Stitching Up a Deal.(Central American Free Trade Agreement,)(Brief Article)

Partex apparel group makes some of the most popular clothes worn in America--flashy athletic wear featuring logos from the NFL, NBA and other U.S. professional sports teams. But getting the bright tank tops and jerseys from the company's factories in El Salvador to retailers in America can be difficult. Partex sells about $20 million of clothes to the United States annually--but its export business is crimped by protectionist U.S. trade laws that include a 33 percent tariff on garments not made with U.S. yarn. To avoid the tariff, Partex typically buys American yarn, has it woven into fabric in Florida, then brings it back to El Salvador, where it is stitched into a finished garment and then gets trucked back to the United States. It's a cumbersome process, to say the least, but still cheaper for the company than getting socked by the trade penalty. "The U.S. [textile] rules-of-origin laws will not give us duty-exempt status if we use anything but U.S. yarn," complains Juan Zighelboim, the CEO of Partex.

That's the bad news. The good news is that Partex and its kindred producers may soon get some relief from such onerous trade restrictions. U.S. and Central American trade officials are now trying to hammer out the Central American Free Trade Agreement, or CAFTA, which would reduce or eliminate all tariffs and other trade barriers between the United States and five Central American countries-- Guatemala, El Salvador, Nicaragua, Honduras and Costa Rica. Both sides aim to get the deal done by the end of this year, and both sides view CAFTA as a crucial steppingstone toward passage of the Free Trade Area of the Americas (FTAA), a tariff-free zone encompassing the entire Western Hemisphere except Cuba--34 countries with a combined gross domestic product of $13 trillion. If implemented, FTAA would create the largest free-trade bloc on the planet.

Central America is a bigger trading partner for the United States than one might think. "American exports to these countries [valued at $9 billion] are larger than our exports to Russia, Indonesia and India combined," says Regina Vargo, the assistant U.S. trade representative for the Americas. U.S. imports from Central America are even higher, nearly $12 billion. That's a fraction of the $135 billion of products that the United States imports from Mexico yearly, but Central American companies have some competitive advantages (low labor costs, for one) that should help boost their exports significantly if CAFTA is passed. Despite heavy ...