Staggered CAFTA implementation hurts textile and

UNCLAS GUATEMALA 000419 SIPDIS DEPT PASS USTR E.O. 12958: N/A TAGS: ETRD EIND BEXP ECON ELAB GT SUBJECT: Staggered CAFTA implementation hurts textile and apparel manufacturers ref: Guatemala 376 ¶1. (U) Reftel transmitted a letter from the Guatemalan Minister of Economy to USTR Portman outlining problems Guatemalan textile and apparel manufacturers face because of staggered CAFTA implementation. On February 27, the Ambassador received the head of the Guatemalan textile and apparel commission, VESTEX, and two prominent textile producers (Guillermo Zimeri - Textura, and Roberto Zaid - Imperial),who gave us more details and asked for assistance. ¶2. (U) CBTPA benefits are for certain knit apparel articles only, with rules of origin requiring the use of US yarns in US or regional fabrics. CAFTA benefits are for all garments, with rules of origin requiring the use of US or regional yarns, threads and fabrics (with exceptions for some products). With El Salvador implementing CAFTA on March 1, existing duty-free regional production under CBTPA -- whereby El Salvador uses US or regional knit fabric made from US yarns for assembly -- will no longer be duty-free. On the other hand, garment production in Guatemala and the other countries not having implemented CAFTA yet, which relies on knit fabric using US yarns from El Salvador, will continue to be duty-free because CAFTA contains a clause redefining "CBTPA beneficiary" to include "former CBTPA beneficiary." Section 402 of US law permits the use of inputs from "former CBTPA beneficiary countries" but does not allow duty-free treatment for finished goods of former CBTPA beneficiary countries which use other CBTPA country inputs.) ¶3. (U) While Guatemalan apparel manufacturers will not be hurt, fabric makers currently supplying customer in El Salvador could lose substantial business. Zaid stated that some of his Salvadoran purchasers already want to cancel orders. VESTEX suggests four possible solutions (as spelled out by their consultant - IDS): -- Extend CBTPA designation for El Salvador (and other CAFTA signatories) until all have implemented CAFTA. -- Allow El Salvador to export duty free products using inputs from the countries which have not implemented CAFTA. -- Introduce "emergency" legislation in the US. -- Amend the CAFTA implementing legislation by incorporating changes into the approval process for fixes to "pocketing and lining." ¶4. (U) VESTEX has the support of US industry, passing us a letter to USTR Portman and Commerce Secretary Gutierrez from three US industry associations (AAFA, NCC, NCTO) which makes most of the above points. VESTEX has also been lobbying the government and Congress of Guatemala for rapid CAFTA implementation. DERHAM