Free-Trade Agreement Not Helping Textile Industry

May 12, 2006

MANAGUA –The U.S.-Central American Free-Trade Agreement(CAFTA) is so far not living up to its prior billing by making inroads into China’s dominant position in the textile-export industry.

The single exception is Nicaragua, where cheap labor and special bilateral breaks on rules-of-origin secured by the Nicaraguan government during negotiations last year have spurred a 20% increase in U.S.-bound exports.

“One could not say at this moment that CAFTA-DR has provided the hoped-for results,” said Alfredo Milian, a textile-sector expert from El Salvador.

The final initials on the pact refer to the Dominican Republic, also a signatory.

Though the deal is being implemented on a rolling basis and has only recently taken full effect in El Salvador, Nicaragua and Honduras, investors have known since last July – when the treaty was ratified by the U.S. Congress – that CAFTA-DR would become a reality, giving them ample time to commit to opening new factories in the member countries (NT, Jan. 13).

By the same token, big U.S. retailers might have been expected to increase their purchases from Central America’s existing textile producers.

Yet so far, only Nicaragua has experienced any gains from the textiles provisions of CAFTA-DR.

The other signatories saw the value of their clothing exports to the United States fall in 2005: Honduras, by 2%; the Dominican Republic by 10.2%; Guatemala, 6.5%; El Salvador, 6.3%; and Costa Rica, 6.5%. Costa Rica has not ratified the agrement.

For Guatemala and the Dominican Republic, the downward trend grew even more pronounced in the first two months of this year, with sales to their giant northern partner down 21% and 17%, respectively.

China, meanwhile, boosted its clothing and textile exports to the United States by a whopping 42.6% last year, and India’s were up 24.5%, both thanks to the Jan. 1, 2005, scrapping of a global system of quotas.

Milian said that with the exception of Nicaragua, the best the region can hope for now is to maintain its current share of the U.S. market.

He said the CAFTA-DR nations are at a disadvantage relative to China because their textile industry is overwhelmingly made up of plants that assemble pre-cut pieces from the United States and then re-export the finished product.

The Asian giant, conversely, performs every step in the process – an offer known as “full package” – according to the industry analyst. This includes cultivation of the fiber to weaving, dyeing, design, cutting and final assembly.

“You can’t defend yourself with just sewing operations, you have to achieve the full package,” Milian said.

Nicaragua is trying to move in that direction.

Within the past month, two big companies have announced plans to spend a total of $185 million building weaving and dyeing plants here, a development President Enrique Bolaños says will facilitate the “integration” of the textile sector.

“It is definitely because of CAFTA,” Bolaños said, referring to the new investments.

At the same time, companies with established operations in Nicaragua are talking about expansion.

The Argus group opened its third plant in Nicaragua in October 2004 with 25 workers, said Cesar Montoya, chief engineer at the Atlantic Apparel factory, adding that the plant now has 670 employees and wants to increase its payroll to 1,000 by year’s end.

Unlike Argus’ five plants in El Salvador, Atlantic Apparel buys some of its thread in Asia rather than purchasing all of it from the United States. Under CAFTA-DR, that option is open only to enterprises in Nicaragua, as a concession to this nation’s lower level of development.

Nicaraguan workers are also a bargain, even compared with those in other CAFTADR countries.

Jorge Luis Hernández, 23, earns about $100 a month at Atlantic Apparel. The average monthly pay of textile workers across Central America is $118, while their counterparts in the Dominican Republic make $250, according to Dominican executive Plinio Ulloa.

But Hernández is not complaining.

“We all have to earn money,” he says.

“Work is hard here and in any other place.”

 

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