The Dominican Republic's apparel industry is expected to grow 3-5% this year, sharply less than in 2006, as its DR-CAFTA (Dominican Republic-Central America Free Trade Agreement) exports share to the US continues to shrink.

Last year, the sector grew 5-7% to roughly $1.55bn.

However, the Dominican peso's continued rise against the dollar and growing competition from other DR-CAFTA members triggered a 24% decline to $470m in first-half in duty-free exports to the US.

Amid this scenario, the industry is expected grow only 3-5% this year, trade officials in the capital, Santo Domingo, told just-style.com.

They complained that the Caribbean nation has been the worse hit by DR-CAFTA's woeful implementation.

While its exports fell, those of Honduras, El Salvador and Nicaragua rose between 5.4-22.2%, they claimed.

Guatemala, the biggest champion of DR-CAFTA, saw exports fall 8.3% in the first half while Costa Rica's (which has yet to join the treaty) declined 3.7%.

The government is scrambling to launch initiatives to boost the competitiveness of the sector, which accounts for 75% of Dominican Republic's exports.

It has set up a $35m fund to help streamline Dominican-owned apparel factories while new legislation will help lower labour costs and strip fuel-import tax to lower production costs.

"We are working to increase our share export to the US," said Richard Benoat, a director at the Free Zones Council. "The fund will help companies strengthen their capital structure so they can obtain loans to expand production and be more efficient."

Moreover, the sector is moving toward a speedier and more integrated production system to boost its competitiveness, Benoat said.

However, when asked whether the state plans to lower the peso's value - which has soared to 1.33 per US dollar from 0.50 per US dollar in 2002 - to bolster exports, he said it has opted for a strong currency to maintain economic growth.

"The government is not going to sacrifice the peso for the zonas francas (free zones) area. It thinks lowering the peso would have bad consequences for the whole economy."

However, lowering some apparel prices to woo more US orders is under consideration, Benoat noted, without providing more specifics.

Meanwhile, the country continues to seek new export markets, notably in Mexico, to reduce its dependence on the US, where it sends 90% of textile exports.

Exports to Mexico have reportedly soared to $114m in 2006 from $16m in 2003.

Despite its challenges, Benoat said the industry could grow 7% in 2008.

He said the DR-CAFTA cumulation provision - set to be approved by the New Year - will enable Dominican Republic to use key fabrics from Mexico and Canada to lower production costs.

This, coupled with the fresh government initiatives, should help it achieve that target.

By Ivan Castano.