Byline: Scott Malone

NEW YORK — While the extension of trade parity for garments made in the Caribbean Basin hasn’t yet resulted in a boom in business, there are signs that the momentum for increasing production in the region is building.
What’s clear is that the CBI nations are ready to offer help to U.S. manufacturers looking to take advantage of their new duty-and-quota-free environment.
That was the message at a meeting convened by Commerce Department’s Commercial Service early this month at Manhattan’s Fashion Institute of Technology. Speakers representing the U.S. government, apparel-industry organizations and representatives of five Caribbean and Central American nations spelled out the benefits of the Trade and Development Act of 2000.
Steven Lamar, director for government relations at the American Apparel & Footwear Association, said that in the first few months of CBI parity, there have been “a lot of hiccups,” which have prevented apparel marketers and retailers from embracing the region. He noted that it took some time for the government to clearly specify the documentation needed to bring goods into the U.S. duty-free under the terms of the law and pointed out that an automated documentation system still needs to be put in place.
“Some companies said, ‘I’m not going to do anything for the first three months,’ and other companies tried to bring stuff through right away and couldn’t,” he said. However, now that the rules are a little clearer, “We expect to see this start to grow a bit faster in the coming months,” he added.
While there hasn’t been a massive rush to move more production into the region, he said, there is some evidence that companies began to take advantage of CBI parity in the last three months of 2000 — at a time when they had to pay the old duties as they brought goods into the U.S. and then file for a refund.
Lamar noted that in 2000, imports of apparel into the U.S. that didn’t quality for the 807 and 807a trade-preference programs — older regional arrangements that were more restrictive in their requirements for U.S. materials and labor — were up 50 percent.
“That’s probably new trade resulting from the law,” he contended.
Further, he said, in the second half of 2000, shipments of U.S. yarn and fabrics into the CBI region were worth around $350 million, compared with $100 million in the second half of 1999. For comparison, first-half 2000 shipments into the region were flat with the prior-year period.
For their part, representatives of five CBI countries — El Salvador, Honduras, Guatemala, Costa Rica and Jamaica — said their countries and industries were ready to work with U.S. firms to boost production.
Mauricio Infante, director general of Pro Esa, a Salvadoran trade-promotion group, said that his organization counts the country’s vice president among its board members and is equipped to make it easier for foreign businesses to invest in El Salvador.
“We can make things happen in this country and change things that need to be changed,” he said.
The nation’s apparel industry currently employs 85,000 workers in 218 companies, he said, and its 2000 exports to the U.S. totaled $1.45 million, up 7 percent from the year earlier, representing 2.5 percent of the U.S.’s total apparel imports.
That made El Salvador the third-largest supplier of apparel to the U.S. in the region, behind the Dominican Republic, which was number one, and Honduras. El Salvador came in ahead of fourth-ranked Guatemala and Costa Rica, which was fifth in the area.
Infante spelled out the key advantage to CBI production: It takes five days to ship goods by boat from El Salvador to the U.S., compared with 18 days from Asia.
Also soliciting investment was Eduardo Hernandez, an executive with Costa Rica’s trade and investment office. While that country’s average wages are among the highest in the region — around $2.15 an hour compared with 96 cents in El Salvador — he stressed the quality of the nation’s infrastructure and skilled workers.
He noted that the annual turnover rate of workers in the Costa Rican garment industry is 20 percent and that the rejection rate for garments made by Costa Rica is 1.17 percent, factors that he said offset the higher wage levels.
Representing Jamaica, Alison Stone, a trade attache with that nation’s embassy to the U.S., highlighted the lower prevailing wages in the island country, where the minimum hourly wage is 54 cents. She also said her country’s industry is seeking to develop its ability to offer full-package sourcing, in which the apparel maker handles fabric and trim buying.
“Our major interest now is to expand our full-package operations,” she said, “because that is a higher-value operation.”
While the Caribbean officials present were interested in drumming up U.S. investment, they also pointed out that U.S. businesses aren’t the only ones looking to profit from the region’s new trade advantages.
Roberto Rosenberg, trade commissioner for Guatemala, noted that a large portion of that country’s apparel factories are foreign owned.
Of the company’s 269 plants, 164 are owned by Korean capital, 67 by Guatemalan investment funds and 20 by American capital, with the balance owned by other foreign investors.
Similarly, in Honduras, over half of the the total capital invested in the nation’s industries is foreign, said Henry Fransen, executive director of the Honduras Maquila Association.
However, in that country’s apparel industry, the largest foreign investor is the U.S., followed by Korea and Taiwan. Fransen pointed out that the extension of trade parity has attracted the interest of investors from many places.
“We’ve had companies from China, Hong Kong and Taiwan come to visit us” since the granting of CBI parity, he said. The motivation is clear: as an example, Fransen said that the cost of producing a particular style of blazer fell from $24.51 to $19.11 apiece, as a result of the duty breaks.
Given that the primary economic advantage conferred on CBI production by the new law is the lifting of duties, officials at the meeting emphasized that apparel companies should focus on moving the production of high-duty garments into the region.
Charles Bremmer, international trade director of the American Textile Manufacturers Institute, cited several examples of high-duty categories where the CBI region has a chance to eat into Asian market share.
“If you make women’s man-made-fiber dresses in the CBI region, your landed costs go down 16.3 percent,” he said.
Similarly, on women’s man-made-fiber blouses, the duty break can save 27 percent.
Brian Fennessy, an international trade specialist at the Commerce Department’s Office of Textiles and Apparel, pointed out that man-made-fiber T-shirts carry a high 30 percent duty.
“If you have the luxury of changing product lines, look for high-duty products,” he said.
In a small sign of the isolation that’s developing within the various sectors of the U.S. manufacturing industry, the ATMI’s Bremmer shed few tears over the fact that this legislation may also spell the end of the U.S. garment-making industry.
“That is a fait accompli,” he said. “There is nothing to be done about that.”
While the savings offered by the duty breaks can be compelling, the AAFA’s Lamar warned that the recent rise in domestic fabric prices could eat into that savings.
Noting that the wholesale Producer Price Index for fabrics closed out the year 2000 up 1.4 percent from a year earlier, he said, “There is a lot of trade that can come back from Asia. But if the fabric prices from the U.S. go up, that’s going to cut away at the duty savings, which is the incentive.”
Richard Phelan, senior vice president at Chase Manhattan Bank, said figuring out a way to finance Caribbean transactions won’t be easy.
“I don’t have any magic wands to wave to provide financing,” he said.
However, he added, his bank is not giving up.
“When apparel [production] started going to Asia in the Seventies, we found a way to finance it,” he said. “As apparel moves to CBI, I’m sure we will find a way to finance it. We are interested.”