WASHINGTON — The new free trade agreement between Mexico and Costa Rica could well be a harbinger of changing apparel manufacturing and trade patterns likely to emerge in the next decade, according to trade analysts.
The accord, signed April 5 and set to take effect Jan. 1, 1995, could eventually shift a lot of the assembly operations currently done by the U.S. in the Caribbean Basin — much of it under 807 programs — to Costa Rica and possibly propel it ahead of Mexico as a leading U.S. clothing supplier.
Mexico, meanwhile, is vigorously pursuing similar trade concords with other Latin American nations that some contend could make it — and not the U.S. — the hub for hemispheric trade.
Immediately, apparel trade between Mexico and Costa Rica likely will benefit. The accord, modeled after the North American Free Trade Agreement, will erase all duties on apparel made in either country out of yarn and fabric made there.
There are important additions, though. Under the new pact, Mexican and Costa Rican apparel manufacturers in the first year can export $5 million worth of apparel duty free to each other using foreign-made fabrics and yarns. This total rises by 15 percent annually until the end of 1999, when it is abolished.
More crucially, the pact provides that Costa Rica and Mexico can export an unlimited amount of nonqualifying apparel to each other so long as a bi-national panel agrees the fabric needed to make the products is not available in either country at the price, or in the quality or quantity required by the manufacturer.
The pact covers every product traded between the two nations and, like NAFTA, guarantees investments and intellectual property. It also contains safeguards against disruptive trade surges.
The increased attraction of Costa Rica to U.S. vendors for offshore apparel assembly was underscored by Jerry Watkins, general manager of Cartex, a knit apparel firm in Cartago, Costa Rica, and a division of The Harwood Cos., New York.
“With Kmart, Wal-Mart and other retailers opening stores in Mexico, it makes a tremendous amount of sense for a U.S. company to operate in Costa Rica, so it has the option of shipping to Mexico, as well as the U.S. market,” said Watkins.
In 1993, Costa Rica shipped about $3 million in apparel to Mexico, but $652 million to the U.S., mainly under 807 programs. Some trade analysts here said Costa Rica, spurred by the new trade pact, might overtake Mexico as a U.S. supplier. Mexico last year shipped about $1.1 billion in apparel to the U.S.
Watkins, who also is treasurer of the Quota Council, a Costa Rican industry group appointed by the government to allocate export quotas and advise on trade negotiations, said the new pact is significant in that Costa Rica made all the same commitments that Mexico did in order to join with the U.S. and Canada in NAFTA. These Costa Rican moves make it more likely that it could accede to NAFTA, Watkins said.
“While nothing is certain,” he added, “this [Costa Rica-Mexico] FTA could be a boon to apparel companies here, who could find they will be able to ship duty-free not only to Mexico, but the U.S. and Canada, too.”
Even without NAFTA, Costa Rican apparel firms could see a boon in business with Mexico, said Danilo Rodriguez, the council’s executive director. “Costa Rica, with about 3 million people, exports nearly $700 million in apparel to the U.S., but only about $3 million worth to Mexico,” Rodriguez said.
Considering Mexico’s 90 million population, Costa Rica could increase its apparel exports to Mexico to $100 million in 1995, he said, adding that $350 million “shouldn’t be very difficult” within a few years.
Stephen Lande, president of Manchester Associates, a Washington trade consulting firm, saw other portents in Mexico’s free trade agreements.
“Mexico has an FTA with Costa Rica and Chile, may have one in January with Colombia and Venezuela and could have one with all of Central America. This should send a clear signal to the U.S. that Mexico is well on its way to becoming the hub for hemispheric trade,” said Lande, an assistant U.S. trade representative from 1973-1982, and currently an adjunct professor at Georgetown University’s School of Foreign Service.