WASHINGTON — The U.S. will kick off negotiations Wednesday with five Central American countries on a bilateral free-trade agreement, and apparel and textile trade groups are gearing up for the talks.
Foreign trade ministers from El Salvador, Guatemala, Nicaragua, Honduras and Costa Rica will be in Washington for two days. One key stop will be on Capitol Hill, where they are set to meet with U.S. Trade Representative Robert Zoellick, lawmakers and corporate executives at a reception honoring the start of negotiations.
It is the first free-trade pact initiated by the Bush administration, which hopes to complete an agreement by the end of the year, and one that would expand the links the U.S. already has with the five Central American economies that are all significant apparel suppliers to the U.S.
The region has become a key hemispheric apparel supplier because of a succession of trade breaks granted by Congress, the most recent allowing for duty-free importation of apparel made from U.S. textiles through the Caribbean Basin Trade Partnership Act of 2000. Central American countries will now strive to increase their 12.3 percent share of the U.S. apparel and textile imports under an FTA by using their own textiles without limits.
There is a lot at stake for Central America, which is fighting for a stronger foothold in the U.S. market, and there is an urgency to complete the negotiations before the elimination of apparel and textile quotas in 2005 among the 144 World Trade Organization member nations. Most experts agree that China will dominate apparel and textile trade at that point by taking away market share from all other countries.
Alfredo Milian, executive secretary of the Central American & Caribbean Textiles & Apparel Council, based in El Salvador, said: "If strategic alliances are built between the U.S. and Central America, there is a chance for Central America to remain competitive, especially if they decide to improve on the full package concept."
For the year ended Oct. 31, apparel and textile imports to the U.S. from the five Central American nations was a combined 2.8 billion-square-meters equivalent, valued at $6.85 billion, according to the Commerce Department. Honduras is the third-largest apparel supplier to the U.S., behind Mexico and China, while El Salvador is seventh, Guatemala is 15th, Costa Rica is 17th and Nicaragua is 31st.Although most negotiators expect an agreement to be reached easily because of existing trade deals with the U.S., talks in the apparel and textile sector are expected to be difficult. The U.S. textile industry has a lot at stake and will pose a big challenge to the trade liberalization the countries seek. Many textile executives are calling for strict yarn-forward rules of origin, strict customs enforcement and no allowances for fabric or yarn from countries outside of the free-trade pact.
The domestic textile industry will fight to protect the benefits it has reaped from the Caribbean Basin Trade Partnership Act, said Charles Bremer, vice president of international trade at the American Textile Manufacturers Institute. The CBTPA was implemented in 2001 and has provided a boost for the U.S. textile industry, Bremer claimed, with the five Central American countries representing the bulk of the business.
For the year ended Oct. 31, U.S. exports of fabric to the five countries was $983 million, according to Bremer. For the same period in 2001, the first year of CBTPA, U.S. fabric exports to the same five countries was $646 million.
"We have an enormous amount of trade built up with these countries and there is no reason to give the benefits of an FTA with Central America to anyone in Asia through tariff preference levels or linkages," Bremer said.
The American Textile Trade Action Coalition, a mill/labor lobby group, is angling for even stricter rules of origin.
"We believe there should be a NAFTA rule, which requires the use of the contracting parties’ components, such as yarn and fabrics, but it should be a direct arrangement with each country," said Augustine Tantillo, Washington coordinator of ATTAC. "If apparel is made in the Honduras, for example, the yarn and fabric should come either from the U.S. or Honduras, not Guatemala or El Salvador [which will be signatories]."
Tantillo claimed the "interchangeability" between the countries that sign an FTA or any others that might benefit "presents a scenario almost certain to cut U.S. yarn and fabric out of the equation."
U.S. importers and apparel and textile trade and lobbying groups in Central America oppose the strict rules of origin and plan to push for linkages in this FTA with other free-trade pacts and preferential programs. They want a trade deal that allows the five Central American countries to use fabrics and yarns from not only the signatories, but other countries with which the U.S. has trade deals, including Canada, Mexico or any of the four Andean countries, and still receive duty-free treatment. Importers will also fight for the use of Asian fabric through tariff preference levels.Restrictive rules, importers and retailers claim, impose restraints and drive production and trade out of a free-trade region. Many factories in the region, particularly those owned by Asian investors, import fabric from the Far East.
Marcio Cuevas, president of the Non-Traditional Product Exporters Association in Guatemala, which represents apparel and textile companies, plans to push for linkages with other U.S. trade agreements when he is in Washington this week.
He said the Guatemalan apparel industry is expected to grow by 5 to 8 percent in the first two years of the trade pact with the U.S.
"We would like to have negotiations where we think we are going to benefit like Mexico or Canada or even more like the Andean countries are benefiting," Cuevas said. "Textile and apparel negotiations will be hard, but we need something that will be as good as NAFTA and allows us to link with Mexico, Canada or the Andean countries."
Milian said: "The way to do it is through CAFTA [a Central American Free Trade Agreement with the U.S.] and the integration of the Western Hemisphere. Eventually, Colombian fabrics should be part of the equation, Mexican fabrics should be part of the equation and they should not be excluded in terms of rules of origin."