WASHINGTON — Now that the U.S. has wrapped up free-trade negotiations with Costa Rica, which will join four other countries in a Central American Free Trade pact, the Bush administration hopes to complete a trade pact with the Dominican Republic by March and integrate that country into CAFTA.
This story first appeared in the January 27, 2004 issue of WWD. Subscribe Today.
The administration then needs to send the entire trade deal to Congress for approval.
Meanwhile, U.S. trade officials recently said they hope to release the text of CAFTA this week, and industry trade groups plan to pore over the language to look for any clarifications or changes to what has been reported and announced on rules of origin.
Thus far, trade officials have said CAFTA includes a “single transformation rule” for boxer shorts, nightwear, pajamas and bras for the entire region, which means as long as fabric is cut and sewn in the region, fabric and yarns from anywhere in the world can be used and receive duty-free entry into the U.S.
The U.S. and all five countries have also agreed to an expanded “short supply list” for items that cannot be made in the U.S. in a commercial and timely manner, but details about the items on the list have not been released. The agreement’s benefits for textiles and apparel will be retroactive to Jan. 1.
Apparel and textile imports from the five Central American countries stood at 3.02 billion square meters equivalent and were valued at $7.2 billion for the year ended Oct. 31, according to Commerce Department figures.
Costa Rica pulled out of the CAFTA talks in mid-December protesting several key areas in the trade pact, while El Salvador, Nicaragua, Honduras and Guatemala forged ahead and completed negotiations with the U.S. The deal with Costa Rica was struck Sunday after the two sides overcame an impasse on insurance, telecommunications and textiles and apparel issues.
“Costa Rica needed a little more time to complete its participation in the CAFTA, and we’re very pleased it has joined its Central American neighbors in this cutting-edge, modern free-trade agreement designed to expand trade between friends and neighbors,” said U.S. Trade Representative Robert Zoellick.
In the area of textiles and apparel, the sticking point in the talks, which began again earlier this month, was a request by Costa Rica for allowances for third-country fabric, known as tariff preference levels, according to sources.
The U.S. gave Costa Rica an exclusive apparel and textile concession that it did not extend to the other countries, according to a trade official who requested anonymity. In addition to enjoying the same CAFTA benefits as the other Central American countries, Costa Rica will be allowed to export up to 500,000 square meters equivalent of tailored wool apparel using third-country fabric for two years, although it won’t be allowed into the U.S. duty free. A duty will be assessed on the nonoriginating fabric, but not on the value added, the official said.
He also noted that the U.S. will allow an approximation of the value of the fabric, which typically constitutes half of the value of a garment, which means importers would not have to provide documentation on the cost of the fabric. That is a reversal of an existing program, in which companies in Central America pay a duty on the value added in Central America and not on the nonoriginating fabric, which must be formed in the U.S.
It is unclear what kind of benefit this provision will give to Costa Rican companies, but one importer source claimed companies might save money on cutting and transportation costs.
“We tried to craft as narrowly tailored a solution as possible to take care of each country’s specific problems,” the official said.
Textile and apparel provisions in CAFTA for all five countries include “cumulation” with Mexico and Canada for woven apparel, including wool, denim, cotton and man-made fiber bottom weights. Under this provision, woven fabrics from Mexico and Canada could be used in apparel being assembled in the region and still receive duty-free entry to the U.S.
CAFTA will face a tough battle on Capitol Hill this year if lawmakers decide to take it up, with many Democrats already denouncing it for inadequate labor and environmental rules. The key is how House Republicans from Southern textile states will weigh the agreement during the run-up to the November presidential election. Lawmakers can only vote the agreement up or down and cannot amend it.
The domestic textile and fiber industry claims the pact’s numerous allowances for foreign yarns and fabric will take business away from beleaguered companies and lead to more job losses.
In other trade news, the U.S. announced Monday it launched free-trade negotiations with Bahrain with a goal of completing the talks by the end of the year.