Central America Free TradeAgreement ApprovedThe Central America Free Trade Agreement (CAFTA) signed
on December 18 doesnt especially please US textile manufacturers or importers, but it appears to be
tilted in the direction of importers and Central American apparel manufacturers. Although details
of the agreement have not been made public it is certain to create controversy before it can be
finallyif ever– enacted.Sketchy details available at this time indicate that the agreement between
the US, Nicaragua, Guatemala, El Salvador and Honduras has a yarn-forward rule of origin that
requires apparel eligible for duty-free treatment to be made in the participating countries. There
are, however, two exceptions. One is a new principle in textile trade agreements called cumulation.
It will permit use of inputs from Canada and Mexico as participants in the North American Free
Trade Agreement (NAFTA). The other will give Nicaragua Tariff Preference Levels (TPLs) that will
permit use of a specified amount of inputs from non-participating countries.The text of the
agreement is expected to be published in January, and then the administration must give Congress at
least a 90- day notification before it signing the agreement. During that period both sides will be
making efforts to get the administration to modify and clarify some aspects of the agreement as it
is translated into legislative language.The American Manufacturing Trade Action Coalition (AMTAC),
which represents some 18 manufacturing interests including textiles, immediately announced its
opposition to the agreement. AMTACs Washington coordinator said: US trade policy is inherently
flawed. CAFTA replicates the failed policy of negotiating trade deals with countries capable of
manufacturing large amounts of consumer goods for the US market, but incapable of buying
significant numbers of finished US goods in return. He described cumulation, TPLs and other
provisions as loopholes that will significantly damage the US textile industry. He warned that
cumulation will encourage transshipments from China and other countries. Cass Johnson, interim
president of the American Textile Manufacturers Institute (ATMI) said the administration had an
excellent chance to negotiate an agreement that would benefit Central America as well as the US,
but he said CAFTA is loaded with side deals, special deals and loopholes that jeopardize US textile
jobs. ATMI is likely to oppose the agreement if it is sent Congress in its present form. The
National Textile Association called CAFTA a flawed agreement that will open US markets to a flood
of imports.While textile and apparel importers were disappointed in some aspects of the agreement,
Julie Hughes of the US Association of Importers of Textiles and Apparel, while expressing her
disappointment with some of the provisions of the pact, said it is overall a step in the right
direction. She said importers and Central American manufacturers would be much better off with more
generous use of TPLs and cumulation in order to give importers more flexibility in their purchases
of apparel. She believes the framework of the agreement is something we can work with, and if
properly implemented it can benefit both importers and US and Central American textile and apparel
manufacturers.Kevin Burke, president of the American Apparel and Footwear Association, said his
members have long maintained that a swift solution of a commercially meaningful US/Central America
is critical to the survival of both the US textile industry and its apparel customers in Central
America. While saying his association is generally pleased with the inclusion of TPLs, cumulation
and a short supply list, he expressed disappointment that some elements in the agreement fall short
of what is needed. He was pleased that the agreement, if ratified, will be retroactive to January
1, 2004. He expressed the hope that Congress will approve the agreement swiftly and that a
regulatory framework will be established quickly, so the transition from the current trade
framework can be accomplished in as seamless a manner as possible.In any event, the agreement faces
a rough road ahead, as Congress has to either approve or reject it, and members of Congress are not
very fond of dealing with trade issues in an election year. In announcing the agreement, US Trade
Representative Robert B. Zoellick said: This will be a major challenge. There is no doubt about
that, but we are committed.By James A. Morrissey, Washington Correspondent
December 2003
