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Increased competitiveness in apparel production

Monday, June 12, 2017

The repudiation by the United States last January of the proposed Trans-Pacific Partnership should increase the appeal of Central American apparel production.

American importers had expected the TPP to reduce the cost of imports from several Southeast Asian countries, including Malaysia and Vietnam, which currently face duties of as much as 32%.

Meanwhile, qualifying apparel products made in Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua pay no duty when imported into the United States.

With some exceptions, apparel qualifies for duty-free treatment, as long as it is made from yarn produced in any of those countries or in the United States.

As part of an effort to produce local yarn, SAE-A, South Korea’s largest apparel manufacturer last month inaugurated a Costa Rican cotton-spinning plant, which can produce 2,000 tonnes a year.

In the apparel segment, SAE-A has five sewing operations in each of Guatemala and Nicaragua.

With a 2016 value of some $8 billion, products of the five Central American countries together with the Dominican Republic constitute the third-largest worldwide source of apparel imported into the United States, according to the Office of Textile and Apparel.

In the region, the main exporters to the United States were Honduras at $2.5 billion, and Guatemala and Nicaragua, each with around $1.5 billion.

China at $39 billion was the leading exporter of apparel to the United States, followed by Vietnam at $11 billion.

Labor costs in Central America tend to be higher than those in Asia.

On the other hand, producers can quickly bring new products to market, since Central America offers shipping times of not more than 48 hours to ports in the United States, compared to a period of ten days to two weeks for Asian-sourced products.

Being in essentially the same time zone as the United States is another advantage.