Textile Firms Reeling From CAFTA Uncertainty

February 29, 2008
A textile exporter has fired 180 workers at a factory in Poás, the latest bad news for the textile industry as continuing uncertainty over the fate of the Central American Free-Trade Agreement with the United States (CAFTA) drives customers elsewhere.
“I’ve lost credibility with my customers and I think the industry in Costa Rica has lost credibility with the market,” said Michael Borg, owner of Confecciones Bor Kar, who said he had to lay off workers because customers were cutting orders.
Adding to the uncertainty for textile manufacturers is Costa Rica’s failure to implement CAFTA by a March 1 deadline.
Instead, the Arias administration has been granted an extension of that deadline, which is expected to damage confidence in the industry further, say industry representatives.
“When it’s an extension to something that’s un-extendible, it gives rise to other doubts,” said José Berliavsky, president of the Textiles Chamber. “Are they going to ask for more extensions?”
Time is particularly tight for textile manufacturers who export to the United States, because the Caribbean Basin regime that gives them special market access is set to expire at the end of September.
Though that appears to give textile manufactures six months of breathing room, most orders come in three to six months in advance, meaning some orders made today now run the risk of being subject to U.S. tariffs.
“The uncertainty is horrible. You don’t know where to go. You don’t know what to do,” Borg said. “Our customers just don’t believe us anymore.”
The firings at Borg’s plant, located northwest of San José, are just the latest example of an industry-wide crisis. Textile exports have been dropping for several years, and in January they were down 23.4% compared to January 2007.
CAFTA’s generous rules of origin provisions would help stop that slide, according to Borg and others. The rules allow Central American textile companies exporting to the United States to use cheaper materials from their neighbors and from North American Free-Trade Agreement (NAFTA) countries Mexico and Canada.
Under the Caribbean Basin benefits, many tariff-free textile products have to be made from the more expensive material manufactured in the United States. Without CAFTA, however, textile industries have been slowly choking to death.
Berliavsky said his company – Compañía Textil Centroamericana – can no longer send its material to CAFTA countries for manufacturing and tax-free exporting to the United States.
Over the last few years, he’s had to fire 800 people, or 80% of his workforce. “Eighty percent of the market is lost right now,” he said.
The Textile Chamber estimates there are 12,000 people employed in the industry right now, although Borg said there will be many more once CAFTA is put into effect. He said the National Training Institute had just finished training 150 more people for his work force, which he still plans to expand once CAFTA is implemented.
“If you start seeing (the Legislative Assembly) moving forward quickly… then I think my customers will be able to see we’re going to finish soon,” Borg said.
President Oscar Arias has promised to send a government emissary to textile buyers in the United States to reassure them that CAFTA will be implemented soon, though press officer Lizbeth Barboza said there are still no set plans.
“The truth is, you are waiting for the customer to make the decision,” Berliavsky said. “You try to be as optimistic as possible.”
 
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