The US government is seeking to sort out further problems affecting the Central American Free Trade Agreement (CAFTA), including a 1 April deadline for Honduras and Nicaragua. Products from El Salvador containing inputs from other countries awaiting CAFTA ratification will not be allowed duty-free access in the US resulting in a steep price rise for importers.
The troubled US-Central American Free Trade Agreement (CAFTA) is again facing further difficulties that could leave US importers paying more for products from El Salvador.
El Salvador is the only Central American country that has so far brought CAFTA into force while other signatory nations continue to experience problems in the process of ratification.
CAFTA should have been simultaneously introduced in the seven signatory countries, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and the US on 1 January.
However, only El Salvador and the US have so far done this and has consequently seen El Salvador taken out of the Caribbean Basin Trade Partnership Act (CBTPA).
Those other countries in the region waiting to join CAFTA will remain in the CBTPA.
No duty-free access
As a result, Salvadorian products using inputs from these countries will not be eligible for duty-free access in the US.
Washington has however agreed to a process of duty refunds paid for imports from El Salvador using inputs from the other five countries awaiting CAFTA ratification.
This will apply to all goods exported from 1 January 2004 and companies have until 31 December 2006 to make an application for the refund, or 90 days after the date of entry into force of a particular country, whichever is the later.
However, this could be problematic regarding Costa Rica as it is unclear as to if and when the country will see CAFTA come into force.
Costa Rica's President Arias has vowed to push CAFTA through but his National Liberation Party does not have a majority in Congress.
Honduras and Nicaragua were due for implementation 1 April
As far as the other signatories are concerned, problems also exist.
Both Honduras and Nicaragua have completed and implemented necessary changes in their laws and regulations.
Both countries are normally entitled to provide 90 days notice before joining CAFTA, but have not done so.
The two countries should have joined on 1 April but the date could be pushed back to 1 July.
This would tie in with the Dominican Republic which is committed to see CAFTA come into force on 1 July.
Meanwhile, Guatemala continues to work on implementation and has agreed to modify at least 10 national laws in order to meet US demands.
Inputs from outside the region
CITA (US inter-agency Committee for the Implementation of Textile Agreements) has just released interim procedures for considering requests under the commercial availability provision of CAFTA.
This means where sufficient inputs from either the US or CAFTA members do not exist, applications can be made to use inputs from outside the region.
Finished products would still need to conform with specific Rules of Origin (RoO) however.
CAFTA attracting Asian investment
CAFTA's promise of duty-free textile exports to the US market is being tapped into from Asian producers.
The Taiwanese Nien Hsing Textile Company, the world's largest manufacturer of denim cloths, has announced it is expanding its textile operations in Nicaragua.
The project is scheduled to commence by the end of the year following total investment in the country so far of US$117.65 million.
This will be at the expense of its Mexican production where it will slash its current workforce from 1200 to just 700 and reduce current output.
