Nicaragua seeks to extend tariff preferences

Nicaragua seeks to extend tariff preferences

Nicaragua has always occupied a special place among CAFTA member states. It’s the only CAFTA member to enjoy a Tariff Preference Level that allows apparel made of cotton and man-made fibers to enter the U.S. duty free under CAFTA preferences if that apparel is assembled in Nicaragua but the inputs for that apparel come from neither the U.S. nor other CAFTA countries.

Thus, a cotton polo shirt made in Nicaragua from fabric made in South Korea, for example, can still qualify for duty-free status when exported to the U.S., said Julia Hughes, president of the U.S. Fashion Industry Association. The reason, she explained: Nicaragua is the region’s smallest manufacturer in the textile and apparel sector, and companies have no vertical integration, so the country needs to be able to have greater flexibility to use inputs from other countries.

The TPL provision has helped stimulate investment and output. By 2011, Nicaragua was the 11th-largest global apparel supplier to the U.S. in volume, making it an important player in the global textile and apparel industry, according to the Office for Textiles and Apparel of the U.S. Department of Commerce.

Apparel constituted 30 percent of all exports shipped from Nicaragua to the U.S. last year, according the Free Zone Corporation. Buoyed by such progress, Nicaragua’s per capita GDP grew from $1,380 in 2009 to $1,650 in 2012, according to the World Bank. Even so, Nicaragua’s per capita GDP was less than half that of El Salvador’s $3,590 in 2012.

It’s no wonder, then, that O’Rourke Group Partners, a New York-based consultant, concluded in a recent report that Nicaragua is the single most competitive option for sourcing numerous apparel products, not just in this hemisphere, but in some cases also compared with China, Vietnam and Bangladesh. The reasons aren’t just Nicaragua’s low costs, the report said, but also its educated labor pool, improving labor productivity, consistent quality, excellent free trade zone system, and its speed-to-market performance.

Nicaragua’s modest progress may be in jeopardy, however. The apparel manufacturing sector in Nicaragua will lose about 33,000 jobs if the Tariff Preference Level, which expires on
Dec. 31, isn’t extended, according to the Nicaraguan Association of Textile and Apparel, known by its Spanish acronym Anitec. The failure to extend TPL would have a devastating impact on employment and clothing exports from Nicaragua to the U.S., according to Anitec Director Dean Garcia, who estimates that such a step would result in the loss of at least 30 percent of the 110,000 people employed in the sector.

A delegation of the Nicaraguan government and private companies recently traveled to Washington to request a 10-year extension of the TPL. A bill introduced in June 2013 by Sen. Dianne Feinstein, D-Calif., seeks to extend the Nicaragua TPL through 2024.

“There is no panic” about the TPL extension bill among U.S. companies that source from Nicaragua, Hughes said, but there is awareness that the longer it takes to extend TPL, the more likely it is that some companies will source more of their imports from other countries in the region to reduce uncertainty. “I am optimistic that the TPL will be extended by Congress,” she said. 

Contact Alan M. Field at alanmf0@gmail.com.