WASHINGTON — The failure of global trade talks in Cancún dealt a blow to the Bush administration’s ambitious trade agenda that could trigger a domino effect on two regional trade pacts with Latin America.

As the smoke clears in Cancún and trade ministers from around the world assess whether they can save the global trade round, U.S. trade officials are scrambling to assess the fallout and implications on other trade talks.

The U.S. has set ambitious deadlines for negotiations with five Central American countries slated for completion by the end of the year, as well as for talks on a broader regional pact with 34 Latin American countries known as the Free Trade Area of the Americas by 2005.

U.S. negotiators traveled to Managua, Nicaragua, immediately after the Cancún meeting to hold another round of CAFTA talks that ended Friday.

To domestic textile concerns, as well as retail and apparel import groups, a free-trade agreement with Guatemala, Nicaragua, Honduras, El Salvador and Costa Rica is the linchpin to establishing a trading bloc that can rival China. The U.S. also seeks to integrate the Dominican Republic, with which it is negotiating a separate bilateral, in the CAFTA pact at a later date.

U.S. exports to the five countries last year amounted to about $9 billion in goods. Of that, more than $4 billion was textiles, a trade that’s been fueled by U.S. tariff breaks expanded over the last 15 years, now providing duty-free treatment of apparel made in the region of U.S. textiles and in some cases, regional fabrics.

About 16 percent of all apparel imported into the U.S. comes from the five nations. Garments are collectively their largest export, though in Costa Rica, the electronics sector has overshadowed a still strong apparel business.

The Bush administration has even stepped into the act in an attempt to smooth out the differences between bitterly divided lobbying groups in the U.S. to try to boost the CAFTA talks.

Grant Aldonas, undersecretary for international trade at the U.S. Department of Commerce, held a summit in Cancún last week to discuss an effort to find common ground between importers and domestic textile groups.The administration’s goal is to create a manufacturing policy that promotes the use of U.S. textiles by Latin American and Caribbean countries by giving incentives to U.S. retailers to buy clothing duty free in the Western Hemisphere. But CAFTA, which already faces a tough battle for passage in the U.S. Congress, was also just dealt a blow by the failure of the latest round of World Trade Organization talks in Cancún.

At least two of the Central American countries involved in the CAFTA talks — Costa Rica and Guatemala — took a stance against the U.S. in the global talks as part of an alliance of developing countries known as the G-22, which called for deeper cuts in agricultural subsidies than developed nations were willing to give.

Sen. Max Baucus (D., Mont.), a ranking member of the Senate Finance Committee, said the collapse of the WTO talks could have a negative impact on the CAFTA pact. He warned U.S. negotiators to be cautious because several of the CAFTA countries played a “less-than-constructive role” in the WTO talks.

“Their participation in the [G-22] and the role of that group in precipitating the meeting’s collapse raises serious questions about their commitment to trade liberalization,” Baucus said in a statement.

Trade veterans acknowledged that those alliances in Cancún could further complicate the CAFTA talks, but most claimed the regional trade pact has a good chance of being passed despite all of the obstacles.

“It will deal a blow to CAFTA, but it won’t be fatal,” said Gary Hufbauer, senior fellow at the Institute for International Economics. “Some lawmakers have publicly rebuked [the Central American officials] for it, and this is a setback that they are going to have to make amends for.”

Hufbauer said the prospects of CAFTA are much better than the Doha Round, but are not a slam-dunk like a free trade pact with Australia, which the U.S. is currently negotiating, as well.

Turning to the FTAA talks among 34 nations, including the U.S. and Brazil, Hufbauer said the prospects are slim at best. Trade ministers from the 34 countries are scheduled to meet in Miami in late November to discuss progress on creating a hemispheric trade zone by 2005, but the failure in Cancún means another uphill battle for the Bush administration.Brazil led the G-22 in Cancún in their stance against the U.S. and EU in an effort to get more concessions on opening agricultural markets.

“The FTAA is in the same boat as the WTO because Brazil took such a hard line,” said Hufbauer. “They took a nationalistic poke-in-the-eye stance.”

From a textile and apparel import standpoint, the CAFTA talks are the most immediate concern, although that pact is seen as a component to the broader FTAA talks.

“From a government perspective, the U.S. and Central Americans are hell-bent on getting an agreement,” said Charles Bremer, vice president of international trade at the American Textile Manufacturers Institute. “The blowup in Cancún amplifies the desire of the U.S. for regional and bilateral agreements.”

Bremer said he expects more of an emphasis to be placed on those types of agreements.

“But we don’t want to see concessions by the U.S. merely for the sake of getting an agreement,” Bremer said. “No agreement is better than a bad agreement.”

Kevin Burke, president of the American Apparel & Footwear Association, said, “I do believe we are making progress on the CAFTA talks,” but warned that sourcing would leave the region if CAFTA is not completed.

“If the apparel industry migrates out of Central America, it will not buy American fabric,” Burke said, echoing the traditional lobbying argument.

Burke said it is important to get the agreement done this year in advance of next year’s presidential election and that it is important to find common ground with the textile industry, which is an uphill battle.

Apparel importers and the five Central American countries are pushing hard for tariff preference levels, which allow for the use of fabric or yarn outside of the free-trade area. The domestic textile industry, which has seen severe job losses in recent years, opposes TPLs, claiming foreign fabric, primarily from China, will displace U.S. fabric imports to the region.

The U.S. has proposed a strict yarn-forward rule of origin, which requires apparel to be made of yarn and fabric sourced within the free-trade area and among the free-trade partners. Trade negotiators from all six countries aren’t expected to seriously negotiate rules of origin, TPLs or other contentious apparel and textile issues until the next round of CAFTA talks in Houston at the end of next month.Retailers and importers are also advocating a new concept in the CAFTA talks that is sure to fuel a heated debate. They are seeking “cumulation” in the CAFTA talks, which means they would like to define as qualifying inputs from other countries that are either free trade partners or enjoy preferential agreements with the U.S. This would give retailers and apparel manufacturers who source in the region a greater availability of fabrics outside of the region, from Mexico and Canada to Colombia and Peru.

“We want links to viable fabric industries,” said Julia Hughes, vice president of international trade at the U.S. Association of Importers of Textiles & Apparel. “There should be a wide range of choices for bottom-weight fabrics, for example, which we could get from Mexico rather than Asia and still have the garment qualify under CAFTA.”

Augustine Tantillo, Washington coordinator for the American Manufacturing Trade Action Coalition, said he is concerned about the issue of cumulation, but is willing to discuss it. The U.S. exports millions of dollars of cotton to the region, as well as millions of dollars of fabric to Mexico for apparel production.

“One of the issues is how you restrict cumulation,” he said. “Can countries other than Mexico, like Israel, Chile or Singapore, come in and say they want access, too?”

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