CAFTA delays costing jobs, investment

Wed, Feb. 15, 2006

CAFTA delays costing jobs, investment

JUAN CARLOS LLORCA

Associated Press

GUATEMALA CITY - Jacobo Kattan was hoping to build an industrial park and create 8,000 new jobs after the expected implementation of a regional free-trade pact last month. Instead, he’s had to fire 2,000 workers and close three clothing factories.

The delay in implementing the Central American Free Trade Agreement has hit the region’s clothing industry hard, putting factories in legal limbo while much of their business leaves for Asia.

The free trade agreement, known as CAFTA-DR, was supposed to take effect on Jan. 1. But none of the member countries - Guatemala, El Salvador, Honduras, Nicaragua and the Dominican Republic - were ready to comply with what some complain is an ever-changing set of rules and regulations proposed by U.S. negotiators, including strengthening of intellectual property laws.

"The U.S. negotiation practices have been wretched," said Guatemala’s vice minister of foreign trade, Enrique Lacs. The U.S. team still wants several more side agreements from Guatemala, he said, including lifting restrictions on the importation of antennas and other telecommunications equipment.

"If we had accepted the accord as is, CAFTA would already be in place," Lacs said. "But we are still debating."

Neena Moorjani, spokeswoman for U.S. Trade Representative Rob Portman, said the delay was normal - and necessary.

"We are working toward prompt ratification of CAFTA," she said. "At the same time, the implementation process should not be rushed, so that the benefits to farmers, workers, businesses, and consumers of the United States and its CAFTA partners are not jeopardized."

El Salvador expects to implement CAFTA on March 1. Guatemala and Nicaragua have set their sights for April or May, and Honduras has said it will take six months. The Dominican Republic says it won’t be able to formally join until the summer.

Things were grim even before CAFTA-DR was agreed upon. When the U.S. eliminated quotas on clothing imports from China last year, Central America’s factories immediately began to suffer. Guatemala alone lost 38,000 jobs and 51 textile factories in 2005. The U.S. increased imports of Chinese produced textiles by 95 percent over the same period.

CAFTA-DR "should have taken effect not on Jan. 1, 2006, but, like was said before, in 2005," Jorge Roberto Interiano, the head of Honduras’ Manufacturers Association, told The Associated Press. "As long as the rules aren’t clear, there won’t be investment in this area and more and more work will continue to migrate to Asia."

Kattan, whose factories make mostly dress shirts for U.S. buyers, has watched as his business has gone East.

"My clients tell me: ’If I have to wait 45 days to bring the cloth from Asia and pay higher Honduran wages, I might as well just send the orders" to Asia, he said.

Under the existing Caribbean Basin Trade Partnerhip Act, Central American clothing manufacturers can avoid paying U.S. tariffs when exporting garments made with U.S. thread. But U.S. thread is so expensive that it makes more sense economically to import Asian fabric and pay the extra taxes.

CAFTA-DR will allow the region to produce its own thread and fabrics, creating many more jobs, all with an eye to providing U.S. stores with cheaper Central American clothing made faster.

"When the textile and cloth industries get up and running, we will cut our delivery time from 90 to at least 45 days," said Peter Klose, leader of a Guatemalan textile and clothing association and a member of the board of directors for Koramsa, a factory that makes pants and recently had to eliminate 6,000 of its 18,000 jobs.

Being able to produce the entire product locally will also create more jobs in Central America.

"Of the $1.5 billion we exported in 2005, $1 billion was from textiles we didn’t produce," said Alejandro Ceballos the head of Guatemala’s Polar Industrial, which makes cotton thread, cloth and garments under the commercial trademark Cantel. "The real business is buying cotton from Pakistan or Argentina or wherever and making the fabric ourselves."

Still, it will take time and money to build up Central America’s cloth industry - and the future uncertainty of CAFTA-DR is just delaying that investment.

"These are huge investments of $20 million $40 million or $100 million and it must be assured that, before a cent is invested, the rules are very clear. The first investments may not come until August," Klose said.

In Guatemala, Tejidos Imperial tried to get a jump on the market by setting up a new factory to make thread for cloth here, but has yet to see a return from that investment.

Roberto Gonzalez, a representative of the Guatemalan textile industry, said Guatemala, El Salvador and Honduras could easily produce their own cloth, "but as long as CAFTA doesn’t take effect, we can’t even start the machines."

source: AP