The end of textile and apparel quotas in January 2005 has many concerned that the U.S. textile and apparel sectors will face increased competitive pressures from imports. Fortunately, the Dominican Republic- Central America Free Trade Agreement (DR-CAFTA) will provide new opportunities for U.S. fiber, yarn and fabric companies to grow. DR-CAFTA is needed to help U.S. textile manufacturers compete in a quota-free world.

DR-CAFTA will keep U.S. textile producers strong.

• Central America is already the largest supplier of apparel to the United States, accounting for almost 20 percent of the apparel sold here. Three-quarters of the apparel now imported from Central America incorporates U.S. yarn and fabric. The region consumes 40 percent of all U.S. yarn exports and 25 percent of all U.S. fabric exports, accounting for tens of thousands of jobs in the U.S. textile industry.
• While Central America already benefits from trade, textile and apparel preferences with the United States, those preferences are not comprehensive, and they will expire in September 2008. Consequently, imports from the region have been declining in recent years as Central American producers have felt competitive pressures from lower-cost, partially quota-free suppliers in Asia. When all apparel quotas are removed in 2005, that competitive pressure will increase substantially.
• DR-CAFTA is needed to deepen the duty-free benefits accorded to apparel made in the region so that demand for American fibers, yarns and fabrics will stay strong and even grow after 2005. The U.S. International Trade Commission estimated that a fully implemented DR-CAFTA will increase U.S. textile, apparel and leather exports by 15 percent or $803 million. Indeed, U.S. cotton, yarn and fabric producers will be the biggest losers if DR-CAFTA is not approved quickly, in time for the region to compete in a quota-free world on January 1, 2005.

DR-CAFTA levels the playing field for U.S. exporters.

• DR-CAFTA will provide, for the first time, duty-free access for U.S. exports of textiles and apparel to Central America, making apparel sourced there from U.S. components even more competitive in the U.S. market.
• By making permanent market access benefits that would otherwise expire in 2008, DR-CAFTA ensures the predictability and flexibility many companies now sourcing apparel in Central America need to keep from shifting more of their business to other regions, which do not traditionally buy U.S. cotton, yarns and fabrics.

DR-CAFTA meets Trade Promotion Authority (TPA) negotiating objectives for industrial goods.

• The principal negotiating objective established by Congress for textiles in TPA is to obtain competitive opportunities for U.S. exports that are “substantially equivalent” to those afforded foreign exports to the United States.
• U.S. negotiators have met this objective in DR-CAFTA. Tariffs applied to U.S. exports to the Caribbean Basin, now averaging 4.9 percent, will drop to zero when the agreement is fully implemented. (U.S. tariffs on textiles and apparel imported from the region now total 1.3 percent.)
• DR-CAFTA includes a “yarn forward” rule of origin sought by U.S. textile producers to ensure that most of the textile and apparel items covered by DR-CAFTA use a substantial amount of U.S. or regional inputs. It provides for new opportunities for U.S. sewing thread, elastic fabric and elastomeric fiber producers to export to the region. It also opens new opportunities for U.S. producers of fabric and yarn for use in home furnishings, which currently are excluded from trade preferences programs with Central America. Customs cooperation provisions prevent “free riders” and “transshippers” from benefiting from DR-CAFTA.

U.S. manufacturers endorse DR-CAFTA.

• Tens of thousands of jobs in Central America are tied to the apparel industry. Tens of thousands more in the United States are linked to that production. DR-CAFTA is crucial to supporting the parties’ textile and apparel industries in a post-quota world. It is urgent that it be implemented quickly. If one goal is to keep the U.S. textile and apparel industries globally competitive, strong relationships with producers in the Western Hemisphere are key. And stability in the Caribbean region also depends on growing job opportunities there.

DR-CAFTA’s textile and apparel provisions are among its most significant. The importance of these industries to the region is one key reason the countries agreed to make significant commitments to open their markets to U.S. services and agriculture, which were difficult decisions for key domestic constituencies. Fortunately, the textile provisions of DR-CAFTA are vital for U.S. producers as well. This is truly an example of the “win-win” nature of DR-CAFTA.