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Central American trade pact hits snags

By Jeffrey Sparshott
THE WASHINGTON TIMES
July 4, 2006

The Central American Free Trade Agreement isn't working out as planned.
    "It's caused a lot of apparel importers a lot of pain," said Jason Copland, president of Copland Industries, a Burlington, N.C., manufacturer. Copland exports material to Central America, where companies sew it into clothes that are bound for U.S. stores.
    CAFTA was supposed to boost U.S. trade with six Latin American nations. Instead, the one-at-a-time addition of countries has complicated and disrupted commerce, with an especially sharp effect on the textile and apparel industries.
    Congress approved CAFTA less than a year ago after a bruising political battle. The agreement was set to take effect Jan. 1, but U.S. trade officials said the Latin American nations had not sufficiently changed their laws to meet terms of the deal. Some countries still have not.
    The U.S. enacted CAFTA with El Salvador March 1 and with Honduras and Nicaragua a month later. Guatemala joined Saturday. The four countries are fully participating in the agreement.
    The Dominican Republic likely will accede later this year. Costa Rica's legislature has not approved the accord and may not join until December or later.
    El Salvador's reward for being first was a sharp decline in exports to the United States, from $187 million in March 2005 to $88 million this March, U.S. International Trade Commission data show.
    Much of that drop occurred in the textile and apparel industry.
    Before CAFTA, El Salvador had easy access to the U.S. market under a trade program for Caribbean basin countries. The country was allowed to use thread and other components from 22 countries in the region and export finished products with duties averaging 4 percent to 6 percent.
    Once the country joined CAFTA, it gained access for more products, but could use components only from the United States or other CAFTA countries. The problem was, no other countries were part of CAFTA. Because El Salvador was using materials from countries that had not implemented CAFTA, duties temporarily jumped to an average of 14 percent.
    "Goods not subject to duty before [CAFTA] are subject to duty now. It's a disaster," said Mr. Copland, who last year opposed the deal because of provisions that allow Chinese fabric to be incorporated into Central American-sewn clothes.
    Trade with other CAFTA countries also has been disrupted. U.S. apparel imports from the six-nation region are down almost 18 percent by volume from January through April, compared with the same period last year.

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