California Apparel News

At one time, there was talk of linking the Western Hemisphere into one gigantic free-trade zone that would stretch from Argentina to Canada.

After years of talk, that idea languished on the negotiating table.

But at a panel discussion at the Sourcing at MAGIC trade show in Las Vegas last month, the conversation drifted to merging the North American Free Trade Agreement—which encompasses Canada, Mexico and the United States—with the Dominican Republic–Central American Free Trade Agreement, which includes the United States, the Dominican Republic, Guatemala, Honduras, El Salvador, Nicaragua and Costa Rica.

The idea is particularly tempting to U.S. yarn spinners and apparel makers that believe business would grow as duties—averaging 14 percent to 18 percent—disappear when goods are shipped from Central America to Canada, for example, or from the Dominican Republic to Mexico.

Canada does not have a free-trade agreement with El Salvador, Nicaragua, Guatemala and the Dominican Republic, although it recently signed a free-trade pact with Honduras. And Mexico does not have a free-trade pact with the Dominican Republic.

These are all cumbersome barriers caused by a hodgepodge of free-trade deals that would work more efficiently if combined into one.

quot;We currently are working on a Canadian business relationship, but we pay duties of 17 to 18 percent,quot; said Anthony Corsano, chief executive of Anvil Knitwear in New York, which makes most of its blank T-shirts in Honduras and Nicaragua. quot;So a merger between CAFTA and NAFTA—that would be an absolute plus for our Canadian business.quot;

The same holds true for Steve Greenberg, who runs SG Knits from his Los Angeles headquarters. The company makes knit fabric in the United States and then sends it to the Dominican Republic to be cut and sewn into sportswear and licensed sporting-goods apparel sold primarily in the United States at retailers such as Sports Authority and Dick’s Sporting Goods.

quot;For us, it would open up Canada as a new customer,quot; Greenberg said. quot;Canada is almost a lost market because of the duty we have to pay.quot;

Yarn spinners would benefit as well. They could send yarn to Mexico to make knit fabric that is sent to Central America to be cut and sewn and then shipped to Canada and the United States.

As it stands now, knit apparel made in Central America only qualifies for duty-free status to the United States if it is formed in the United States or Central America from regional fibers.

quot;It would create some synergy,quot; said David Sasso, vice president of international sales for Buhler Quality Yarns Corp. in Jefferson, Ga., which manufactures yarns converted to knit fabric. Central America is a big customer.

There is a special exception for some fabric made in Mexico. Currently, 100 million-square-meter equivalent units of woven fabric manufactured in Mexico can be shipped to Central America and sewn into garments before being sent back to the United States duty free. However, less than 5 percent of that amount is being used by Central American factories because it can only be bought on a first-come, first-served basis, which provides too much uncertainty when planning production six months out.

North to South

The idea of a Western Hemisphere free of trade barriers originally was floated in a plan called the Free Trade Area of the Americas. It would have been similar to the European Union, where goods could pass between large blocks of countries without paying duties. Talks about a united region began at the Summit of the Americas in Miami in 1994 with the last meeting held in Argentina in 2005. But no agreement on a free-trade pact was reached. Twenty-six of the 34 countries present said they would meet in 2006, but that never happened.

President Hugo Chavez of Venezuela has been a big opponent of the deal, calling it a huge U.S. annexation plan. Brazil and Argentina supported the project but called upon the United States to end its agricultural subsidies, particularly for cotton.

So, any plans to merge the Western Hemisphere into a free-trade zone have been put on hold. Combining NAFTA with DR-CAFTA may not fare any better.

quot;It seems to be very unlikely,quot; said Julie Hughes, president of the U.S. Association of Importers of Textiles and Apparel in Washington, D.C.

quot;People do talk about merging CAFTA and NAFTA, but, gosh, the reality is that we are still focused on getting past each free-trade agreement that is pending right now.quot;

Three free-trade pacts—between the United States and Colombia, South Korea and Panama—still are waiting to be introduced to Congress for approval even though they were signed years ago under the Bush administration. Many thought the free-trade agreements would be approved by now, but negotiations are still ongoing to create a $1 billion trade adjustment assistance program for workers whose jobs are lost because of free-trade pacts.

Some believe that a large free-trade zone comprising many countries only makes things more complicated and cumbersome. quot;I don’t see how or why it would be useful,quot; said Robert Pastor, a professor of international relations and founder and director of the Center for North American Studies at American University in Washington, D.C. His most recent book is quot;The North American Idea,quot; which provides his view on NAFTA. quot;If you look at Europe, probably the biggest mistake for the European Union was they widened it before it was deepened.quot;

He feels Europe should have ironed out the structure of the union and its institutions before the pact grew from six countries to 27 countries. Getting 27 countries to agree on the same thing is like corralling a pack of cats.

quot;Every step forward became harder,quot; he said, quot;because it required a consensus of more countries.quot;