The full paper is HERE. Below are the key findings:
Over the past decade, U.S. fashion brands and retailers have seen Central America as a critical emerging apparel-sourcing destination. Especially since implementing the Dominican-Republic Central America Free Trade Agreement (CAFTA-DR) in 2006, a trade deal among the United States, El Salvador, Guatemala, Honduras, Nicaragua, the Dominican Republic (joined in 2007), and Costa Rica (joined in 2009), apparel sourcing from the region gained consistent interest among U.S. companies.
Nevertheless, U.S. apparel sourcing from CAFTA-DR members is NOT without significant challenges. For example, CAFTA-DR countries’ market shares in the U.S. apparel import market fell from 11.8% in 2005 before the trade agreement entered into force to only 10.6% in 2022, measured by value. Trade data also indicated that U.S. apparel sourcing from CAFTA-DR members concentrated on simple and low-value items, such as T-shirts, and lacked product diversification with no improvement over the years.
Given the high stakes of improving the status quo, this study quantitatively evaluated the impact of textile raw material access on CAFTA-DR’s apparel exports to the United States. Specifically, this study assumed that CAFTA-DR members cut their textile import tariff rates to improve garment producers’ textile raw material access (i.e., to reduce the cost of sourcing textiles from anywhere in the world and beyond the U.S. supply). The computable general equilibrium (CGE) model estimation based on the GTAP9 database shows mixed results:
On the one hand, cutting CAFTA-DR members’ textile import tariffs to improve their garment producers’ textile raw material access would significantly improve CAFTA-DR members’ price competitiveness of their apparel exports to the United States and increase the export volume.
However, cutting CAFTA-DR members’ textile import tariffs to improve their garment producers’ textile raw material access would significantly expand their textile imports from non-U.S. sources. This means that CAFTA-DR members’ dependence on the U.S. textile raw material supply may decline further.
Overall, the study’s findings remind us that the debate on expanding U.S. apparel sourcing from CAFTA-DR members should go beyond CAFTA-DR members’ garment production. Instead, more efforts could be made to enhance CAFTA-DR garment producers’ textile raw material access as an effective way to expand the region’s apparel exports to the United States.
Meanwhile, several leading CAFTA-DR apparel exporting countries, including Honduras and Nicaragua, have been engaged in negotiations for free trade agreements with China, Taiwan, and other Asian economies. As the study’s findings indicate, these new trade deals could incentivize CAFTA-DR apparel manufacturers to increase their textile sourcing from Asia. In other words, inaction on the U.S. side and maintaining the status quo still could have significant implications for the future stability of the Western Hemisphere textile and apparel supply chain.
by Sheng Lu
13 thoughts on “New Study: Impact of Textile Raw Material Access on CAFTA-DR Members’ Apparel Exports to the United States”
We focused a good amount of our lecture time on the idea that US apparel companies are starting sources from the CAFTA-DR region. From this article and our previous assignment on this topic, we learn that the reason for this shift in production is due to US companies becoming more diverse, avoiding the tariff war in Asia, and creating more efforts to enhance CAFTA-DR garment producers’ textile raw material access as an effective way to expand the region’s apparel exports to the United States. Although this is a shift in the right direction for the CAFTA-DR region and some US fashion companies, there are some challenges that arise. We learn both here and from lecture that this region only really produces low-priced items and low-product categories such as T-shirts, therefore leaving them concentrated on these low- value items with no diversification. Even though they haven’t improved in this area over the years, if the US keeps sourcing items from here, they can hopefully encourage them to expand their product categories in order to keep up with Asian countries. Overall, it is important to note that if the US fails to maintain the status quo, this can affect the future stability of the Western Hemisphere and its textile and supply chain.
Overall, I really enjoyed learning more about the CAFTA-DR trade agreement both through this article and throughout the course. Based on the article and the second case study, it does seem like there is a growing interest from the United States to increase trade from CAFTA-DR regions and step away from China. The problem with this is that the CAFTA-DR regions have a very limited product category that can simply not compete with the large amounts of products the U.S. gets from China. This has allowed for market shares to drop and little to no improvements being made due to the fact that they can not seem to compete with Asian countries. I am very interested to see if the relationship between the US and CAFTA-DR regions can grow stronger in the future, and if there can be less of a reliance on Asian countries from the US. Another interesting idea that learned from the article is that certain CAFTA-DR regions are negotiating free trade agreements with Asian economies such as China and Taiwan. This is new information to me and something I find extremely interesting because I believe that the US will not be in support of these trade agreements. Increasing their textile sourcing in Asian countries only means that they are decreasing their textile sourcing with the US. I am very interested in seeing how these trade agreements will effect the relationship between CAFTA-DR regions and the US.
This article was very interesting, especially after learning about CAFTA-DR. This topic has caused much debate. CAFTA-DR regions are limited to only producing either tops or bottoms. Although CAFTA-DR is successful in using US-made yarn in fabrics, there is more that needs to be done in terms of improvement. A possible solution could be to have more flexibility in sourcing textiles from other countries, but the downside is that it may lessen investment. Yet, diversifying apparel sourcing from Asia will allow for the ability to make more, as well as different products instead. There is a lot of potential in doing this and it creates growth opportunities in sourcing, resulting in change and the possibility of long-term benefits.
Overall, I found learning about CAFTA-DR was a very interesting topic. I was not familiar with CAFTA DR before our class, so this topic was completely new to me. After what we have learned about CAFTA DR in FASH455 and our most recent case study, this article was a very engaging read. From what we have learned in class, CAFTA DR only produces tops and bottoms, so there is not really any diversity in the products the US can source, as compared to sourcing from China and other Asian countries with a large variety of products. I am very curious if in the future CAFTA DR will produce more diverse products, as it seems they have a good chance in competing with the Asian countries.
This was a very interesting read given our discussion of CAFTA-DR in class! One thing that I have been confused about and would hope to learn more about is the reason why the US textile manufacturing industry is reluctant to diversify the raw materials they produce. It is not because they are not opportunistic, as they tout the economic opportunities of expanding into the technical fibers realm, so I would like to know more about their reasoning. It seems to me that there is a large market in the CAFTA-DR region for these diverse garment-focused textiles, so why do textile manufacturers refuse to invest yet expect apparel manufacturers to increase their near sourcing?
My observation is that a small number of us yarn manufacturers want to protect their “secured” export market in CAFTA-DR. Nobody likes competition. Also, us textile mills concentrated in NC, SC and GA, implying more political influences.
I found that learning about the CAFTA-DR trade agreement was very informative both from our in-class discussions as well as from reading this article! The issue with CAFTA-DR for the US is that they don’t have much diversity in the products they can source, compared to sourcing from Asian companies, where there is a large variety of products. I feel if the CAFTA-DR regions were able to diversify the products they source, they would be a much larger competitor to the Asian regions. I am interested to see in the future if the US will lessen its reliance on Asian countries for sourcing needs. After reading this article, I learned that particular CAFTA-DR regions are negotiating free trade agreements with Asian economies such as Taiwan and China. I was unaware of these trade agreements, and I feel like the US will not be happy with them. I am interested to see if this will ultimately effect the relationship between the US and CAFTA-DR regions since these trade agreements will decrease textile sourcing with the US.
The study’s findings show that cutting CAFTA-DR members’ textile import tariffs to improve their garment producers’ textile raw material access would improve CAFTA-DR members’ price competitiveness of their apparel exports to the United States and increase the export volume. However, doing would also result in a significant expansion of textile imports from non-U.S. sources, indicating a decline in CAFTA-DR members’ dependence on the U.S. textile raw material supply. This raises potential concern to the US their ability to grow their presence in the textile industry. On the contrary, I still believe cutting tariffs will help companies source the best products out there cost efficiently.
This study evaluated the impact of textile raw material access on CAFTA-DR members’ apparel exports to the U.S. Results from the study demonstrated that improving CAFTA-DR garment producers’ access to raw materials would enhance the price competitiveness of their apparel exports to the U.S. and therefore increase the export volume. However, it would also benefit Asian textile suppliers and cause a reduction of dependence on U.S. textile supply from CAFTA-DR members.
This is relevant to content learned in class, as I remember discussing how there is a concern that the U.S. may not be able to continue playing a role as a leading textile supplier for the CAFTA-DR region. Additionally, the shift from making apparel related textiles to making more industrial and technical textiles has caused the textile supply from the U.S. to be insufficient for other CAFTA-DR regions to make different kinds of products. This is a rising concern because U.S. fashion brands and retailers have a desire to source more products from CAFTA-DR members, but they are finding themselves unable to make enough of a variety of products or the production volume is exceptionally low. Additionally, it is argued that the creation of CAFTA-DR has caused a lack of growth for sourcing from the region. After CAFTA-DR was implemented in 2006, there was a decrease in apparel sourcing and the trade agreement was deemed unsuccessful in bringing more sourcing volume to the region. The reason for the decrease is presumably that CAFTA-DR solely focuses on relatively basic fashion items and very limited product categories, with these products only including tops and bottoms. This results in many missed growth opportunities, likely explaining why the sourcing volume from CAFTA-DR failed to achieve substantial growth over the past decade. It is evident that CAFTA-DR provides both challenges and opportunities for U.S. apparel sourcing, but it is possible to consider changes that can result in long-term benefits.
Learning about CAFTA-DR throughout our lectures as well as the reading was very interesting especially since I did not have much previous knowledge on the topic.We have learned that the United States is making efforts to avoid sourcing from China and focus more on the CAFTA-DR regions. This is not completely effective as these regions only provide a small amount of variety in products for the United States. Consumers can only have a certain amount of products so the United States will be forced to source from other places as well. Due to this, it is hard for these regions to compete with Asian countries that can produce a large variety of products for an inexpensive price. This is where these Asian countries hold an advantage, and if the CAFTA-DR regions want to have a chance for competing with them they must diversify. I am intrigued to see what other trade agreements arise and where our relationship with the CAFTA-DR regions and trade will go in the future.
After learning about the United States’ involvement in the CAFTA-DR trade agreement, this article is a lot more eye-opening. Due to the tariff war with China and the introduction of Section 301, the U.S. has looked to source elsewhere, including countries such as Bangladesh and Vietnam. While it would be beneficial for the U.S. to source locally within the CAFTA-DR, Asian countries have a larger diversification of products. In order for the CAFTA-DR to be more successful in conducting trade, they would need to be able to produce more products in order to obtain any sort of competitive advantage. This has resulted in minimal or lost trade with developed countries such as the U.S. Also, we can attest that the CAFTA-DR region relies on U.S. textile apparel more so than the U.S. sourcing sector needs them. I would say if they can keep up with Asian countries, they would create a higher price competition.
I thought it was very interesting that there have been talks of a trade agreement between CAFTA-DR countries and Asian countries. The US must take action to avoid these trade agreements from taking place, or there will be significant repercussions. There has been significant debate about whether or not CAFTA-DR has been beneficial for the US, however if there is a trade agreement made between South American countries and Asian countries, this can only mean a decline in US textile use.