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Issue #589

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2014 Media Kit
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CAFTA delays costing jobs, investment

By: | at 07:00 PM | International Trade  

Jacobo Kattan was hoping to build an industrial park and create 8,000 new jobs after the expected implementation of a regional free-trade pact last month. Instead, he’s had to fire 2,000 workers and close three clothing factories.

The delay in implementing the Central American Free Trade Agreement has hit the region’s clothing industry hard, putting factories in legal limbo while much of their business leaves for Asia.

The free trade agreement, known as CAFTA-DR, was supposed to take effect on Jan. 1. But none of the member countries—Guatemala, El Salvador, Honduras, Nicaragua and the Dominican Republic—were ready to comply with what some complain is an ever-changing set of rules and regulations proposed by US negotiators, including strengthening of intellectual property laws.

“The US negotiation practices have been wretched,” said Guatemala’s vice minister of foreign trade, Enrique Lacs. The US team still wants several more side agreements from Guatemala, he said, including lifting restrictions on the importation of antennas and other telecommunications equipment.

“If we had accepted the accord as is, CAFTA would already be in place,” Lacs said. “But we are still debating.”

Neena Moorjani, spokeswoman for US Trade Representative Rob Portman, said the delay was normal—and necessary.

“We are working toward prompt ratification of CAFTA,” she said. “At the same time, the implementation process should not be rushed, so that the benefits to farmers, workers, businesses, and consumers of the United States and its CAFTA partners are not jeopardized.”

El Salvador expects to implement CAFTA on March 1. Guatemala and Nicaragua have set their sights for April or May, and Honduras has said it will take six months. The Dominican Republic says it won’t be able to formally join until the summer.

Things were grim even before CAFTA-DR was agreed upon. When the US eliminated quotas on clothing imports from China last year, Central America’s factories immediately began to suffer. Guatemala alone lost 38,000 jobs and 51 textile factories in 2005. The US increased imports of Chinese produced textiles by 95% over the same period.

CAFTA-DR “should have taken effect not on Jan. 1, 2006, but, like was said before, in 2005,” Jorge Roberto Interiano, the head of Honduras’ Manufacturers Association, told The Associated Press. “As long as the rules aren’t clear, there won’t be investment in this area and more and more work will continue to migrate to Asia.”

Kattan, whose factories make mostly dress shirts for U.S. buyers, has watched as his business has gone East.

“My clients tell me, ‘If I have to wait 45 days to bring the cloth from Asia and pay higher Honduran wages, I might as well just send the orders to Asia,’ he said.

Under the existing Caribbean Basin Trade Partnerhip Act, Central American clothing manufacturers can avoid paying U.S. tariffs when exporting garments made with US thread. US thread is so expensive, however, that it makes more sense economically to import Asian fabric and pay the extra taxes.

CAFTA-DR will allow the region to produce its own thread and fabrics, creating many more jobs, all with an eye to providing US stores with cheaper Central American clothing made faster.

“When the textile and cloth industries get up and running, we will cut our delivery time from 90 to at least 45 days,” said Peter Klose, leader of a Guatemalan textile and clothing association and a member of the board of directors for Koramsa, a factory that makes pants and recently had to eliminate 6,000 of its 18,000 jobs.

Being able to produce the entire product locally will also create more jobs in Central America.

“Of the $1.5 billion we exported in 2005, $1 billion was from textiles we didn’t produce,” said Alejandro Ceballos the head of Guatemala’s Polar Industrial, which makes cotton thread, cloth and garments under the commercial trademark Cantel. “The real business is buying cotton from Pakistan or Argentina or wherever and making the fabric ourselves.”

Still, it will tak