NEW YORK — Guatemala is preparing for the new apparel trade regime in 2005, and executives and government officials are counting on the recently negotiated Central American Free Trade Agreement as a tool to sustain their business.
“CAFTA represents the paramount achievement for us,” said Marcio Cuevas, Guatemala’s Minister of the Economy, who took office in January under the administration of new President Oscar Berger.
Cuevas formerly was the president of Agexpront, the nation’s export-promotion organization.
President Bush indicated last month that he intends to sign CAFTA, a move that kicked off a three-month waiting period that will last until late May.
At that point, the trade package — which gives NAFTA-like trading benefits to the nations of Guatemala, El Salvador, Nicaragua, Honduras and Costa Rica — can be submitted to Congress for approval.
At a panel in Manhattan last week, Cuevas said the new administration is “aggressively addressing many issues that affect trade,” adding, “Guatemala has reformed its legal system to be trade-friendly, as well.”
He said the apparel industry has been a key economic development tool for the nation, explaining that companies, “through jobs, give help to those living in poverty to achieve a better life.”
Carlos Arias, executive vice president of Guatemala City-based pants manufacturer Koramsa and president of Vestex, a local apparel and textile group, said in recent years Guatemala’s industry has worked to make itself more self-contained, with raw materials and trim supplies available nearby. That’s an evolution from the early days of the region’s industry, when manufacturers often did no more than sew and sometimes cut garments, relying on U.S. importers for raw materials and direction.
“The changes in the market are evident and we need to make sure we approach this as a cluster,” said Arias.
He noted that the nation’s inherent advantage — it’s closer to the U.S. than Asia and can ship in less time — has been backed up by better organization. He said, “It doesn’t make sense to be ready to ship a week earlier if we don’t have the labels or hang tags.”Arias said the apparel and affiliated industries today employ 141,638 Guatemalans. That’s up from about 138,000 in mid-2002.
According to U.S. government data, last year Guatemala was the U.S.’s 17th-ranked supplier of textiles and apparel, shipping $1.77 billion worth of goods, for a 2.3 percent share of the import market.
Whether CAFTA will actually come up for a Congressional vote and be passed is a matter of debate, given that this is an election year and that job losses and the economy are major concerns for many Americans.
Julia Hughes, Washington vice president of the U.S. Association of Importers of Textiles & Apparel, said of the deal’s chances this year, “It might be only 50-50 in my optimist’s view.”
Still, Cuevas said in an interview that, given the Jan. 1 timetable for the dropping of textile and apparel quotas among World Trade Organization members, CAFTA is critical for Guatemala, in that the duty-free access it offers will remain a competitive advantage over China and other Far Eastern suppliers.
“We should have the opportunity to compete under fair terms,” he said.
He asserted that China’s currency manipulation and alleged lax environmental and labor standards currently make the competition unfair.
Brenda Jacobs, an attorney at the Washington law firm Sidley, Austin, Brown & Wood, said the complexities of the trade benefits under CAFTA make the deal “a lawyer’s dream.”
Still, she asserted that for U.S. importers and Guatemalan manufacturers CAFTA has advantages over NAFTA and the benefits conferred by the Caribbean Basin Trade Promotion Act.
Among them are that the duty-free benefits offered by the deal are retroactive to January 2004, which means that even if the deal does not pass Congress until next year, companies could apply for rebates of duties paid.
Jacobs noted that keeping detailed documentation of whether imports meet the standards is critical, adding, “You should be thinking now, ‘Do my goods qualify?’”
Essentially, the deal allows garments manufactured in the five countries to enter the U.S. free of duties and quotas so long as the fabrics and yarn contained in them were produced in the CAFTA region or the U.S. By way of comparison, the CBTPA program had required mostly that fabrics be made in the U.S.There is also a movement afoot for “cumulation,” which would allow fabrics made in NAFTA trading partners Mexico and Canada to qualify, though Jacobs noted that those countries will have to agree to allow factories within their borders to be visited and inspected by U.S. Customs Service jump teams first.
“It’s a lot to ask them to do,” she said.
In general, the CAFTA package is a bit more flexible on fabric that CBTPA is.
The yarn-forward origin rules apply to fabrics that make up the “essential character” of the garments, Hughes said. That, she asserted, refers to visible fabrics on the exterior of the garment and visible linings, as well as sewing thread and narrow elastics, but not interlinings such as are used to stiffen the collars of suit jackets, for instance.
In addition, Jacobs noted, a “de minimis” provision allows up to 10 percent of the weight of the yarns in the garment, excluding spandex, to come from nations outside the trade zone. Under NAFTA, that provision allowed up to 7 percent of the weight of the garment to come from elsewhere in the world.
Another important exemption is the use of “single transformation” rule for bras, boxer shorts and nightwear, Hughes said. That means that if those garments are cut and sewn in the region, they can be made of fabrics imported from outside it and still qualify.
Jacobs also noted that during the ongoing comment period, Washington officials are meeting informally to work on the laws that would enforce the trade pact. That, she said, makes this a key time for lobbying.
“Clearly, the battle here is to convince Congress how business works,” she asserted. “You build business by maximizing options.”
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