MEXICO CITY — Central America is increasingly nervous about Vietnam’s participation in the Trans-Pacific Partnership (TPP.)

Vietnam, an early entrant to the highly controversial, 12-country free trade accord which could be signed this year, wants flexible rules of origin and zero trade duties as soon as the accord is signed.

But Central American and U.S. textile executives claim that would be a problem, contending it would cut exports from the five Central American countries and the Dominican Republic, which make up the CAFTA-DR free-trade zone with the U.S., by 25 percent during the TPP’s first year.

In 2013, CAFTA-DR exported $7.8 billion worth of apparel to the U.S, according to Luis Estrada, general manager of Guatemala’s top textiles association Vestex. Based on that figure, if Vietnam enters the TPP under its request for a non-yarn forward rule, export losses could total $1.95 billion a year or nearly $6 billion in the first three years of the TPP, he noted.

“The losses could be huge,” Estrada said. “We are working very hard so that Vietnam enters the TPP under fair and equal terms.”

CAFTA-DR members have teamed with U.S. textile lobbies, notably the National Council of Textile Organizations (NCTO), to ask the U.S. Congress to pressure Vietnam to accept a yarn-forward rule of origin forcing it to limit sourcing from other nations in the TPP block. The partners are also asking that zero tariff benefits would be granted over a number of years. Vietnam should also follow the same short-supply rules as CAFTA-DR members to procure inputs to make clothing.

According to Vestex’s president Severino Matta, Central American countries must adhere to very strict short-supply lists demanding great detail about the raw materials they need to meet CAFTA-DR sourcing rules. However, Vietnam wants to be able to use a much larger and broader list.

“We are afraid that if they can use this list, we are going to get the same dog with a different collar, that Vietnam will be able to skip the yarn-forward rule and use whatever textiles they want for their production,” Matta said.

Those textiles could include yarn and fabric made in China, but also from India or other Asian countries, giving Vietnam a bigger competitive edge over Central America, which has gradually lost its U.S. export market to Vietnam, now the U.S.’ second-largest apparel supplier.

“The big concern is Vietnam,” concurred Mike Hubbard, vice president of the NTCO, adding that U.S. yarn and fabric mills export some $12 billion a year to the region. “This is a vey low cost and big producer that could start using a lot of yarn and fabric from China and bring it to the U.S. duty free.”

If Vietnam cannot be persuaded to use the yarn-forward rule of origin, “the impact would be  catastrophic for the U.S. industry and our partners in Central America,” Hubbard noted, adding that Colombia and Peru in South America would also be impacted.

Since CAFTA-DR was signed in 2007, U.S. and Central American countries have done brisk business, meeting many of the agreement’s trade and investment targets, Hubbard said.

“This has become a huge market, not just for U.S. exports but for what comes back [as finished apparel] from Central America,” he said. “For some of these small countries, this is a huge part of the economy.”

Experts said the textile and apparel trade accounts for 19 percent of Guatemala’s industrial GDP and much more for El Salvador and other Central American countries.

“We can’t talk about immigration reform [from South and Central America] while closing our economies and opening Vietnam’s,” Matta said. “If the U.S. allows this, the immigration problem is going to worsen.”

Matta echoed other views that Vietnam unfairly subsidizes its textile industry, with state supplier Vinatex generating 20 percent of exports. Wages average 70 cents an hour including benefits while energy costs are also very low.

Matta said CAFTA-DR and its U.S. partners are asking for Vietnam to eliminate these subsidies and meet the same labor and environmental requirements of other TPP members.

That said, Hubbard expressed optimism the U.S — which is leading TPP negotiations — will help orchestrate a win-win deal with Vietnam to benefit all the parties involved.

Lifting hopes that will be the case, President Obama recently wrote to his Dominican Republic counterpart Danilo Medina to assure him the U.S. will take his and the region’s concerns into account during TPP talks.

Nate Herman, international trade vice president at the American Apparel and Footwear Association (AAFA), said it may already be too late for Central America on. Instead of pushing for restrictions in the TPP, Central American nations must work harder to boost their competitiveness and move to enter the TPP as soon as possible, he said.

While the region has improved its full-package offer since implementing CAFTA-DR, it must do more to beat Vietnam, China and other Asian rivals to retain U.S. manufacturers, according to Herman.

“A lot of buyers have to spend a lot of time to source yarns and fabrics,” Herman said. “That is not full-package in which you place and receive an order to your specifications.”

Herman added Central American countries have become nimble players in the fast-fashion sector, able to deliver small runs in quick turnarounds for U.S. brands and that they could benefit from stepping up this capability.

To further increase its attractiveness, Nicaragua must renew its tariff preference level (TPL) agreement allowing U.S.-owned maquilas to use a limited amount of materials from non-CAFTA-DR members to make export apparel, he said. The program, which could be pursued by other countries to woo U.S. business, expires at the end of 2014.

Herman said customs red-tape must also be eliminated to bolster the region’s appeal as U.S. annual inspections to ensure exports meet rules of origin and other treaty regulations have worsened, idling some factories for up to two weeks.

Matta agreed CAFTA-DR should boost its attractiveness through better full-package capabilities, short-order deliveries and developing new market niches against Vietnam, which he said remains mainly a  mass-market producer.

On that note, he said Central America has expanded into higher-priced and more specialized apparel segments, notably synthetic and artificial fiber dresses, women’s knitwear, cotton bathrobes, dressing gowns and negligees.

The region has also made headway in performance sports apparel, he said, adding that the value-added specialization trend will continue to bolster the region’s fortunes.

Matta said the region will continue to lobby the U.S. to pursue the Vietnamese concessions.

load comments
blog comments powered by Disqus