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Q & A Central American Free Trade Agreement
U. S. Rep. Bob Inglis July 2005
Q: Why was the textile industry concerned about CAFTA?
A: CAFTA generally requires that if a Central American garment is to come into the U.S. duty-free, it must be made of fabric produced in the CAFTA region (in the U. S. or one of the Central American countries). There were three exceptions to this “rule-of-origin” that concerned us: (1) pockets and linings could be sourced anywhere in the world; (2) Nicaragua had the right to source up to 100 Million square meters of material anywhere in the world (called the “Nicaraguan Tariff Preference Level” or “Nicaraguan TPL”); and (3) Mexico was defined as being in the region even though they are not a party to CAFTA and a “cumulation” concept written into CAFTA would allow them to sell up to 100 million square meters of fabric into the region. With each of these three exceptions, the concern was that China would be the source of the fabric—for pockets and linings, for Nicaragua’s TPL and for a high percentage of the material that would come through Mexico.
Q: So what changed?
A: US Trade Representative (USTR) Rob Portman got involved and got some relief on all three points. Specifically:
- Pockets and linings – Ambassador Portman secured a letter signed by the Finance Ministers from the six CAFTA countries committing the CAFTA countries to subject pockets and linings to the rules-of-origin typical in the rest of the agreement. This change means that pocketing material must come from one of the countries signing the CAFTA agreement and not China. House and Senate Leadership followed with commitments to pass necessary implementing legislation expeditiously.
- Nicaraguan Trade Preference Levels (TPL) – The Nicaraguan government agreed to buy one unit of United States fabric each time it buys a unit of fabric outside the region for man-made trouser fabric. Nicaragua also agreed to phase in a requirement to use U.S. made cotton trouser material over the first five years. In order to get these concessions from Nicaragua, Ambassador Portman agreed that the Nicaraguan TPL will not be phased out, but will continue at 100 million for yen years. House and Senate leadership have committed to expeditiously passing the necessary implementing legislation for this change to CAFTA.
- Cumulation – Ambassador Portman presented to us a letter committing the Bush Administration: (1) to forgo implementation of cumulation with Mexico until Mexican customs procedures are improved and validated by the US government; and (2) not to extend cumulation to other countries outside the region.
Q: But these are not binding agreements, right?
A: The letters from the Central American countries commit them to accept Ambassador Portman’s proposed modifications to pockets and linings. To back out would be to risk their credibility in international trade and to lose their seat at the table with us. The Nicaraguans provided a similar letter agreeing to the modifications of the Nicaraguan TPL.
On the American side, Ways & Means Chairman Bill Thomas provided a signed letter, committing to move implementing legislation expeditiously. While these are commitments and not yet binding contracts, we have reasonable assurances that CAFTA will be successfully amended by implementation agreements. Some will be critical of my decision to go forward based on commitments, but every day business men and women decide to develop, test and launch new products, fully aware that there are no iron-clad guarantees of success.
Q: What has to happen to make these commitments binding?
A: First, the America and the Central American countries must draft and sign the pockets and linings modification and the Nicaraguan TPL modification within 90 days. Then, Chairman Thomas must draft a bill to implement the modifications on the American side. Finally, the House and Senate must pass this legislation.
Q: Did you say on a 2004 candidate questionnaire that you would vote “no” on CAFTA?
A: Yes, and a copy of the questionnaire (together with the caveat I added across the top before signing) is enclosed. Since then two things happened. First, we got the above-described commitments to correct the problems with CAFTA. Second, the main group circulating the questionnaire decided that the corrections were sufficient to move them from opposition to active support. (A copy of the National Council of Textile Organization's letter on the subject is enclosed.)
Q: Weren’t you concerned about other things like sovereignty?
A: At a theoretical level any agreement with another country affects our liberty, just like a lease affects a landlord’s liberty. If a landlord has signed a lease with me, he or she must honor the lease and not let another person use the property for the term of the lease. The landlord gains my obligation to pay the rent, so at a practical level Landlord and Tenant are both content. At a practical level, I see no impairment of American sovereignty. I see opportunities to gain friends, allies, profits, and jobs, but little to lose.
Q: Does this make you an open-border free trader?
A: What we accomplished with these CAFTA commitments would be an anathema to an open-border free trader. Open-border free traders would prefer that garment makers source fabric from anywhere offering the rock bottom price. Because I think that a smart, western-hemisphere trading strategy is the only realistic way to compete with China in today’s trading environment, I became an enthusiastic supporter of this trade agreement. That makes me an open-eyes free trader. I want to see smart trade that takes into account US interests. We need a way of competing with China. Right now, 71% of all fabric used in Central America is from the US. With CAFTA, we get to keep that and even increase it with smart partnerships. Without, CAFTA garment makers would close Central America cut-and-sew operations, stop buying fabric from U.S. producers and source the whole garment from China.
Comments
Jim Nicholls (6/23/06)
Bob, thank you for your "computer call" yesterday. Because of your CAFTA vote and the whole mess all of our leaders have gotten us into save your re-election money because I will be trying to get new leadership that is for me and my family, not illegals amnesty and big corporations who want to go to China.
Jim Dancer (6/16/06)
Bob, I am totally against both NAFTA and CAFTA. I am for protective tarifs to counter China and to protect American manufacturers. I am a patriot.
Al Martin (7/17/06)
Please explain exactly who benefits from these agreements (CAFTA) and how. In my judgment, it is not American workers but foreign workers and their employers that do.