President Signs DR-CAFTA into Law

President Bush signed into law on Tuesday the implementing legislation for the U.S.-Dominican Republic-Central America Free Trade Agreement (DR-CAFTA).

This comes after a hard-won victory in the U.S. House of Representatives, which passed DR-CAFTA on July 28 by a two-vote margin, a vote almost too close to call. The final tally of 217-215 in DR-CAFTA's favor put an end to many long battles that were fought down to the last minute, with the vote taking more than an hour.

Republican leaders were able to cut enough political deals to overcome fears among many of their party's own members about foreign competition and push ahead despite opposition from most Democrats, some textile groups, labor unions and the sugar industry's powerful lobby.

Still, there are remaining hurdles to jump before the DR-CAFTA can come into force. An effective date remains to be worked out between President Bush and his counterparts in the DR-CAFTA countries on a country-by-country basis. Each country must ratify the agreement and the United States must subsequently make a determination that the country has brought its laws into compliance with the agreement's provisions. To date, Guatemala, El Salvador and Honduras have passed implementing legislation, while Costa Rica, the Dominican Republic and Nicaragua have yet to do so. The United States may put the agreement into effect with countries on an individual basis, based on these compliance issues.

Nonetheless, DR-CAFTA proponents breathed a big sigh of relief that the agreement passed in the House. Leaders of the DR-CAFTA nations had lobbied hard for the passage of this agreement, predicting massive unemployment and unrest resulting from the loss of apparel sewing jobs if DR-CAFTA were not to come to fruition.

In a recent address to U.S. and Latin American executives at an apparel and textile summit in San Salvador, El Salvador's President Tony Saca said that without CAFTA, Latin America would not be able to compete with salaries in China. "The competition from the Asian economic bloc represents enormous challenges, but also opportunities," he said.

With DR-CAFTA now on the table, it is up to Latin American apparel companies and their U.S. partners to see if they can live up to that challenge. The free trade agreement opens the door for significant investment in the region. Whether U.S. companies will play ball or hold back while their Asian counterparts step up to the plate remains to be seen.

A positive outcome of the passage of the trade agreement -- regardless of where you come down on this issue -- is that the enormous energy expended arguing for and against DR-CAFTA in recent years now can be redirected toward the business at hand: Manufacturing high quality textiles and apparel, quickly and efficiently.

With DR-CAFTA, apparel companies in the region have said they will renew their focus on innovation and quick response, working to compete in areas where they have, or may be able to develop, an advantage over China's apparel industry. Without the agreement, some manufacturers in the region were stalling over investments in their business, or considering whether to close their doors.

DR-CAFTA won't be a magic panacea, but it will provide duty-free treatment for certain garments that under the Caribbean Basin Trade Partnership Act (CBTPA) did not receive such preferences. This will level the playing field with China considerably in terms of cost. The savings from duty-free entry averages about 20 percent to 30 percent of the cost of the garment. The agreement should also bring some measure of confidence to the region and, it is hoped, encourage significant textile investment and interest from financial institutions. Lack of fabric and financing availability are often cited as the two greatest impediments to creating a strong full-package infrastructure in the region.

JORDAN K. SPEER is senior editor of Apparel. She can be reached at [email protected].

For More Information
Here are some Apparel articles that have tracked the CAFTA-DR issue in recent months:

CAFTA-DR Passes in Senate, House Hurdle Remains
Apparel and textile firms say passage or failure of agreement could alter global balance of sourcing.
http://www.apparelmag.com/articles/features/feature070805.htm

CAFTA-DR Update: Debates Heat Up But Vote Still Uncertain
Proponents of the agreement gear up for a "full court press" to advocate for support, while opponents raise their voices louder in protest.
http://www.apparelmag.com/articles/features/feature052505.shtml

Fate of DR-CAFTA Region at Mercy of Trade Agreement
Industry observers say non-passage will spell doom for textile area, while opening floodgates to China imports. http://www.apparelmag.com/articles/features/feature051305.shtml

Viewpoint: CAFTA-DR a New Low in U.S. Trade Policy
With an opposing stance to this newsletter's last "Viewpoint" column, this author condemns the pending CAFTA-DR as flawed and ill conceived.
http://www.apparelmag.com/articles/viewpoints/fyi052505.shtml

Viewpoint: U.S. Should Not Turn Its Back on DR-CAFTA, Central America's Fledgling Democracies
In this guest editorial, the author argues the free trade agreement would promote democracy in South America, lead to prosperity in the Western Hemisphere and stem the tide of imports from China.
http://www.apparelmag.com/articles/viewpoints/fyi051305.shtml

Viewpoint: CAFTA: Death Knell or Saving Grace for Textile Industry?
http://www.apparelmag.com/articles/viewpoints/viewpoints033005.shtml