Changes to CAFTA-DR in the Works

In an attempt to promote U.S and regional jobs in the textile and apparel industry, the U.S. Trade Representative announced several changes to the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR). During the Free Trade Commission meeting earlier this year, the signatories to CAFTA-DR discussed ways to encourage regional trade and economic integration by competing with the established textile and apparel supply chains in Asia. The signatories seek to encourage a growing textile and apparel supply chain within the Western Hemisphere that will rival China and other Asian countries.

Among the significant changes proposed are the following:

1. Certain monofilament sewing thread will be required to originate or be produced in the United States or the CAFTA-DR region for goods to qualify for preferential tariff treatment. The sewing thread industry still exists in the United States, primarily in plants located in North and South Carolina. The hope is that the industry will increase with this new requirement.

2. There will be an increase to the cumulation limits to encourage greater integration of regional production through limited reciprocal duty-free access with Mexico, and potentially Canada, to be used in Central American and Dominican Republic apparel. This increase to the annual limits will account for the addition of the Dominican Republic. These limits permit importers to enter specific quantities of designated apparel products into the United States from Central America and the Dominican Republic that contain inputs from Mexico and possibly, Canada.

3. There will be changes to the “short supply” list, including how elastomeric yarns, knit waistbands and knit-to-shape components are treated on that list. Short supply, which is formally known as the Commercial Availability Provision under CAFTA-DR, provides a list of fabrics, yarns and fibers that the signatories have determined are not available in commercial quantities in a timely manner from suppliers in the United States or other member countries. In those cases, components from non-participating countries may be used in apparel, and the end product will be eligible for duty-free treatment.

According to the USTR, U.S. exports to the CAFTA-DR region comprised 16% of the total U.S. textile and apparel exports in 2010. In fact, U.S. textile and apparel exports to CAFTA-DR countries grew by 25% in 2010, exceeding the growth to the rest of the world by 6%. Conversely, U.S. imports of CAFTA-DR textile and apparel products increased by 14% in value in 2010.