GUATEMALA CITY — Central America must take greater advantage of CAFTA-DR’s “flexible” benefits, improve speed-to-market and strengthen supply chain collaborations to boost its competitiveness, said a senior U.S. trade official.
While the U.S. imported $8.3 billion of apparel from the CAFTA-DR region last year, only 76 percent arrived duty-free, hedging the FTA’s benefits, down from 88 percent in 2011, said Maria Goodman, a director at the Department of Commerce International Trade Administration’s office of textiles and apparel (Otexa).
“CAFTA-DR is the largest [U.S.] apparel supplier in the Western Hemisphere, accounting for 63 percent of imports,” Goodman said in a panel during the 25th annual Apparel Sourcing Show here. The block comprising the Dominican Republic, Guatemala, Honduras, Nicaragua, El Salvador and Costa Rica ships more than twice the $4.1 billion in apparel the U.S. sources from NAFTA, including Mexico. “If nothing else can impress you about the power of CAFTA, this should,” Goodman added.
However, Goodman noted the degree of underutilization “is of concern and worth exploring,” particularly as impoverished Central America faces growing competition from Asia, notably Vietnam, and the looming Trans-Pacific Trade Partnership.
The Obama administration remains committed to meeting the region’s concerns that Vietnam could gain unfair competitive advantages in the TPP, Goodman said, adding that the U.S. will push for strict enforcement.
CAFTA-DR is a priority for the U.S. and a key market for U.S. textile exports, reaching $2.7 billion last year. While Vietnam is now the U.S.’s number-two supplier after China, clinching 12 percent of imports, CAFTA is not far behind at 10 percent, Goodman pointed out.
Some products and their fabric component may no longer be competitive to source locally, while last year’s removal of a key benefit in Nicaragua (the Tariff Preference Level) could have fueled the underutilization, Goodman said. The region’s lack of a specialized textiles supply chain could have also prompted firms to seek fabric outside the duty-free regime.
Goodman said the six countries could be doing more to hedge the flexibilities of CAFTA-DR, signed a decade ago, notably its short supply and single-transformation programs enabling them to procure rare fabrics or more quickly cut-and-sew basic garments such as pajamas or negligees.
“Unlike the TPP, CAFTA doesn’t have any short-supply restrictions,” Goodman remarked. She said the U.S. just added its 150th item to the list, which has no cap.
According to Goodman, the U.S. can approve a CAFTA-DR short-supply request in 30 to 45 days, compared to years with other FTAs.
The region must continue churning higher value-added and fast-fashion garments to profit from its market proximity, especially as U.S. customers are increasingly willing to pay a premium for these products.
“Brands and retailers are now focusing on how much profit they can get away with [a garment], not so much on low cost,” Goodman said. “If you do something innovative or add value to a T-shirt, your customer may be perfectly willing to pay $5 for it instead of $3.”
Suppliers must build on their strengths and make more differentiated products to stand out from Asian rivals with higher production capacities. Deepening supply-chain collaborations is pivotal while the block could leverage its improving corporate social responsibility profile to tap sustainable fashion markets.
“You are not going to see buildings coming down with people chained to their sewing machines here,” Goodman told the audience. “That is not the picture that comes from manufacturing here. You have a good reputation. Use it.”
Jon Fee, a trade lawyer with Alston & Bird in Washington, said Central America could use the TPP’s staging categories (in which some countries including Vietnam won’t immediately enjoy duty-free U.S. access) to develop a plethora of products to bolster their market share north of the border. Some of those include men’s knit night shirts and pajamas, cotton socks, men’s underwear, T-shirts and unisex cotton trousers. There are also opportunities in men’s woven wool suit-type jackets and blazers, women’s synthetic knit suit-type jackets and blazers and brassieres, he added.