By  on May 16, 2006

WASHINGTON — One of the biggest unknowns in sourcing this year is whether Congress will make legislative changes to the Central American Free Trade Agreement to help retailers, apparel importers and textile producers that are being adversely affected by slow implementation of the trade accord.

The fashion industry has been waiting nine months for the duty-free benefits promised in CAFTA to fully kick in, but snags and unexpected costs have led many firms to reassess their sourcing commitments in the region.

So far, only the U.S. and three of the other six CAFTA countries have implemented the accord, which has complicated co-production in the region and generated unforeseen costs for apparel companies. At the same time, unfinished side deals negotiated with lawmakers to get CAFTA through the House last year have had an impact on some U.S. textile producers.

Apparel and textile imports from the CAFTA region declined 15.71 percent in the first quarter versus a year ago, according to Commerce Department figures. The six CAFTA partner nations — Honduras, Nicaragua, El Salvador, Guatemala, Costa Rica and the Dominican Republic — combined to export $9.1 billion worth of apparel and textiles to the U.S. in 2005, accounting for 17 percent of the U.S. apparel import market, second only to China.

Honduras and Nicaragua implemented the trade deal in early April, joining El Salvador, which put it into effect in March, and the U.S., which ratified it in August, but their entry has created its own set of problems for producers.

Even if Guatemala enters in June, as many expect, the problems will persist because the Dominican Republic is still working to resolve issues and Costa Rica hasn't ratified the agreement. Last week, Oscar Arias returned to the presidency in Costa Rica, aiming to use his centrist policies and skills as a mediator to unite a country that has become sharply divided over CAFTA. About 4,000 union members, students and academics protested at his inauguration, urging that the pact not be ratified, claiming it puts Costa Rican farmers at a competitive disadvantage.

Apparel now made in El Salvador, Honduras and Nicaragua, using materials from other countries yet to ratify CAFTA — Guatemala, the Dominican Republic and Costa Rica — are subject to duties that exceed 30 percent in some cases.

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