WASHINGTON – The presidents of three U.S. trade groups are urging U.S. Trade Representative Rob Portman and Commerce Secretary Carlos Gutierrez to make changes to the Central American Free Trade Agreement because of uncertainties tied to the government’s staggered phase-in of the pact.
The trade organizations want to help companies that are manufacturing apparel in the region maintain duty-free treatment and also receive duty refunds through a retroactivity clause.
Portman’s office, which has delayed implementation in order to ensure the signatory countries’ legislative and regulatory protocols are in line with the accord, said Friday that it had cleared the first of six nations – El Salvador – to make the deal effective as of Wednesday, two months after the Jan. 1 target date.
The delay and the staggered approach has created a sourcing headache for U.S. companies trying to determine whether apparel products made in the region will be eligible for duty-free treatment and duty refunds. CAFTA is intended to reduce or eliminate tariffs on goods flowing between the U.S. and Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic.
Kevin Burke, president and chief executive officer of the American Apparel & Footwear Association; Cass Johnson, president of the National Council of Textile Organizations, and Mark Lange, president and ceo of the National Cotton Council, warned the nation’s top two trade officials in a letter that U.S. companies could abandon the region and move to Asia if the issues are not resolved.
The staggered implementation could create more costly sourcing scenarios for companies that might lose duty-free treatment when one country becomes eligible for CAFTA and another does not. It is unclear whether the changes they are seeking would require legislative approval.
“We are particularly concerned because of numerous reports that these large and unforeseen penalties are tipping the balance against sourcing in the region,” the letter stated. “As you know, textile and apparel sourcing decisions can come down to pennies per garments, and the enormous duty costs and ongoing uncertainty associated with this technical problem could quickly send business to other regions, most likely Asia.”
They used as an example a company that produces a garment in El Salvador, using Honduran knit fabric made from U.S. yarn, which is currently duty-free under a trade preference program. With CAFTA in effect in El Salvador – but not in Honduras – companies are concerned that such a garment would not qualify for duty-free treatment.
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“If these problems are allowed to persist, they will cost U.S. textile and apparel companies millions of dollars in excess duties paid and lost export sales,” the letter stated.