The Central American Free Trade Agreement (CAFTA) has been a mixed blessing for economic development. While exports to the US economy have increased, dependency may hinder economic growth if countries do not diversify or upgrade before temporary provisions expire. This article evaluates the impact of the temporary Tariff Preference Levels (TPLs) granted to Nicaragua under CAFTA and the consequences of TPL expiration. Using trade statistics, country- and firm-level data from Nicaragua’s National Free Zones Commission (CNZF) and data from field research, we estimate Nicaragua’s apparel sector will contract as much as 30–40% after TPLs expire. Our analysis underscores how rules of origin and firm nationality affect where and how companies do business, and in so doing, often constrain sustainable export growth.
Read more on the topic in Regional trade agreements and export competitiveness: the uncertain path of Nicaragua’s apparel exports under CAFTA, published in the Cambridge Journal of Regions, Economy and Society, Volume 8, Issue 3, November 2015, pages 403–420.
The textile and apparel value chain has changed rapidly in the past decade. In the context of trade liberalization and the phase-out of the global quota regime, textile and garment production has become more concentrated in a smaller set of countries, with Asian exporters such as China, Bangladesh and Vietnam claiming an increasing share of the world import market. At the same time, preferential trade agreements have become more important in maintaining textile and apparel production in the western hemisphere. With the looming expiration of the Tariff Preference Levels (TPLs) granted to Nicaragua under the Central American Free Trade Agreement (CAFTA), trade policy is at a critical juncture. This report explores these issues by examining how textile and apparel manufacturers in the Americas are linked to the value chains coordinated by U.S. importers. Our key finding is that all segments of the textile and apparel value chain in the Americas—U.S. yarn and fabric manufacturers as well as apparel producers in the CAFTA region—benefit from measures, such as the TPL one-to-one benefit, that encourage importers to maintain or expand their sourcing in the western hemisphere.
This study examines the competitiveness of the textile-apparel sector in Nicaragua, with the objective of producing a diagnosis of the textile – apparel industry in Nicaragua and the United States, an assessment of the opportunities and obstacles to upgrading, and concrete proposals for steps to be taken in the short and medium term. The research team from Duke carried out field research in Nicaragua between September 30 and October 12, 2010, which included interviews with 19 textile and apparel companies in the country, as well as interviews with numerous governmental, labor, and other institutional actors connected with the industry. The results of this fieldwork, and extensive statistical and background analysis, are presented in this report.
