the signatory countries, not all of their friends.”

He claimed it would be a “Gordian knot” that would be impossible to enforce.

Importers, on the other hand, claim they need the availability of fabric and yarns from outside of the free-trade pact to make the region commercially viable and competitive.

“We need the capacity to be able to service the apparel industry,” said Kevin Burke, president of the American Apparel & Footwear Association. “In a competitive business environment, when you add up all of the costs and profits, if it is not affordable to make a product in a region, then there is an obligation to go somewhere else.”

Burke noted that many African and Caribbean countries do not have textile industries and would not be able to supply fabric to the Central American region. Mexico, Columbia, Canada and Peru, on the other hand, have the capacity to produce fabrics and could likely take advantage of cumulation.

Brenda Jacobs, counsel for the U.S. Association of Importers of Textiles & Apparel, said, “[Cumulation] would provide the basis for further expansion of textile production in places like Mexico, which has the facilities and could build up more capacity utilization.”Cass Johnson, interim president of the American Textile Manufacturers Institute, said: “There is no reason Mexico should get the benefits of a free-trade agreement with Central America. We have a serious concern about the problem of transshipments into Mexico from China. We don’t want Mexico to become an avenue of smuggled Chinese goods that our mills have to compete with in a CAFTA.”

But there is even some dissent in the textile industry over cumulation and Mexico.

“Our goal is to preserve this hemisphere as a viable sourcing choice for retailers,” said John L. Bakane, chairman and chief executive officer of Cone Mills, which has a joint venture in Mexico.

“To do that, we have to have lower cost options for our products and by combining the Central American countries with Mexico and the U.S. on top-end goods, we can have the most cost efficient array of products.”

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