GUATEMALA CITY, Guatemala — Central America’s apparel makers are increasingly worried about the proposed U.S. Border Adjustment Tax and possible changes to the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA).
“We are concerned that if U.S. apparel importers can’t benefit from the U.S. tax reform, we could lose orders,” said Karin de Leon, executive director of regional textiles lobby Cecotec, during the 26th Apparel Show conference late last month.
The Trump administration’s April 29 announcement that all free trade agreements including DR-CAFTA will be reviewed to boost U.S. export competitiveness is also unnerving maquilas, or manufacturing facilities, here, she added.
In January, Central American makers were celebrating U.S. President Trump’s cancellation of the Trans-Pacific Partnership, which was seen eliminating Vietnam’s competitive edge against the region.
Back then, executives said exports could surge 10 percent in 2017 as many Asian orders began to flow back to its shores. They added Central America could also benefit from a rewrite of the North American Free Trade Agreement, which could make Mexico a less attractive sourcing partner, fueling interest in the region.
But Central America’s clothing exports are up just 1.5 percent so far this year and may not meet that target amid the border tax and DR-CAFTA uncertainties, de Leon conceded.
Conversely, Mexico saw a 10 percent hike in U.S. exports to $2 billion as of May as its sharply devalued peso encouraged U.S. brands to ignore Trump’s threats and boost orders.
De Leon said that “10 percent [now] seems like too much, but we are expecting to grow more than last year.”
Interestingly, the two-day fair, expected to garner $80 million in orders, saw the first Chinese delegation ever to attend it — a sign that China’s apparel manufacturers are looking to profit from an eventual increase in Central American business to the U.S.
She hopes DR-CAFTA won’t be modified as sharply as NAFTA, for which talks are set to shift into gear, as the U.S. does not carry a multisector trade deficit with the region; it does, however, send significantly less apparel to it than the other way around.
During the conference analyzing BAT and DR-CAFTA, Jonathan Fee, a trade lawyer with Alston & Bird in Washington, said there is a “50-50 chance” NAFTA could be completely — and adversely — rewritten — or modernized.
While DR-CAFTA is less likely to go through a severe review, the U.S. could tweak its labor chapter and rule-of-origin rules, introduce e-commerce provisions and other measures to curb port and customs corruption, observers said.
Many such changes could also be introduced in NAFTA, they added.
Stephen Lamar, vice president of the American Apparel & Footwear Association, said BAT could increase U.S. apparel importers’ operating costs by up to 25 percent, hurting Central America where sourcing interest has increased lately.
Meanwhile, local producers are unshaken about Trump.
“Trump has not mentioned CAFTA,” said Kim Seong Jae, general manager of Textiles Gran Fe (Big Faith in English). “He always talked about the TPP and its end is benefiting and bringing back many Asian orders.
“I don´t think he is going to imposed BAT on Central America. If he does, it would become very difficult to export from here.”
Gran Fe, which dyes thread and supplies knit fabric for the likes of Wal-Mart Stores Inc., Target Corp. and Old Navy Inc., is wrapping up a major expansion that will see it double sales and production by July.
The Korean-owned firm has poured $28 million into a new fabric-printing plant and two fledgling polyester and cotton-thread dyeing facilities that will double turnover to $60 million, output to 36 million kilograms a year and employment to 700 workers, according to Seong Jae.
The expansion will enable the firm to offer more versatile fabric finishes.
Texiles Modernos is also innovating with plans to launch a recycled-PET and denim cotton fabric and clothing line in coming weeks. The product will complement its New Denim Project label using denim factories’ fabric waste to make 70 percent recycled fabric, homeware and apparel for the likes of Whole Foods, West Elm and smaller sustainable fashion labels in the U.S.