California Apparel News

The hard-fought passage of the Central American Free Trade Agreement is a boon for California apparel manufacturers looking for an economically viable alternative to producing in Asia.

The Central American region is geographically close to the United States for those needing quick-turn items. But CAFTA still will not keep most manufacturers from doing the majority of their production in China.

“Basically, it opens up Central America and puts it on an equal playing field with NAFTA [North American Free Trade Agreement] countries,” said one Los Angeles apparel manufacturer who requested anonymity. The manufacturer, who also has a plant in Central America, added, “But it doesn’t help with China.”

Yet it does help those Los Angeles companies that gambled on Central America by building plants there in the last couple of years. One of those is Twin Dragon Marketing Inc., a Gardena, Calif., company that makes and converts mostly denim and twill fabric. A few years ago, Twin Dragon opened a dyeing and finishing facility in Nicaragua that has been working at only 30 percent capacity. It could be up to its full capacity of 3 million yards of fabric a month by next year

“I’ve already gotten a couple of phone calls about the factory. I am much more popular than I was before,” said Bo Dean, Twin Dragon’s senior vice president of sales and marketing. “People still aren’t sure about the costing structures and what the savings will be, but they are jumping in. The real advantage is the quick-turn Central America can offer.”

CAFTA has been a promise for year. And for weeks it has been an uphill battle to win votes in the U.S. House of Representatives.

After three hours of debate during a late-night session, CAFTA eked by on a 217-215 vote on July 28. The trade pact eliminates almost all duties and trade barriers between the United States and Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, and the Dominican Republic. The U.S. Senate approved the trade agreement June 30 by a 54-45 vote. CAFTA is expected to be signed by President Bush in the upcoming weeks.

For some time now, many apparel manufacturers have been making clothing in Central America under a trade pact called the Caribbean Basin Trade Partnership Act, which has more rules and regulations than CAFTA and was to have expired on Sept. 30, 2008.

Under this pact, apparel made in Central America from U.S. fabric could return to the United States without paying duties. Clothing made from fabric knitted in Central America out of U.S. yarns also returned duty-free. But neither apparel constructed from woven fabric made in Central America nor fabric made from non-U.S. yarns had duty-free status.

With CAFTA in place, many Central American textile mills are planning to start producing more fabric, particularly wovens, by next year.

Tony Malouf, the export manager of Hilos & Telas S.A., a major knit and woven fabrics manufacturer in Guatemala City, Guatemala, said his company has purchased 20 looms that will arrive in October. They should be in operation by the beginning of the year, helping the company boost its woven capacity by 20 percent. “We are very thrilled with CAFTA. We are hoping to go back to our production numbers we had last year but lost this year with China coming in,” said Malouf, adding that business has been down 30 percent this year, compared with 2004.

Another textile company looking to ramp up production is Rayones De El Salvador, in Ilopango, El Salvador. Every month, the company produces about 300,000 pounds of knit fabric and about 250,000 yards of woven material. The company’s business during the first half of this year dropped about 30 percent after Sara Lee Corp. shifted its Hanes underwear production from El Salvador to China. So CAFTA’s passage was definitely good news for the company of 600 workers.

“We do expect a lot of new business down here on the woven side,” said Jose Denys, vice president of international sales. In the last month, his company has seen orders jump about 40 percent with manufacturers speculating that CAFTA would pass.

Cone Mills, a subsidiary of the International Textile Group in Greensboro, N.C., said it will now go forward with its plan to build a 30-million-yard denim plant in Guatemala City, near Koramsa, one of the largest blue jean manufacturing plants in the Western Hemisphere. It is also working on building plants in China and Vietnam.

“Obviously, what this does is give us two supply chains in both hemispheres,” said Joseph Gorga, president and chief executive of International Textile. “I think in the trouser market the cost structure works in Central America. Duties are not going away in Asia. So Central America has that advantage.”