U.S. TO MEET WITH DR-CAFTA COUNTRIES SOON TO DISCUSS TEXTILE CHANGES

[Kevin Spidel]

U.S. TO MEET WITH DR-CAFTA COUNTRIES SOON TO DISCUSS TEXTILE CHANGES
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Date: August 5, 2005


The U.S. expects to meet in the next several weeks with other parties to the Dominican Republic-Central American Free Trade Agreement approved by the House last week to begin informal talks on several textile issues that were key to the Bush Administration’s two-vote victory, according to a U.S. trade official.

These talks will focus on what concessions the U.S. will give the countries of Costa Rica, Nicaragua, El Salvador, Guatemala, Honduras and the Dominican Republic in exchange for those countries agreeing to change DR-CAFTA rules of origin. The signatories agreed to change the deal’s rules of origin so that pocketing and non-visible lining in pants made from the same material as the pocketing will have to be produced in the region or the U.S. to be included in garments receiving duty-free access to the U.S.

This agreement allowed at least five House Republicans representing textile districts in the South to vote in favor of DR-CAFTA when it was approved in a 217-215 vote.

While no date has been set for meetings, the official said the U.S. expected to hold them in the next several weeks. Industry sources said they believed the talks could be pushed back due to ongoing textile issues related to China.

The trade official said the U.S. has yet to get into any discussions with the six countries on what concessions they will want in exchange for the pocketing change. However, industry sources said suggestions have already been floated to USTR and that importers are already mulling over some possibilities with Central American officials. Some of these ideas seemed to center on products that might be allowed to enter the U.S. duty-free under a single transformation rule, under which a garment only has to be assembled in the region to qualify for duty-free access.

Currently under DR-CAFTA, only a few items such as bras and boxer shorts are allowed to enter the U.S. from the region duty-free under the single transformation rule.

The Bush Administration is not interpreting its commitment to the members who voted for DR-CAFTA to include changing the rules of origin so that non-visible lining in pants that is made from material different from pocketing material would have to be sourced from the U.S. or region in pants getting duty-free access, the official said. The deal also does not cover non-visible lining used in other garments.

Textile industry sources have said the U.S. ships about $100 million in pocketing and non-visible lining to the region, but it is unclear how much of this trade would be preserved through the rules of origin change the administration has agreed to make. Some sources said most pants now shipped from the region to the U.S. include U.S.-sourced pocketing and lining of the same material as the pocketing, while others said the lining material in pants now shipped to the U.S. is often different from the pocketing material.

The U.S. trade official said the six countries had agreed to make this change, as interpreted by the administration, during the formal 90-day period for consultations on changing rules of origin under Article 3.25 of the DR-CAFTA. Those formal talks, however, cannot start until after the DR-CAFTA is implemented on Jan. 1, 2006, the official said. The official said he did not believe the changes would need to go through the Free Trade Commission set up by DR-CAFTA, which consists of representatives of the U.S. and the six countries in the region.

In addition, while Ways and Means Chairman Bill Thomas (R-CA) has committed to passing legislation implementing these changes through committee, congressional work on changing the rules of origin will not begin until after the agreement is implemented. This means pants from the region may enter the U.S. duty-free even with pocketing made in third countries beginning on Jan. 1.

However, the U.S. trade official emphasized that textile importers are unlikely to make orders to the region for pants with pocketing made in third countries given the fact that the administration has committed to seek the change, and the rules of origin could change at anytime. As a result, even though the changes will not go into effect until Congress approves them, the interests of U.S. pocketing manufacturers will be protected, the trade official said.

Another complicating factor is that some countries in the region have yet to ratify the DR-CAFTA and at least one, Costa Rica, is unlikely to do so until after Jan. 1. But the trade official said the U.S. might implement this change regardless of whether all of the countries have ratified DR-CAFTA. Once the change is agreed and approved by the U.S. and a single DR-CAFTA region country, it will be effective on trade between those countries, the official said.

It is unclear whether the changes will require work by legislatures in each of the DR-CAFTA countries, or whether some may do this by executive action.

The Bush Administration also worked out a deal with Nicaragua that must be approved by all six of the DR-CAFTA countries, according to the U.S. official. However, the official did not expect the other five countries in the region to demand additional concessions from the U.S. because of the new tariff preference level (TPL) deal for Nicaragua.

Under this deal, Nicaragua will receive the use of an additional 300 million square meter equivalents of fabric from third countries that may be included in garments eligible for duty-free entry to the U.S. over a five-year period. In exchange, Nicaragua agreed to use the TPL in a way that would minimize any economic damage to U.S. companies that ship fabric to DR-CAFTA countries for use in making pants, which now accounts for more than half the apparel production in Nicaragua (Inside U.S. Trade, July 29, p. 1).

Specifically, Nicaragua will receive a TPL of 100 million square meter equivalents for a full 10 years and the TPL will not be eliminated until year 11 of the agreement. Previously, Nicaragua was to have a TPL of 100 million square meter equivalents for five years, which was to be reduced to 80 million in year six, 60 million in year seven, 40 million in year eight and 20 million in year nine before being eliminated in year 10.

All six DR-CAFTA countries must agree to this change, the U.S. trade official said. But while some industry sources said the other five countries in the region may oppose the change or ask for additional benefits for agreeing to it, since it could be seen as an advantage for Nicaragua over the other regional partners, the U.S. has received no criticism from the countries so far, the official said.

This official said that given Nicaragua’s commitment to require its companies to use the same amount of US. fabric as third country fabric in pants produced in that country, the benefit provides no clear gain for Nicaragua. Pants now accounts for more than half the apparel made in Nicaragua.

Separately, the Senate approved the DR-CAFTA bill again on July 28 by a vote of 55 to 45 after Sen. Byron Dorgan (D-ND) pressed for a new recorded vote. The Senate had passed the bill by a vote of 54 to 45 on June 30, but Dorgan insisted on the new vote to fulfill the constitutional requirement that a revenue bill originate in the House (Inside U.S. Trade, July 29, p. 15).

Proponents of the bill picked up one vote when Sen. Joseph Lieberman (D-CT), who was not present at the June 30 vote, cast a yes vote.



from: INSIDETRADE-23-31-1

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