WASHINGTON — President Bush signed the Central American Free Trade Agreement into law Tuesday after expending enormous political capital to squeak out a tough victory in the House.
The President’s signature paves the way for implementation of the controversial free trade pact, which reduces or eliminates tariffs on goods flowing between the U.S. and Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic starting Jan. 1.
Only three of the CAFTA countries — El Salvador, Guatemala and Honduras — have ratified CAFTA and it is unclear whether the other three nations will approve CAFTA by the end of the year. The deal’s benefits will only extend to those countries that have ratified it.
“All of us in this room understand that, to keep our economy growing and creating jobs, we need to open markets for American products overseas,” Bush said in a speech in the East Room of the White House. “All of us understand that strengthening our economic ties with our democratic neighbors is vital to America’s economic and national security interests.”
The President made a rare trip to Capitol Hill last week to lobby for the accord, and it gives him a major legislative victory that boosted his credentials in the global trade arena.
Republican textile state legislators played a pivotal role in pushing the pact through a divided House, as last-minute arm-twisting and promises swung reluctant lawmakers’ votes.
Rep. Robin Hayes (R., N.C.) capitulated to House leaders in the 11th hour, and switched his vote based on promises of helping the textile industry compete against China. The administration announced Monday it was deferring until the end of the month several decisions on import restrictions in order to consult with Congress and the industry on the possibility of reaching a multiyear import agreement with China.
In the aftermath of the CAFTA battle, the domestic textile industry will focus on pressing Congress to pass the side deals, two of which are designed to preserve the U.S. trouser fabric and pocketing and lining businesses, while importers will focus on maintaining or ramping up new business in the region under more liberalized rules of origin, but also under a cloud of uncertainty.
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The Bush administration “clearly set an all-time record” with the number of side deals it negotiated, according to Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition, which opposed the accord.
“There was more activity in terms of deals and more substance in terms of deals than in any of the 20 years of my witnessing this type of thing,” Tantillo said.
Although textile opponents are “upset CAFTA was adopted,” he stressed the industry would work together on getting the side deals instituted.
“The deals themselves are designed to improve overall aspects of CAFTA for the textile industry and we’ll be supportive of making those deals a reality,” Tantillo said.
While some in the textile sector supported CAFTA because of its export potential, others, such as Tantillo, expect U.S. business and jobs to be displaced by Asian investors that move into the Central American region to take advantage of the duty-free benefits.
Importers are gearing up to take advantage of less restrictive rules of origin that allow the use of regional fabrics and yarns, as well as some foreign fabrics and yarns.
“It’s going to take some time for all of this to really shake out and for companies to be confident with the implementation and what comes next,” said Julia Hughes, vice president of international trade at the U.S. Association of Importers of Textiles & Apparel.
Despite the uncertainties, Hughes expects to see a “big boost in business” in the region.