Has trade with the CBI region been hindered?

Although TDA 2000 was signed into law on May 18, 2000, and became effective on October 1, 2000, several issues hindered immediate action by CBI nations and U.S. mills.

First, location within the CBI region does not guarantee inclusion in the program. Each nation must apply for admission and pass a U.S. qualification review dealing with such issues as workers' rights, elimination of child labor, enforcement of the prohibition on transshipment, and implementation of intellectual property rights and an effective visa system. Of the 24 CBI nations, 12 - Belize, Costa Rica, Dominican Republic, El Salvador, Guatemala, Guyana, Haiti, Honduras, Jamaica, Nicaragua, Panama, and Trinidad & Tobago - have been deemed eligible under the apparel provisions of the CBI.

Second, many observers find issues in the legislation to be vague and unclear, and several questions have arisen. For example, on October 1, 2000, could Caribbean countries inundate U.S. ports with shipments, or were they to be uniformly spread over the year? How were the quotas of T-shirts and knit-to-shape garments to be allocated among nations- according to sewing and assembly capacity or to each nation's previous year's share of exports from the CBI region? The CBI was written in part to boost the economies of Caribbean countries devastated by hurricanes, particularly along the Yucatan peninsula. Should these countries benefit relatively more than less-affected countries? The resulting confusion and hesitation has tempered any immediate jump in U.S. textile trade with the CBI region.

Third, the final rules had not been determined when the law went into effect. The U.S. administration was slow in implementing regulations and determining nations' eligibility. The U.S. Customs Service did not publish the interim regulations in the Federal Register until after the law went into effect, hindering U.S. mills and Caribbean cut-and-sew operations in proceeding with strategic alliances, as they could not anticipate duty rates for product orders.

Fourth, many observers feel that the time between implementation of the CBI and the quota phase-out in 2005 is too short. Under the Agreement on Textiles and Clothing, WTO member nations will gradually phase out quotas on textile and clothing imports, removing all remaining quotas by January 1, 2005. Many feel that, in contrast to the 11-year head start enjoyed by NAFTA, the time available after implementation of the CBI is too short to allow U.S. mills time to establish operations or relationships in the Caribbean before the quota phase-out.

Fifth, the new legislation is not integrated with NAFTA. For example, under the CBI, apparel assembled in the CBI region from U.S. fabric made with Mexican yarn does not qualify for duty-free entry into the U.S. Also, qualifying garments cannot be cut in Mexico and assembled in the CBI region with U.S. yarn, fabric, and thread. This issue is key, as many U.S. mills either have joint operations in Mexico, to take advantage of the lower labor costs, or have formed strategic alliances with Mexican mills since implementation of NAFTA. Allowing the CBI nations to use NAFTA fabric or yarn could ultimately result in bypassing of the U.S. textile industry, counter to the aim of the CBI. However, by not incorporating the CBI into NAFTA, Congress limited the strategic options available to U.S. mills.

Finally, many observers feel that not enough time has passed since implementation of the CBI for apparel production sourcing patterns to have experienced major shifts. With ample time, U.S. and Caribbean manufacturers will be able to digest the legislation, research new vendors and markets, initiate new relations, transfer production operations, secure funding and letters of credit, and commence production. Strategic alliances that were not initiated or in place before the law went into effect have yet to fully develop and take full advantage of the new opportunities afforded by the CBI.

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Going Forward

As discussed above, certain countries in the CBI region have seen their exports of cotton apparel destined for the U.S. market grow appreciably since implementation of TDA 2000. Of course, not all cotton apparel imported from the CBI region qualifies for benefits under the new legislation, as the garments' fabric, yarn, or thread must originate from the U.S. Going forward, the decisive issue for U.S. mills is not necessarily increased volume of total imports from the CBI region, but rather growth in the share of imports that qualify for duty-free access to the U.S. market, implying growth in U.S. fabric and yarn exports to the CBI region.

Although TDA 2000 has been in effect only a few months, expansion of U.S. cotton yarn and fabric exports to the Caribbean already is evident. As the legislation is so new, several U.S. mills have yet to take full advantage of the opportunities it affords. For the future, many analysts anticipate stronger demand for U.S. raw materials from the region, as CBI nations increase their sewing and assembly capacities and begin to erode the share of U.S. cotton apparel imports from elsewhere, particularly Asia.

Ultimately, will the CBI have been implemented in time for U.S. mills to take advantage of its provisions before the wave of quota-free imports from WTO member nations hits in 2005? Understandably, it is expected that some projected CBI-region market share gained through this legislation will be lost back to Asia in 2005, when the U.S. will no longer be able to limit import volumes. However, the CBI region will continue to enjoy an advantage over Asia on several fronts. The Caribbean will continue to benefit from its proximity to U.S. mills, allowing quicker turnaround times and lower shipping overhead. The CBI region also will be able to capitalize on not having to pay an average 17% tariff on qualifying apparel, which other regions still will have to pay. The challenge before the U.S. is to capitalize on the opportunity that the CBI affords to gain a sourcing foothold in the region, establish operations and relationships with local manufacturers, and establish a sustainable market advantage before quota restrictions are lifted in 2005.