WASHINGTON — The chances of Congress approving a Central American Free Trade Agreement that includes the Dominican Republic are clouded by complaints the U.S. has over a beverage tax in the Caribbean nation, a large apparel supplier to the U.S.
The U.S. tax spat with the Dominican Republic is the latest stumbling block for Congressional consideration of CAFTA, negotiated almost a year ago.
CAFTA would eliminate tariffs on a host of goods, including apparel, from the Central American nations of El Salvador, Honduras, Guatemala, Costa Rica and Nicaragua, as well as the Dominican Republic. These countries now have a 19 percent share of the U.S. imported apparel market, thanks to existing trade breaks for garments made of U.S. textiles. The Dominican Republic’s share is 4 percent.
U.S. apparel importers, such as Kellwood Co., Liz Claiborne Inc. and Russell Corp., have pegged the future of healthy garment production in the Western Hemisphere to CAFTA’s passage, including the Dominican Republic. Supporters claim the region needs duty-free apparel treatment in order to compete with Asian countries’ low prices once quotas limiting global apparel and textile trade are lifted Jan. 1 for World Trade Organization members.
The controversy with the Dominican Republic, simmering since last year, is coming to a head now that President Bush has been reelected and is looking to rev up his ambitious free-trade agreement agenda. The administration’s delay in sending the pact to Congress until after the November elections means there are now fewer political risks to lawmakers in supporting the pact.
Kevin Burke, president and chief executive officer of the American Apparel & Footwear Association, said he’s concerned the Dominican Republic rift could result in more delays for CAFTA. Moreover, “having the Dominican Republic on [CAFTA] strengthens our hand in Congress,” Burke said.
The Dominican Republic taxes beverages containing high-fructose corn syrup, which is produced in the U.S., at 25 percent. The tax was enacted after the U.S. last year refused to grant larger market access to Dominican sugar during CAFTA talks. A Dominican official, who asked not to be identified, said the country’s President Fernandez is in talks with the legislature about repealing the tax, but did not have a timetable. The U.S. and the Dominican Republic last held negotiations on the issue in April, the official said.
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U.S. Trade Representative Robert Zoellick, in a Wednesday letter to Senate Finance Committee chairman Charles Grassley (R., Iowa), said the U.S. “is continuing to work with the Dominican Republic” on the tax issue. However, he said at the same time “we are preparing for the possibility that we will need to move forward to implement an agreement with Central America alone.”
If CAFTA is sent to Capitol Hill for approval without the Dominican Republic, fewer lawmakers are expected to lend their support. The pact is already facing opposition from lawmakers representing textile-producing states who are concerned over CAFTA’s allowances for nonregional or U.S. fabric.
The Dominican Republic has Democratic boosters, such as New York Rep. Charles Rangel, who has threatened to not vote for the trade pact without the Caribbean nation as a party. Rangel is the top Democrat on the House Ways & Means Committee and generally sets the tone for party votes on trade pacts.
Rangel said in a statement on Thursday that the sugar dispute should be settled at the WTO, instead of “using strong-arm tactics that it would not use in similar disputes with other trading partners.”
Trade pacts such as CAFTA typically face a rough ride in Congress, particularly in the House, and opponents are among Democrats and Republicans concerned about free trade’s uneven effects on U.S. manufacturers and farmers. Ways and Means chairman Bill Thomas (R., Calif.), said he expects CAFTA to be voted on, in whatever form, by midyear.