The proposed Central American Free Trade Agreement could help manufacturers in countries including Guatemala to grow their apparel exports to the U.S.

WASHINGTON — Apparel makers in the five Central American nations negotiating a free-trade agreement with the U.S. hope to establish a trading block that can rival China.<br><br>But they face many political hurdles to overcome before the Central...

WASHINGTON — Apparel makers in the five Central American nations negotiating a free-trade agreement with the U.S. hope to establish a trading block that can rival China.

This story first appeared in the February 11, 2003 issue of WWD.  Subscribe Today.

But they face many political hurdles to overcome before the Central American Free Trade Agreement becomes reality.

When the talks with El Salvador, Honduras, Nicaragua, Costa Rica and Guatemala started early last month, the expectation among all sides was for negotiations to wrap up by the end of the year. This ambitious goal was based on strong diplomatic and U.S. trade ties with the region moving talks along at a fast clip.

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 countries. Garments are collectively their largest export, though in Costa Rica the electronics sector has overshadowed a still strong apparel business.

No one is ready to say the Central American Free Trade Agreement, or CAFTA, talks have hit a brick wall, but at the first meeting of negotiators in Costa Rica late last month some red flags were raised.

The meeting was a forum for U.S. trade officials to brief Central Americans on the recently penned U.S.-Chile FTA. The pact is being used as a starting point for negotiations and some of its contents are worrisome for Central Americans.

Alfredo Milian, executive coordinator of the Central American and Caribbean Textile and Apparel Council, said there is concern in the region’s apparel and agriculture sectors about the Chilean FTA being used as too much of a standard for CAFTA.

For agriculture, the Chile agreement restricts shipments to that country’s growing season, which is opposite that of the U.S. That stipulation limited opposition from American farmers. However, the Central American growing season is about the same as California’s, so farmers in the region are seeking export advantages that are likely to draw fire from U.S. agricultural interests. Central American farmers are also keen on fighting U.S. subsidies of farm products.

There are also stark differences between the Central American and Chilean apparel industries.

“All of our countries are very high in ranking in terms of apparel trade with the United States, and Chile is not,” said Milian, who is from El Salvador. He noted that Chile provides less than 1 percent of textiles and apparel imported into the U.S., adding, “That is one of the qualitative differences we see in the negotiations.”

The Chile pact holds to a yarn-forward rule of origin for apparel receiving duty-free treatment. That means only U.S. or Chilean textiles can be used for qualifying apparel. However, the agreement makes some exceptions for fabric from other countries.

Central American apparel manufacturers argue the Chilean yarn-forward fabric exceptions, known as trade preference levels, would be too small for the region to remain competitive with China starting in 2005, Milian said. That’s when global quotas restricting trade in textiles and apparel are to be eliminated, a development that’s expected to radically alter the competitive playing field.

Central American apparel manufacturers are joining with U.S. apparel importers in advocating that fabric should qualify if it comes from free-trade partners engaged by CAFTA parties. These include Mexico and Chile.

In addition, Milian said textile manufacturers in the Andean countries of Peru, Ecuador, Bolivia and Colombia have approached Central America’s apparel makers to forge alliances, so broadening the CAFTA rule of origin to include the Andean nations would be a good idea. The Andean countries have U.S. apparel trade breaks using regional or U.S. fabrics and yarn and have more textile producing capacity than Central America.

However, despite the Bush administration’s vision of a tariff-free world, U.S. trade officials have to keep Congress in mind when negotiating CAFTA, to be sure the pact is politically palatable.

Textile and apparel lobbyists could threaten an agreement seen as unfavorable to their constituents.

“That thing is dead on arrival with the Congress” if CAFTA contains large TPLs or otherwise deviates from the yarn-forward rule contained in the Chile FTA, said Charles Bremer, director of international trade with the American Textile Manufacturers Institute.

Frank Kelly, vice president of customs and international trade operations at Liz Claiborne, said without at least a Mexican textile provision and ample TPLs, CAFTA will discourage new apparel manufacturing in Central America.

“You need to have these free-trade agreements linked,” said Kelly, the former chairman of the U.S. Association of Import-ers of Textiles and Apparel.