Cut out? Can Cafta save Central America's apparel industry?(Special report: Caribbean and Central America)(United States - Central American Free Trade Agreement)(Cover Story)

Apparel manufacturing in Central America is a big and growing business, and the numbers are there to prove it. The region's clothing exports, to the U.S. totaled $7 billion last year, up from $200 million in 1987.

But there's a big "but" in this picture, one that is looming ever larger. With the World Trade Organization's import quota regime for textiles and apparel due to expire Jan. 1, 2005, many manufacturers in Central America are wondering whether they'll be able to compete with China and other low-cost producers that are all but certain to become more potent competitors, last week's action against China's apparel by the Bush administration notwithstanding.

"Everyone is in a panic because of the end of the MFA quota system," said Stephen Lande, president of Manchester Trade Ltd., a Washington-based trade consulting firm. He was referring to the WTO's Multi-Fibre Arrangement, which has governed most global trade in textiles and apparel since 1974.

The ending of that regime will give apparel companies more freedom to source product from non-traditional producers and to increase their sourcing from established textile-producing nations such as China, Pakistan and others whose exports were artificially held back by the quota system. The implication is that Asia could gain manufacturing market share at the expense of Central America as a result.

The region's future in apparel production may therefore hinge on the success of the U.S.-Central American Free Trade Agreement, and Cafta's fate may be known soon. Negotiators from the U.S. and five Central American nations --Guatemala, El Salvador, Costa Rica, Nicaragua and Panama--have promised to finish work on an …