A Call for CAFTA
By Kevin Burke, American Apparel & Footwear Association
The only issue that has the potential to help the U.S. textile industry extract itself from its current crisis is swift passage of a high-standard U.S./Central America Free Trade Agreement (USCAFTA).
Yet, recently, a "united" coalition of textile association executives, and some of the members of Congress who represent them, held a press conference in Washington to demand action against U.S. textile and apparel imports from China. Speaking to an audience composed mainly of cameras and print reporters, they spent nearly 40 minutes complaining about the loss of U.S. jobs and manufacturing capabilities and the advantages that their Chinese counterparts enjoy.
It was an impressive gathering, yet not one of the speakers urged action on, or even mentioned in passing, the USCAFTA.
The sad reality is that, as the textile and apparel industries descend into yet another food fight over these Chinese quota petitions, valuable time and energy is wasted that could be better directed at building the political support necessary to pass the USCAFTA.
The countries of Central America and the Caribbean Basin have long constituted an important market for U.S. textile firms. This "third border" has also served as a strategic, quick response sourcing platform for U.S. apparel companies. Anyone who travels the region or attends its many trade shows will see dozens of familiar U.S. brands for fibers, yarns, fabrics, findings, services and apparel all vying for the Central American business.
Passage in 2000 of the Caribbean Basin Trade Partnership Act (CBTPA) did much to boost this already important U.S./regional textile and apparel relationship. While the gains from the CBTPA have been imperfect because of inflexible and delayed regulatory guidance, there have been notable successes. For example, U.S. yarn and fabric exports have increased four-fold since 1999, the year before the CBTPA took effect. Interestingly, these increases, which continue through 2003, occurred even as certain quotas on Chinese products were removed.
The USCAFTA - in negotiations since January 2003 - will build on the CBTPA by making it broader (in product coverage), more flexible, permanent and reciprocal. If done correctly, the USCAFTA will remove much of the uncertainty and regulatory difficulty that limit the CBTPA, creating significant new opportunities for both U.S. textile and apparel firms.
The key, of course, is ensuring the USCAFTA is done correctly. This involves - as 11 textile and apparel trade associations proclaimed at the Full Package Summit this past July in El Salvador - a multi-point plan addressing topics such as simplified customs procedures, swift and complete duty elimination, flexible rules of origin and port security.
Another imperative is that the USCAFTA be completed quickly. To provide the greatest benefit for the U.S./Central American textile and apparel complex, it is essential that the USCAFTA be negotiated, ratified and fully implemented well before worldwide quotas, and the cost structure associated with those quotas, are removed for WTO member countries in January 2005. This means passage of an agreement by the U.S. Congress during the late spring or early summer of 2004 - just a few months before the U.S. presidential and congressional elections.
Trade votes in Congress can be difficult during election years, and CAFTA will present a particular challenge. Not only does it address textile and apparel issues, which are always sensitive, but it touches on thorny agriculture and labor issues. That is why we need a united textile and apparel industry supporting swift action on a USCAFTA that works, and not focusing limited resources on rearguard efforts to get new quotas imposed on China.
True, China clearly elicits strong emotions among many in the textile and apparel industry and, as a result, it is a convenient political target. It is a formidable competitor with a number of natural and, some would say, unnatural advantages. Plus, it is a Communist country with a spotty history of labor and human rights problems.
But it is also an important partner for a number of American apparel brands and, increasingly, U.S. textile interests. Companies throughout the U.S. soft goods supply chain are quickly scrambling to develop and implement a "China strategy" because that country, regardless of what happens with quotas over the next few years, will clearly emerge as a major player and market over the long term.
Moreover, new restraints on China are not likely to help U.S. textile interests in the United States or in Central America. If U.S. apparel companies are forced away from China, they are likely to move to one of the dozen or so other Asian countries that can provide similar service. Those global apparel companies will not direct production back to the United States or other countries in this region unless the economics of sourcing in this hemisphere work. Believing otherwise is analogous to believing that the proverbial tail can wag the dog.
At the same time, if the Central American model does not improve dramatically in the next few years - through better speed, service, costs and quality - China and the other Asian countries will continue to grab market share from Central America. This is a significant problem for many U.S. textile firms, which have some ability to service their Central American customers, but are not as well-positioned to service their customers when they move to Asia.
The most effective way to address the inevitable removal of quotas in 2005 is to ensure that the final USCAFTA agreement is well equipped so it can quickly create a seamless and commercially meaningful textile and apparel partnership between the United States and Central America.