Background

U.S. trade officials recently met with U.S. textile executives “to discuss their role in creating economic opportunities in the United States and Central America, especially the Northern Triangle countries of El Salvador, Guatemala, and Honduras,” according to a press release from the Office of the U.S. Trade Representative.

Deputy USTR Sarah Bianchi explained that “recent concerns about the unreliability of geographically-extended supply chains and the pervasiveness of forced labor make this a particularly opportune time for expanding production in the Western Hemisphere.” China remains by far the U.S.’ primary source of textile and apparel goods, but in light of trans-Pacific supply chain snarls, rising bilateral geopolitical tensions, and longstanding allegations of forced labor practices in Chinese factories the Biden administration may be seeking to diversify production away from that country.

Deputy USTR Jayme White added that “sustainable investments by the U.S. textile industry in Central America will … boost job opportunities for the U.S. and our regional allies.” Central America has been a major source of immigration to the U.S. in recent years and White’s comments indicate that the U.S. is looking to stem that flow by increasing employment and stabilizing economic conditions there. USTR noted that two-way textile and apparel trade exceeded $12.5 billion in 2019 and was up 45 percent year-to-date through August 2021 after a 25 percent decline in 2019 amid the global COVID-19 pandemic.

However, Bianchi said, facilitating investments in the region by U.S. and Central American textile producers will rely heavily on “maintaining certainty on the rules of origin and the short supply process in CAFTA-DR.” The agreement’s yarn-forward rules require most inputs used in apparel and other finished textiles to be produced in CAFTA-DR countries for the goods to qualify for duty-free entry. Bianchi’s comments suggest that USTR does not intend to change those rules despite pressure from importers, CAFTA-DR member governments, and others to relax them.

The agreement does include limited flexibilities allowing duty-free entry for specified apparel products that are cut and sewn in the free trade area from fabrics sourced outside the region, and it also has a short supply mechanism allowing fibers, yarns, and fabrics not commercially available in the region to be used in apparel qualifying for duty-free treatment. According to press reports, however, importers say these have been insufficient to encourage further investment and production in the region.

For more information on this and other trade-related issues affecting textiles and apparel, please contact attorney Elise Shibles at (415) 490-1403 or via email
 

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