Tuesday, May 30, 2006

CAFTA not helping El Salvador's textile sales

The Central America Free Trade Agreement became effective for El Salvador on March 1. In at least one sector of El Salvador's economy, textiles, the treaty has produced no benefits. In fact, textile exports from El Salvador to the US have dropped significantly in the past two months according to statistics from the US Commerce Department Office of Textiles and Apparel.

An article from the Gannet News Service explains some of the reasons why textile exports from Central America to the US have dropped since March 1:

"[CAFTA has] caused trade to be much harder to do in Central America," said Copland, president and chief executive officer of Copland Industries, near Burlington, N.C.

The primary problem is that only three of the countries - El Salvador, Honduras and Nicaragua - have ratified the agreement that allows them to ship textile and apparel goods duty-free to the United States. Duties or import taxes on textile goods from Costa Rica, the Dominican Republic and Guatemala - which haven't approved CAFTA - are now as high as 30 percent.

The duties also apply to goods shipped from the countries that have approved CAFTA if they include thread, buttons or other materials from the other three.

Prior to CAFTA, virtually all such goods came into the US duty free under the Caribbean Basin Initiative. CAFTA ended that regime for nations which do not ratify CAFTA and subjects them to a 30% tariff, and apparently that may even be hurting countries like El Salvador that implemented the treaty.

2 comments:

El-Visitador said...

Whereas the data as of April YTD does not look good, there are several reasons why the sky is not falling:

1. Textiles = maquilas. Enemies of trade and jobs should celebrate, because there is less "exploitative" manufacturing going on!

2. We might be exporting less maquila-related stuff, but should now be exporting more value-added items such as cheese, flowers, and other finished goods.

3. Any article that states Guatemala has not ratified is... wrong. Guatemala has ratified, and just has some side-deal laws to reform. Pretty much the same case as the U.S.

4. As the article states, some of these things take time. After all, we are talking government bureaucrats here: not known for their efficiency or efficacy. For instance, U.S. Customs received free-trade shipments from El Salvador, and U.S. Customs was not ready to let them in duty free. Typical crappy government quality, certain to be fixed sooner or later.

All in all, some patience required. Truth be told, if Customs were eliminated, we would have authentic free trade and less government bureaucrats. Something to think about.

Tim said...

Your points are well taken, and that's why the title of my post was that CAFTA is not helping the textile industry. I don't think you can assert that CAFTA caused the decline since it is much more likely that competition from China is hurting the industry. The real impacts won't be measurable for a year or more.

The difference between our viewpoints is that I still believe CAFTA will be a net negative (although not as great a negative as the doomsayers) and you believe an economic boom of investment with good jobs will come out of the treaty.