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NAFTA concerns boost Central American garment production

Monday, December 11, 2017

Central American garment and textile production is getting a boost from concerns about restrictions on imports from Mexico, as a result of a renegotiation of the North American Free Trade Agreement.

Guatemalan garment exports are expected to increase by 8% this year, to $1.6 billion, 60% of which is synthetic-fiber based, while the rest is cotton-based.

Mexico could be less attractive as a source for exports to the United States, if duties were payable on apparel items made with fabric from a third country.

With the exception of garments made with blue denim or oxford cloth, most other Mexican garment exports made with third-country textiles currently enter the United States duty-free.

The issue of how to redefine imports qualifying for duty-free treatment has yet to be resolved as part of the NAFTA renegotiation, currently in progress.

Another benefit for Central American producers was the repudiation by the United States last January of the proposed Trans-Pacific Partnership, which would have reduced the cost of many imports from several Southeast Asian countries, including Malaysia and Vietnam.

The United States currently charges duties of as much as 32% on garment imports in the absence of a free trade agreement.

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 May 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, Central America offers shipping times of not more than 48 hours to ports in the United States, compared to ten days to two weeks for Asian-sourced products.

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