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CAFTA Countries Urge New Investments Amid Surge in Nearshoring Interest

The Central America-Dominican Republic Apparel and Textile Council (CECATEC-RD) has launched a call to action to increase trade, investment and employment in the Central American Free Trade Agreement (CAFTA) region.

At a meeting on Wednesday, private sector associations from the textile, apparel and free trade zone sectors from Central America and the Dominican Republic noted that new opportunities to bring jobs and prosperity to the CAFTA region have emerged due to changes in global supply chains, the effects of the pandemic on different textile and apparel producers, and the interest of many brands and retailers to source near to the U.S. market.

The recent evolution of consumer behavior and the increased use of e-commerce have also brought new opportunities for the U.S.-Central America supply chain, the group said. In order to reap the benefits of these increased opportunities, the council stressed the importance of increasing capacity by promoting greater foreign direct investment to the region, complementing recent increases in local investment.

The private sector associations called on other actors from the private sector, public sector and international financial institutions to support this call to action and convene a meeting to implement the necessary actions to increase investment, trade and employment in this region. This economic activity is a key growth and employment driver in most of the CAFTA countries–Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua–making it an important part of any solution addressing the root causes of irregular migration from Central America to the United States, CECATEC-RD emphasized.

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The council also stressed the importance of maintaining the rules of the CAFTA agreement, including the “yarn forward” rule of origin, which it said “serves as the backbone that holds together the U.S.-CAFTA textile and apparel supply chain.”

The investment in recent years has been based on that premise and there is substantial programmed private investment currently in the pipeline geared toward more verticalization of the supply chain and higher value-added products,” the council said. This trend risks being reversed, affecting the creation of badly needed jobs, if there is a change in the rules, it noted, referring to calls by some to allow third-party raw materials to be eligible for duty-free exports to the U.S.

“Our industry is poised to play a key role in achieving investment-led growth and employment generation in our countries,” Daniel Facusse, president of CECATEC, said. “However, any changes to the agreement could greatly harm it, as well as the prospect for the region’s post-pandemic recovery, thus undermining the work we have been doing over the years, which has helped bring social and economic development to our countries.”

The private sector associations expressed that the agreement has important provisions, such as the short supply mechanism that gives the necessary flexibility for those needing to source materials not available in the region and would be open to review this mechanism to ensure it stays transparent, efficient and responsive to the needs of the supply chain.

Kim Glas, president and CEO of the National Council of Textile Organizations (NCTO), said her organization works closely with CECATEC to promote two-way trade. Glas noted that 70 percent of U.S. yarn exports go to Northern Triangle countries–Guatemala, Honduras and El Salvador–that are then knit into fabric and finished apparel and come back to the U.S. under CAFTA.

For the first half of the year, the U.S. apparel imports from CAFTA countries increased 59.21 percent to 1.39 million square meter equivalents, according to the Commerce Department’s Office of Textiles & Apparel.

“This co-production relationship between the U.S. textile industry and Central America is incredibly important and valued by all parties,” she said. “And the agreement has been an essential one to grow and maintain jobs both in the region and the U.S.”

She said the latest employment numbers show there’s about 500,000 workers producing products and working under the CAFTA domain.

“I thought the statement by CECATEC was very positive and they’re looking to drive further investment in the region and stressing the benefits of nearshoring, and the employment benefits associated with these strong rules of origin,” Glas said.

U.S. textile firms are seeing a surge of interest, “which is fantastic, especially after Covid,” she said. “I think a variety of things is creating this opportunity for Central America and Western Hemisphere trade partners, and our U.S. industry,” she added, citing China 301 tariffs on apparel and footwear, and high shipping rates.

“Brands and retailers looking to diversify their sourcing and supply chains, not just because of those two factors but the issues associated with Xinjiang and the forced labor issues,” Glas added. “So this is a really excellent time to really bring more trade to the Western Hemisphere trade partners and more opportunities for U.S. textile manufacturers to export products.”