A new white paper that debunks a number of myths surrounding the CAFTA-DR trade agreement explains how the pact’s “yarn-forward” rules alone are insufficient, and that Asian suppliers are not the top competitors with US textiles.

The White Paper, ‘US Apparel Sourcing from CAFTA-DR and US Textile Exports: Myth vs. Reality’ by Dr. Sheng Lu, associate professor, fashion and apparel studies, University of Delaware, addresses misconceptions and myths about the impact of CAFTA-DR apparel sourcing on US textile exports to the region and related trade policy issues.

With growing concerns about US-China trade tensions and geopolitical risks in Asia, US apparel companies are actively exploring sourcing diversification and bringing the supply chain closer to home. Notably, recent industry surveys indicate that US apparel brands and retailers are keen to expand sourcing from members of the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) and tap into the region’s potential as an emerging sourcing destination

“Not only does sourcing apparel from CAFTA-DR members help sustain American textile and apparel jobs, but it also fosters economic development and employment opportunities in Central America,” Sheng explains.

For example, between 2015 and 2022, apparel products consistently accounted for nearly one-fourth of CAFTA-DR members’ total merchandise to the world, contributing around US$6bn in value2 and supporting over half a million jobs in the sector. As estimated, an additional billion dollars of apparel exports to the US could create about 75,000-84,000 more sewing jobs in CAFTA-DR countries.

Drawing upon official government trade statistics from the Office of Textiles and Apparel (OTEXA) under the US Commerce Department and the United Nations (UNComtrade), the White Paper outlines four main myths:

Myth 1: The “yarn-forward” rules work well in CAFTA-DR

The “yarn-forward” rules alone are insufficient and have resulted in issues such as the low utilization of CAFTA-DR in US apparel sourcing.

“The so-called “yarn-forward” rules refer to CAFTA-DR’s rules of origin requirements that clothing qualified for the preferential duty benefits generally needs to use yarns and fabrics made by its members and be cut and sewn within CAFTA-DR. In fact, CAFTA-DR’s rule of origin is a patchwork of individual product-specific rules. While most of these product-specific rules are “yarn-forward,” CAFTA-DR also features some rules that permit non-originating yarns and fabrics for a small number of articles,” the White Paper explains.

Myth 2: The short supply mechanism in CAFTA-DR is a “loophole.”

The short supply mechanism is a legitimate flexibility negotiated in the original CAFTA-DR that has not reached its full potential. It can become a powerful transitional mechanism to jumpstart more US apparel sourcing from CAFTA-DR and textile investment in the region.

“Regrettably, the short supply mechanism in CAFTA-DR remains underutilised, much like the agreement itself for US apparel sourcing from the region. Currently, many companies find the list far too limited to provide meaningful flexibility for sourcing purposes. For example, as of February 2023, only 155 items have been approved for CAFTA-DR’s short supply list, with the vast majority of those items added during the negotiation of the agreement itself and in its first three years of operation,” Sheng says.

Myth 3: The US is the sole dominant textile supplier for CAFTA-DR members.

Whereas the United States is a vital textile supplier for CAFTA-DR members, it has never been the only one.

According to the White Paper, in 2005, CAFTA-DR members imported $3.1bn in textiles from all countries (Standard International Trade Classification, SITC code 65), of which about 55% came from the US and 45% from non-US sources.

Myth 4: Asian suppliers are the top competitors with US textiles in CAFTA-DR

UNComtrade data shows that US textile exports to CAFTA-DR compete primarily with textiles locally made in CAFTA-DR and those from Mexico, not Asian suppliers.

Specifically, from 2015 to 2021, CAFTA-DR members increasingly imported textiles from within CAFTA-DR, up from 12.5% to 21.0%. In comparison, China only gained 4.5 percentage points of additional market shares and 2.1 for the rest of Asia during the same period.

Likewise, CAFTA-DR’s cotton fabrics imports (SITC code 652) from Mexico surged by 308.2% from 2015 to 2021, resulting in Mexico’s market share jumping from 7.7% to 28.7%. China and other Asian suppliers lost their market shares over that period.

By Just Style