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House of Representatives - House Committee on Ways and Means - April 21, 2005

McDermott questions acting United States Trade Representative, Ambassador Peter Allgeier, on the Central American Free Trade Agreement (CAFTA)

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Thank you for joining us, Ambassador Allgeier.

The symmetry between the American textile industry and the Central American garment industry is very important, especially if we want to continue to increase economic opportunities in Central America and also retain textile jobs here.

This slide shows that the US market is the number one destination for Central American products. (see slide #1)

This slide clearly shows that more than half of Central America’s exports are apparel. I suspect that everyone in this room is wearing at least one garment made from Central America. (see slide #2)

Slide #1 - Click here to see larger image

This next slide shows the importance of American products to Central America, we’re the biggest source of imports for Central America. (see slide #3)

The fourth slide here shows how important American yarns, fabrics, and apparel are to Central America. Now this is a key point, because these Central American garments that we wear are made with largely American yarns and fabrics. And this is by design.
(see slide #4)

As I understand it, Mr. Allgeier, CAFTA’s apparel rules are generally the same found in our all our Free Trade Agreements, many of which were passed on a bipartisan basis. It’s what trade technocrats call a “yarn forward” rule, meaning that in order for Central American apparel to qualify for the benefits found in CAFTA, the apparel must be made of yarns or fabrics produced in the United States or in Central America.

Slide #2 - Click here to see larger image

It’s vitally important we understand how important the apparel industry is to Central America.

Would you assert, Mr. Ambassador, that the yarn forward rule enables American yarns and fabrics to continue to have a stable export market – so CAFTA could potentially be a win-win for Central America and US textile producers?

The North American Free Trade Agreement, or NAFTA, also uses the yarn forward rule on Mexican apparel products.

In 2000, several years after NAFTA was in force, and the Mexican apparel industry took off, we passed permanent normal trade relations with China. It’s interesting to see how China’s share of imports increased since PNTR.

Slide #3 - Click here to see larger image

China’s share of US apparel imports have tripled in just a few years. (see slide #5)

That red line is truly stunning. China is emerging as the biggest player in the apparel industry. China is the world’s largest cotton producer. They have low labor costs. A whole host of reasons make China very, very competitive in the textile and apparel industry.

Now, one would think that the tariff preference that we provide to our free trade partners would give them an advantage over China.

But as we can see, the apparel rules in our so-called free trade agreements are grossly onerous and inadequate. As one example, we can look at Mexico’s share of US imports. Mexico has witnessed a dramatic and precipitous decline in its market share, despite NAFTA.

Slide #4 - Click here to see larger image

The fact of the matter is that the yarn forward rule represents nothing but an Old World approach to protectionism, and its time for it to go.

Having put together and worked on a number of trade preference programs, I understand the importance of not over-selling a trade agreement, or overstating its benefits.

I think it’s clear that the apparel rules found in CAFTA, NAFTA and our other FTAs are
                                                                        inadequate.

Slide #5 - Click here to see larger image

We need to work together, as a hemisphere, to further integrate our economies. But the protectionism found in CAFTA’s apparel rules obstructs that achievement. I believe that we can do better, and we should do better given the importance of the apparel industry to Central America. I hope that when this committee considers the implementing legislation that we’ll consider something profoundly better than the agreement by which the President agreed.

                                                                        Thank you.