Professor Says Yarn Forward Holding CAFTA Apparel Sector Back
University of Delaware Professor Sheng Lu, who specializes in Fashion and Apparel Studies, told an audience from the U.S. Fashion Industry Association that although there are good reasons to want to source more apparel from Central America and the Dominican Republic -- to avoid forced labor from Xinjiang or generally reduce China exposure -- growth is unlikely unless Dominican Republic-Central America Free Trade Agreement countries are able to access more nylon, viscose, wool or linen fabrics.
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"There is a lack of growth; the import volume is very stable," he said of clothes from CAFTA-DR. Moreover, the products are much more limited than those exported by Asian apparel powerhouses such as Bangladesh, India, Cambodia, China and Vietnam.
Lu, who spoke on a webinar last week, showed how T-shirts account for more than half of CAFTA-DR apparel exports. About 15% of their exports are bottoms, primarily jeans.
He noted that China and Vietnam sell more luxury apparel, and their apparel sales are more diversified -- 38% tops, 17% dresses, 16% outerware, 15% bottoms.
Lu studied the CAFTA apparel sector for the industry group the Coalition for Economic Partnerships in the Americas. He said that CAFTA countries are losing market share in the U.S.
About 61% of recent CAFTA apparel exports to the U.S. follow the yarn-forward rule, which means the yarn used to make the fabric is either from a Central American country or from the U.S. About half the yarn used in the sector is imported from the U.S. A third did not claim benefits. Only 2% were able to avoid tariffs through short supply rules for fabrics.
He said yarn exports from the U.S. to CAFTA countries were flat between 2015 and 2021. The exports grew 24% from 2021-2022, in concert with a jump in apparel exports from the region last year.
Lu said that, when you look at the average price of various pieces of apparel produced in numerous countries, generally, Bangladeshi and Cambodian goods are able to sell for less than those from CAFTA countries, even though CAFTA exports tend to be tariff-free. So, he argues, in order for the CAFTA apparel sectors to develop, there needs to be the ability to export goods made with imported fabrics and still receive the CAFTA benefit.
"If your goal is simply to protect this market for U.S. textile products, you may have fewer options" to encourage greater utilization of CAFTA, he said.
U.S. Trade Representative Katherine Tai has been clear she will not weaken the yarn forward rule. "Make no mistake -- we know how important the yarn-forward rules of origin are for the success of our trade partnership with the region. Those rules provide the certainty that companies need to invest in and expand operations, which also creates good-paying jobs both in the United States and in Central America," she said in March (see 2303300043).
Lu argues that leaving CAFTA the same "will also have some consequences."