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