Tag: western hemipshere

FASH455 Exclusive Interview with Karin De León, Investment and Promotion Director, Apparel and Textiles Association of Guatemala (VESTEX)

About Karin De León

Karin De León has been working in the textile and apparel sector in Guatemala for more than 25 years, promoting the development of the industrial cluster, participating in the creation of strategies, supporting the strengthening of the supply chain, and attracting investment.

As part of her role at the Apparel and Textile Association of Guatemala (VESTEX), for 10 years she held the position of Executive Director of CECATEC-RD (Central American and Dominican Council of Clothing and Textiles), the entity that integrates textile & apparel industry associations of Central America and the Dominican Republic and which is responsible for coordinating the inter-institutional relationship with public and private entities of the United States of America, Mexico and Colombia mainly.

From 2020 to the beginning of 2022, she served as Chief of Staff of the Ministry of Economy of Guatemala and later became General Coordinator of the National Competitiveness Program (PRONACOM), a government entity responsible for promoting the country and attracting investment.

Karin is currently VESTEX’s investment and promotion director, and representative of Guatemala in CECATEC-RD. She coordinates the inter-institutional relationship with government entities of the United States (such as the United States Trade Representative and the Department of Commerce) as well as private institutions mainly related to the United States, Mexico, and Colombia.

Sheng: Can you provide a brief introduction to VESTEX and a general overview of your member companies?

Karin: VESTEX is the Apparel and Textile Association of Guatemala, a private association representing the Guatemalan textile and apparel export sector. It focuses on promoting the industry’s exports through strategic alliances with public and private institutions at the national and international levels.  Its strategic axes are Sectoral Resilience, which seeks to position the industry as a generator of investment and formal employment in the country; Sectoral Sustainability, through the promotion of sustainability as a long-term strategy for industry continuity and compliance, providing companies in the sector with tools that facilitate compliance with the obligations established in the laws and regulations.

VESTEX partners comprise companies that integrate the entire supply chain of the apparel and textile sector, encompassing yarn and fabric manufacturers, apparel producers, as well as firms providing specialized services and accessories to the industry.

Sheng: Studies show that there is consistent interest among U.S. fashion companies in expanding nearshoring from the Western Hemisphere, including Guatemala. What is your observation? What makes Guatemala an attractive destination for apparel sourcing today? What are the unique advantages of sourcing from the country?

Karin:Guatemala has become an increasingly attractive destination for apparel sourcing due to its unique combination of industrial integration, geographic advantages, and strong compliance standards. The country offers a highly integrated apparel cluster that encompasses every stage of the supply chain—from spinning yarn and weaving fabrics to apparel manufacturing, printing, finishing, and packaging. This full-package model not only streamlines operations and enhances traceability but also allows for greater flexibility and product diversity, raising the added value of garments and positioning Guatemala as a competitive supplier for niche and complex products requiring skilled labor and high-quality materials.

Another key differentiator is Guatemala’s strategic location. With access to ports on both the Atlantic and Pacific coasts—separated by only 249 miles—the country can efficiently serve both the East and West coasts of the United States. Guatemala manages the second-largest maritime cargo operation in Central America (after Panama), which is critical for companies seeking to balance and mitigate geopolitical and logistical risks. In addition, proximity to the U.S. substantially reduces environmental impact: sourcing from Guatemala lowers CO₂ emissions from maritime transport by approximately 84% compared to sourcing from Asia. Transit times are also highly competitive, with shipments reaching Miami in as little as three days, enabling U.S. buyers to manage inventories more effectively and respond to market demands with agility.

Equally important, Guatemalan apparel companies operate under a strong framework of labor and environmental compliance. Companies demonstrate a full-spectrum commitment to input traceability, adherence to strict rules of origin, and continuous process improvement to reduce resource consumption. Investments in monitoring and ESG systems underscore their transparency and alignment with global sustainability standards.

Taken together, this integration of cluster capabilities, geographic proximity, and compliance with international norms positions Guatemala as a reliable, sustainable, and strategically advantageous sourcing partner for U.S. fashion companies.

Sheng: How important is the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) in supporting Guatemala’s apparel exports to the U.S. market? What impact do CAFTA-DR’s apparel-specific rules of origin have on garment exporters’ supply chains and export strategies in Guatemala?

Karin:CAFTA-DR has provided certainty by encouraging long-term investments in textile infrastructure and capabilities. CAFTA-DR has been the basis for the development of Guatemala’s apparel industry.  The yarn-forward rule established under the agreement has not only fostered integration with the U.S. supply chain but also promoted stronger collaboration among Central American countries. By allowing the accumulation of inputs and processes within the region, CAFTA-DR has significantly strengthened intraregional trade.

This integration has facilitated the specialization of each Central American country. In Guatemala’s case, it has enabled the use of specific yarns and fabrics produced in other countries and manufactured locally, fostering a greater diversification of production.

According to OTEXA figures, in the year ending June 2025, 89.17% of Guatemala’s total apparel exports to the U.S. entered under the Free Trade Agreement preferences. Of this total, 79.69% qualified under the yarn-forward rule—that is, garments made with yarn from the U.S. or yarn produced within one of the Central American countries. CAFTA-DR, and particularly its rules of origin, have been the basis of Guatemala’s strategy in recent years, not only to attract foreign direct investment but also to encourage significant reinvestments.

Sheng: Data shows that an increasing share of yarns and fabrics used by Guatemala garment factories are now locally made in Guatemala and other Central American countries. Could you discuss the recent trends in textile manufacturing capacity building in Guatemala, as well as the industry’s current priorities in building a more vertically integrated regional supply chain?

Karin:Guatemala offers a series of competitive advantages that are reinforcing its role as a regional hub for textile and apparel manufacturing. At the country level, it benefits from a stable macroeconomy, a solid exchange rate, competitive electricity prices within the region, and a reliable energy supply. At the industry level, Guatemala stands out for its robust apparel and textile cluster and highly skilled workforce.

Since the pandemic in 2020, when many global companies accelerated nearshoring strategies, Guatemala has successfully attracted new foreign investment and supported the expansion of companies already established in the country, particularly in the spinning industry. Installed capacity is primarily focused on cotton, although blends are also produced. By the end of 2024, apparel exported to the U.S. consisted of 62.8% cotton, 36.4% synthetics, and 0.8% wool, reflecting the central role of cotton in the country’s production while also showing diversification into other fibers.

Driven by shifting market demand, textile production in Guatemala has been expanding beyond knits, with a modest increase in woven fabrics as well. Investments in innovation and technology have enabled the industry to offer specialized processes, including antimicrobial treatments, absorption, UPF protection, enzymatic washing, softening, and plush finishing, among others. A particularly important advancement has been the investment in elastic knit fabrics, which has opened the door to the production of categories such as sportswear, intimate apparel (seamless), shapewear (technical lingerie and compression fabrics), and medical textiles.

We recognize, however, that there remain challenges and opportunities to broaden the regional textile offering—particularly in the production of yarns and fabrics made from fibers not yet manufactured locally. Expanding capacity in these areas would further strengthen vertical integration and supply chain resilience.

In this context, VESTEX has taken a leading role in supporting and guiding companies interested in exploring these opportunities. In coordination with Guatemala’s foreign direct investment promotion agency, efforts are underway to identify high-demand inputs that are currently unavailable in the region but represent strategic opportunities for local production.

Sheng: Since April 2025, U.S. apparel imports from CAFTA-DR countries, including Guatemala, are subject to a new 10% “reciprocal tariff.” How has this tariff increase and the Trump administration’s trade policy so far impacted Guatemala’s garment industry and exports? 

Karin:The main challenge for Guatemala’s apparel industry under the current U.S. trade policy has been the high degree of uncertainty. Markets and buyers demand stability, yet in recent months orders have slowed significantly as companies await clarity on the tariffs that will ultimately apply to each country. This hesitation has already resulted in lost opportunities: seasonal orders cannot be recovered once the selling window has passed.

Traditionally, Guatemala’s apparel sector grows between 3% and 5% annually; however, 2025 projections have been revised downward, and current expectations suggest growth closer to 1–2%. According to the Central Bank of Guatemala, as of June 2025, exports registered a modest 1.36% increase—well below what was anticipated under normal conditions.

Another major impact has been the need for companies to absorb additional costs to maintain contracts with international brands. This has reduced profit margins, limited reinvestment capacity, and increased pressure on already tight production cycles. Buyers face uncertainty as well: they do not know how much a garment ordered today will cost by the time it is delivered six to nine months later, since tariff rates are subject to abrupt changes. The volatility recalls past episodes in China, where tariffs under former President Trump rose as high as 145% before being reduced to 30%, creating unpredictable supply conditions.

That said, Guatemala continues to hold a relative tariff advantage compared with Asian competitors, where rates now reach 15%, 18%, 25%, or even higher. This gap may ultimately favor Guatemala if U.S. buyers reconfigure sourcing strategies to prioritize suppliers who are both geographically closer and more reliable. Indeed, global sourcing is shifting away from a purely low-cost model toward one that values resilience, speed to market, and compliance.

Sheng: The 2025 US Fashion Industry Association Benchmarking Study indicates that U.S. fashion companies are increasingly seeking sourcing destinations that can provide sustainable apparel products, including those made with preferred fibers such as organic, recycled, regenerative, and biodegradable materials. What strategies or recent initiatives has the Guatemalan textile and apparel industry undertaken to meet this demand for sustainability?

Karin: Guatemalan mills already source recycled polyester yarns, organic or regenerative cotton, and biodegradable materials. Brands are actively demanding these products. In fact, mills have obtained various certifications and adhere to practices focused on circular economy, science-based target initiatives, and other sustainability standards.

Traceability is key for the textile and apparel industry, and Guatemala has managed to implement measures such as data management and continuous improvement as a way to demonstrate this.

  • Adoption of Sustainable Certifications and Standards: Guatemalan manufacturers are obtaining certifications like GOTS (Global Organic Textile Standard), OEKO-TEX, Global Recycled Standard, Recycled Claim Standard, Blue Sign, Higg FEM, among others, ensuring their products meet international sustainability standards.
  • Investment in Technologies: Many mills are upgrading to water and energy-efficient machinery, as well as more sustainable dyeing and finishing processes.
  • Training and Capacity Building: Initiatives to train and certify workers and management on sustainable practices and standards are increasing, promoting a culture of sustainability throughout the industry.
  • Integration of Circular Economy Principles: Some mills are exploring design for recyclability techniques to align with circular economy goals.

These initiatives collectively position the Guatemalan textile and apparel sector as a viable sourcing destination for sustainable fashion, aligning with global market trends and buyer preferences for more sustainable products.

Sheng: In addition to the questions discussed earlier, what are the top business and policy issues facing Guatemala’s textile and apparel industry over the next 1–2 years?

Karin:Over the next 1–2 years, Guatemala’s textile and apparel industry will face several pressing business and policy issues that will shape its competitiveness.

1. Infrastructure and logistics.
A key issue remains the need to strengthen national infrastructure, particularly ports, customs processes, and internal transport routes.

2. Limited availability of regional inputs.
The industry continues to face constraints in the local production of certain yarns, fabrics, and specialized fibers. Inputs such as viscose, spandex, and rayon are not yet manufactured in the region at scale, which limits vertical integration and forces reliance on imports from outside the hemisphere. Expanding textile capacity in these areas is a central issue to ensure resilience and broaden the exportable supply.

3. Market visibility and buyer perception.
Despite its high level of integration, many international buyers remain unaware of Guatemala’s strengths in complex products, compliance, and sustainability. A persistent challenge is to raise global awareness of the country’s capabilities in order to capture greater sourcing opportunities.

4. Policy uncertainty and trade volatility.
The recent 10% reciprocal tariff applied to CAFTA-DR countries has introduced significant uncertainty. Buyers hesitate to place long-term orders when tariff levels are unclear, and this volatility affects sourcing decisions. Stability and predictability in trade policy remain critical issues for the sector.

5. Differentiation and specialization under nearshoring.
Another key challenge is sustaining competitiveness through higher-value products. Today, 54.11% of Guatemala’s apparel exports already include advanced finishing processes, and the industry is investing in spinning, woven fabrics, and technical textiles. However, scaling these capabilities requires reinvestment and foreign capital inflows—both of which are being constrained by global uncertainty. Given that Guatemala currently supplies only about 2% of U.S. apparel imports, a major issue ahead is how to convert this untapped potential into tangible growth.

In short, while the country is positioning itself strategically with competitive tariffs, geographic proximity, and an increasingly sophisticated textile base, the top issues over the next two years will be overcoming infrastructure and logistics bottlenecks, reducing dependence on imported inputs, strengthening promotion to buyers, and navigating trade policy volatility. Addressing these challenges will be crucial for Guatemala to capitalize on long-term opportunities in the ongoing global supply chain reconfiguration.

-The End-

VF Corporation’s Evolving Apparel Sourcing Base: 2023-2024

VF Corporation (VF) is one of the largest apparel companies in the US, with an estimated global sales revenue to exceed $10 billion in 2024. VF owns several well-known apparel and outdoor performance brands, including The North Face, Timberland, and Icebreaker. VF also has a global presence. According to its latest annual report, in Fiscal 2024, “VF derived 52% of its revenues from the Americas, 33% from Europe, and 15% from Asia-Pacific.”

The following analysis is based on VF’s publicly released supplier list. Only factories identified as producing “apparel” products and related textile raw materials are included in the analysis.

First, while VF maintained a geographically diverse global sourcing base, it reduced the number of factories it sourced from between 2023 and 2024. Specifically, as of Q3 2024 (the latest data available), VF sourced apparel from 36 countries, the same number as in Q1 2023. These countries spanned almost all continents, including Asia, the Americas, Europe, and Africa. Similarly, over the same period, VF sourced textile raw materials for apparel production—including factories producing polymers—from approximately 30 countries.

However, between Q1 2023 and Q3 2024, VF reduced the number of apparel factories it contracts with from 463 to 426. The number of textile mills VF contracts also declined, from 665 to 546. This pattern aligned with the findings of other industry studies, which indicate that many U.S. fashion companies, particularly larger ones, are consolidating their vendor base to reduce sourcing risks and enhance operational efficiency.

Additionally, VF’s annual reports indicate that no single supplier accounted for more than 6% of its total cost of goods sold during Fiscal Year 2024, the same as in 2023, but lower than 7% in Fiscal Year 2021.

Second, in line with macro trade data, Asia served as VF’s largest apparel sourcing base in Q3 2024, led by China (23.1 percent) and Vietnam (11.5 percent). Specifically, as of Q3 2024, approximately 55.3 percent of VF’s garment factories were located in Asia, an increase from 48.8 percent in Q1 2023. Meanwhile, VF is also adjusting its apparel sourcing strategy within the Asia region. For example, between 2023 and 2024, VF decreased the number of garment factories it worked with in China (down 5), Bangladesh (down 12), and India (down 17), while adding more contract factories in Vietnam (up 36), Cambodia (up 7), and Indonesia (up 4).  The pattern indicates that while VF may attempt to reduce its “China exposure,” it also actively seeks new sourcing opportunities within Asia. 

Conversely, in Q3 2024, around 21.2 percent of VF’s garment factories were based in the Western Hemisphere, a decrease from 27.0 percent in Q1 2023. In most situations, VF worked with about 10-20 garment factories in each Western Hemisphere country. Furthermore, from 2023 to 2024, VF cut the number of garment factories in Mexico (down 16) and the United States (down 10), indicating that expanding near-shoring and on-shoring was not the company’s preferred strategy in the current environment. 

Third, compared to garments, VF’s supply of textile raw materials relies even more heavily on Asia, especially China. Specifically, as of Q3 2024, approximately 83.5 percent of VF’s textile raw material suppliers were located in Asia, the same as in Q1 2023. Notably, China represented nearly half of VF’s textile material suppliers in Q3 2024, including 41.2 percent of textile yarn and fabric mills and 50.9 percent of trim mills. Although VF reduced the number of textile mills in China from Q1 2023 to Q3 2024, China’s share of VF’s total textile raw material supplier base remained the same. Overall, the pattern aligns with previous research suggesting that finding alternative sourcing bases for textile raw materials outside of China and Asia will be more difficult and time-consuming for US fashion companies, considering the capital-intensive nature of making textile products.

Fourth, VF’s contract garment factories worldwide varied in size, reflecting the company’s diverse sourcing needs. Specifically, in Asia, garment factories in China typically were small and medium-sized, with 11-100 workers (43.9 percent) or 101-500 workers (33.7 percent). In contrast, nearly 90 percent of VF’s contract garment factories in Bangladesh had more than 1,000 workers, with similar patterns observed in Vietnam (52.2 percent), Cambodia (50.0 percent), Indonesia (63.2 percent), and Pakistan (100 percent). These findings suggest that VF may use China as a sourcing base for relatively small, diverse orders while relying on other Asian countries with lower labor costs for high-volume production.

Meanwhile, in the Americas and Africa, VF’s contract garment factories in Haiti, Honduras, El Salvador, Kenya, and Jordan included more large-scale operations with over 1,000 workers. These locations could serve as emerging alternatives to sourcing from Asia, especially for specific categories. In contrast, VF’s contract garment factories in Mexico, the US, and Guatemala featured many medium and small operations, which are more likely to fulfill replenishment orders or produce specialized products.

by Sheng Lu

FASH455 Discussion: How likely will US fashion companies increase apparel sourcing from Guatemala in 2025 compared to 2024?

Note: The video was taken during a Guatemala garment factory visit in May 2024. Credit: Sheng Lu

Discussion instructions:

The following two scenarios are generated by ChatGPT using input from FASH455 students’ proposed discussion questions*. Based on what we learned in class and additional information you collected online (not from ChatGPT or any AI tools), please critique the scenarios presented, including the strengths and weaknesses of the argument, any viewpoints you agree or disagree with, and any additional factors that could be considered. In your response, please share the link to any further resources you consulted.

Scenario 1: US apparel import from Guatemala would increase in 2025

In 2025, U.S. apparel imports from Guatemala are projected to experience a significant increase, driven by a confluence of favorable economic conditions, strategic supply chain shifts, and improvements in local manufacturing capabilities. The U.S. economy is expected to grow at a rate of 2.2%, which, coupled with rising consumer confidence, is likely to sustain robust demand for apparel. Guatemala’s geographic proximity to the U.S. presents a logistical advantage, allowing for shorter shipping times and reduced transportation costs compared to Asian suppliers. Moreover, U.S. apparel imports from Guatemala, which have historically averaged around $1.5 billion, could see a notable increase around 2-5%. This increase is further supported by Guatemala’s investments in modernizing its textile industry, including advancements in sustainable practices and technology adoption that align with growing consumer preferences for ethically sourced and environmentally friendly products.

Additionally, the Central America-Dominican Republic Free Trade Agreement (CAFTA-DR) has enabled duty-free access for certain apparel products, encouraging more U.S. brands to explore sourcing options in Guatemala. With a utilization rate of around 70% under CAFTA-DR, brands are beginning to leverage the agreement more effectively, which could lead to a higher volume of apparel imports as they seek to optimize their supply chains. In this context, the increasing trend toward sustainable fashion could further elevate Guatemala’s status as a preferred sourcing location, particularly for companies looking to enhance their corporate social responsibility profiles. As a result, the combination of economic growth, logistical advantages, and strategic shifts in sourcing could lead to a substantial increase in U.S. apparel imports from Guatemala in 2025.

Scenario 2: US apparel import from Guatemala would remain stagnant in 2025

U.S. apparel imports from Guatemala are poised to remain stagnant in 2025, continuing a troubling trend that has characterized the market for over a decade. Despite a projected U.S. GDP growth of 2.2%, the apparel market faces significant challenges that hinder any potential growth in trade volume. Historical data illustrates that U.S. imports from Guatemala have stagnated around $1.5 billion, primarily due to intense competition from Asian manufacturers who can offer lower prices and greater production capacity. With the global supply chain still recovering from disruptions and high inflation pressure, U.S. companies may prioritize sourcing from countries that can provide more cost-effective solutions, further sidelining Guatemala.

Moreover, Guatemala’s textile sector grapples with persistent capacity constraints and labor shortages, limiting its ability to scale operations effectively in response to market demands. The country’s utilization of CAFTA-DR benefits remains suboptimal, hovering around 70%, and many brands have yet to fully exploit the agreement to its potential. This underutilization could be a significant barrier to increasing trade volume, as companies may prefer sourcing from countries that can more efficiently navigate trade agreements and provide better pricing structures. Additionally, the growing trend toward fast fashion and quick turnaround times poses a challenge for Guatemalan manufacturers, who may struggle to compete with the rapid production cycles of Asian suppliers. Given these persistent issues, U.S. apparel imports from Guatemala are likely to remain stagnant at approximately $1.5 billion in 2025, as the country continues to face formidable obstacles in enhancing its role in the global apparel supply chain.

*Questions FASH455 students proposed to generate initial information. Read the ChatGPT responses here.

  • Compare the most likely scenario of Trump or Harris becoming the next U.S. president and its impact on US apparel sourcing from Guatemala.
  • Here is the latest US GDP growth and forecast: 2.9% in 2023, 2.8% in 2024 and 2.2% in 2025. Analyze the historical data you have access to and predict US apparel imports from Guatemala in 2025. Ideally, please provide numerical results
  • US apparel imports from Guatemala have stagnated over the past decade. What are the critical reasons for the lack of growth? Will any factors likely change in 2025, or will they remain mostly the same?
  • Does Guatemala have the capacity to handle increased US apparel sourcing demand in 2025 from 2024? Say 5% increase or 10% increase? Please use data to justify your viewpoint.
  • What factors would impact US fashion companies sourcing with Guatemala in the future? Will any factors change in 2025, and why?
  • What is the relationship between CAFTA-DR’s utilization and the value of US apparel imports from Guatemala? Based on historical data, will the utilization rate significantly affect the trade volume?
  • Will offering more flexibility in CAFTA-DR’s apparel rules of origin encourage more apparel imports from Guatemala, and why?
  • Will recycled textiles significantly boost US apparel sourcing in 2025 vs 2024? or instead, this is a niche product and won’t affect the sourcing volume much
  • Is Guatemala a preferred sourcing base among fashion companies for fast fashion items? Can Guantema compete with Asian countries for such orders in 2025?

New Study: Expand U.S. Apparel Sourcing from CAFTA-DR Members and Solve the Root Causes of Migration: Perspectives from U.S. Apparel Companies

The full study is available HERE.

Executive Summary:

This study offers valuable input and practical policy recommendations from U.S. apparel companies’ perspectives regarding expanding U.S. apparel sourcing from CAFTA-DR members. For the study, we consulted executives at 27 leading U.S.-based apparel companies (note: 85% report having annual revenues exceeding $500 million; over 95% have been sourcing apparel from the CAFTA-DR region for more than ten years).

The results confirm that expanding U.S. apparel sourcing from CAFTA-DR could be the best chance to effectively create more jobs in Central America and solve the root causes of migration there. To achieve this goal, we need to focus on four areas:

First, improve CAFTA-DR’s apparel production capacity and diversify its product offers.

  • As many as 92 percent of respondents report currently sourcing apparel from CAFTA-DR members.
  • Highly consistent with the macro trade statistics, the vast majority of respondents (i.e., 60 percent) place less than 10 percent of their company’s total sourcing orders with CAFTA-DR members.
  • Whereas respondents rate CAFTA-DR members overall competitive in terms of “speed to market,” they express concerns about CAFTA-DR countries’ limited production capacity in making various products. As a result, U.S. companies primarily source basic fashion items like T-shirts and sweaters from the region. These products also face growing price competition with many alternative sourcing destinations.
  • Improving CAFTA-DR’s production capacity and diversifying product offers would encourage U.S. apparel companies to move more sourcing orders from Asia to the region permanently.

Second, practically solve the bottleneck of limited textile raw material supply within CAFTA-DR and do NOT worsen the problem.

  • The limited textile raw material supply within CAFTA-DR is a primary contributing factor behind the region’s stagnated apparel export volume and a lack of product diversification.
  • Notably, respondents say for their apparel imports from CAFTA-DR members, only 42.9% of fabrics, 40.0% of sewing threads, and 23.8% of accessories (such as trims and labels) can be sourced from within the CAFTA-DR area (including the United States). CAFTA-DR’s textile raw material supply problem could worsen as the U.S. textile industry switches to making more technical textiles and less so for apparel-related fabrics and textile accessories.
  • Maintaining the status quo or simply calling for making the CAFTA-DR apparel supply chain more “vertical” will NOT automatically increase the sourcing volume. Instead, allowing CAFTA-DR garment producers to access needed textile raw materials at a competitive price will be essential to encourage more U.S. apparel sourcing from the region.

Third, encourage more utilization of CAFTA-DR for apparel sourcing.

  • CAFTA-DR plays a critical role in promoting U.S. apparel sourcing from the region. Nearly 90 percent of respondents say the duty-free benefits provided by CAFTA-DR encourage their apparel sourcing from the region.
  • The limited textile supply within CAFTA-DR, especially fabrics and textile accessories, often makes it impossible for U.S. companies to source apparel from the region while fully complying with the strict “yarn-forward” rules of origin. As a result, consistent with the official trade statistics, around 31 percent of respondents say they sometimes have to forgo the CAFTA-DR duty-free benefits when sourcing from the region.
  • Respondents say the exceptions to the “yarn-forward” rules of origin, including “short supply,” “cumulation,” and “cut and assemble” rules, provide necessary flexibilities supporting respondents’ apparel sourcing from CAFTA-DR members. Around one-third of respondents utilize at least one of these three exceptions when sourcing from CAFTA-DR members when the products are short of meeting the strict “yarn-forward” rules of origin. It is misleading to call these exceptions “loopholes.”

Fourth, leverage expanded apparel sourcing to incentivize more investments in the CAFTA-DR region’s production and infrastructure.

  • U.S. apparel companies are interested in investing in CAFTA-DR to strengthen the region’s sourcing and production capacity. Nearly half of respondents explicitly say they will make investments, including “building factories or expanding sourcing or manufacturing capacities” in the CAFTA-DR region through 2026.
  • CAFTA-DR will be better positioned to attract long-term investments in its textile and apparel industry with a sound and expanded apparel sourcing volume.

Additional resources: