CAFTA-DR Implementation Bogging Down

Central America-Dominican Republic
Free Trade Agreement (CAFTA-DR) has run into serious problems, and new legislation may be needed in
order to fix them. Although the pact was approved by the US Congress last year, it cannot be fully
implemented until the governments of other participating countries ratify it, and therein lies a
problem that is causing considerable concern to textile and apparel manufacturers and importers.

Thus far El Salvador, Honduras and Nicaragua have ratified the agreement, but the Dominican
Republic, Guatemala and Costa Rica have not. The Dominican Republic and Guatemala have problems
with agriculture and intellectual property protection requirements, as well as textile and apparel
issues, but it is hoped those issues can be resolved by mid-summer. Costa Rica has the most
problems, so it is likely to be some time before it will come on board.

Among other things, CAFTA-DR provides duty- and quota-free treatment to textile and apparel
products, provided the inputs are made in participating countries. Where the problem has arisen is
if an apparel maker in, say, El Salvador, which has ratified the agreement, wants to use thread,
yarn or fabric from Costa Rica, which has not ratified the agreement, the apparel products would
have to pay the full applicable US import tariff. That situation has caused many US apparel
importers to shy away from CAFTA-DR because if they have to pay duty on Central American imports,
it is cheaper in the long run for them to source their products at lower prices in China and pay
the duty.

Officials at the Washington-based National Council of Textile Organizations say it may be
necessary to get legislation approved by Congress that would provide some sort of a duty rebate
once Central American countries qualify and would permanently fix the coproduction problem. They
are looking for a way to attach amendments to another piece of legislation that could clear
Congress relatively soon.

May 9, 2006