Central America could see apparel exports to the US rise 15-20% by 2010 if it undertakes big reforms to fully benefit from the Central American Free Trade Agreement (CAFTA-DR), industry leaders told just-style on the fringes of the 16th annual Apparel Sourcing Show, which kick-started in Guatemala City on Tuesday (17 April).

Even though 70% of the region's apparel entered the US duty free last year, exports fell 6% to $3.2bn.

Including non-CAFTA trade, exports to the US declined 9% to $5bn.

El Salvador and Honduras saw the heaviest losses while Guatemala gained less than expected. Nicaragua saw a big 23% gain, however, boosted by the arrival of large investments from the US.

Industry executives blamed the decline on cut-throat Asian competition and problems related to CAFTA-DR's gradual implementation (in which some countries launched promptly while others hesitated for months) for the export fallout. Costa Rica has yet to implement CAFTA.

Some observers also said political uncertainty linked to last year's presidential elections in Honduras and Nicaragua, in addition to the region's rising crime rates, kept some US buyers and investors at bay, shattering the block's dreams to attract the billions in foreign investment required to bolster its international competitiveness.
"The uneven implementation caused a lot of problems and uncertainty," conceded a top textiles official from Honduras. "A lot of companies had to adapt to the new rules of CAFTA-DR and re-arrange their production processes accordingly."

Despite that, he echoed other industry leaders' views that Central America would be a lot worse off without CAFTA-DR.

"Without it, the impact would have been devastating," the Honduran official added. "We would have probably lost the benefits of the CBTA agreement and Asian competition would have killed us."

Under the CBTA (Caribbean Basin Trade Agreement), Central America has been able to export apparel and textiles duty free to the US.

However, CAFTA-DR has expanded the number and product range that can enter the world's largest market. It has also allowed the US to export to the region duty free. US exports to the Central America rose 18% to $10.2bn.

Observers at the apparel show said the region's exports could rise 2-3% this year as recent investments by US, Korean and Mexican textile companies boost its production capacity.

"CAFTA's rules are clearer now and the US is starting to recognise Central America for its capacity of delivery and geographical proximity," added the Honduran official. "There is more regional integration, moving beyond apparel to textiles and gains in sourcing efficiencies."

That integration is key if Central America wants to fulfil its promise to build a fast, integrated and full-package apparel industry that can tackle China's competitive prowess.

During apparel show panels, industry leaders said Central America still has to "get its act together" to make the necessary business and political reforms to squeeze CAFTA-DR's full benefits.

While producers are working round the clock to boost their output of value-added and more fashionable garments (in another strategy to beat the Chinese), many are not there yet, leading executives said.

Companies must work harder to build a speedier and more diverse full package (thread to garment) chain, deepen their customer relationships and market themselves more aggressively to potential US customers.

Power prices must come down and the legislative framework modified to ensure investors' money will remain safe. And on that note, security (particularly gang and drug-related crimes) must also improve, show participants said.

"If we can get these things done, then I don't see why our exports couldn't rise 20%" by 2007, enthused Carlos J Zuniga, a technical director at Nicaraguan customs commission Comision Nacional de Zonas Francas, adding that Nicaraguan apparel exports to the US will this year soar 23% from $879m in 2006 when they leapt 24%, as $207m of new investments began to show their fruits.
The 2007 Apparel Sourcing Show, which ends Thursday  (19 April), features 180 companies and 230 stands and is expected to surpass the $220m of business contracts fetched last year

By Ivan Castano.