The Central American Clothing Assembly Industry and the Asian Competition

The Central American Clothing Assembly Industry and the Asian Competition

Dale Mathews (University of Puerto Rico, Puerto Rico) and Segundo Castro (University of Puerto Rico, Puerto Rico)
DOI: 10.4018/978-1-4666-6224-7.ch017
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Abstract

This chapter examines the export performance of clothing assembly industries in the countries of Central America to the US market. It commences with a brief summary of the history of the growth and limited evolution of the Central American and Caribbean Basin garment export industry in the face of evolving trade liberalization. It then examines how China and other Asian countries have eclipsed the region's clothing exports to the USA as they made inroads into the latter's market. It is argued that China's membership in the World Trade Organization commencing in 2001 and the phasing out of quotas under the Multi-Fiber Agreement in 2005 combined to thwart any expansion that Central American clothing exporters could have achieved in the US market. While US Harmonized Tariff System data for both knitted (HTS 61) and non-knitted (HTS 62) apparel and clothing accessory imports were examined, only the former were presented, as they represent a much more significant share of Central America's overall garment exports to the USA. US imports from Central America under HTS 61 are shown to have either declined or remained stagnant in value terms and in value market share throughout the period examined. In order to zero in on specific categories that are important within the context of the Central American garment export industry, a selection, disaggregated into four digit HTS subcategories, was made of knitted or crocheted apparel and accessories from the region to ascertain its performance over the first decade of the new century. These data are reviewed in comparison with similar data corresponding to imports from China in order to ascertain the performance of Central American exporters. Finally, the work is also placed within the context of the Free Trade Area of Central America and Dominican Republic (CAFTA-DR) in an attempt to discern its possible medium- to long-term impact, since specific provisions of the trade agreement aim precisely at boosting the region's garment assembly sector.
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The Elimination Of Quotas And The Asian Competition

During the first five years of the new millennium, two crucial events to the future of the apparel industry worldwide and particularly for garment export industry in the Caribbean basin occurred: China joined the World Trade Organization in 2001, and the last phase of the elimination of quotas under the Multi-Fiber Agreement was finalized in 2005 (Mathews, 2008). This led to significant changes in the global geography of textile and clothing production. The ensuing expansion of competition within the industry impacted negatively not only in the clothing sector in Central America and the Caribbean, but also apparel exporters in Mexico with respect to their shared core market: the US (Gruben, 2007). According to an extensive study by the World Bank, employment in the apparel industry increased between 2004 and 2008 in countries such as Bangladesh, India, Pakistan, and Vietnam, while it shrank in countries like Honduras, Mexico, Morocco, and Sri Lanka (López-Acevedo & Robertson, 2012). As for the region of the Caribbean Basin and Mexico, this was not unexpected (MacDonald, et al., 2004).

Key Terms in this Chapter

Production Sharing: An agreement to share the production or extraction costs between two governments, a government and a corporation, or a corporation and an individual.

Garment Industry: Makers and sellers of fashionable clothing.

International Commerce: The buying and selling of goods between sovereign nations.

Management: the act of coordinating the efforts of people to accomplish desired goals and objectives using available resources efficiently and effectively.

Free Trade: International trade left to its natural course without tariffs, quotas, or other restrictions.

Preferential Trade Agreements: A trade pact between countries that reduces tariffs and other barriers for certain products to the countries who sign the agreement. While the tariffs are not necessarily eliminated, they are lower than countries not party to the agreement.

International Business: All commercial transactions (private and governmental, sales, investments, logistics, and transportation) that take place between two or more regions, countries and nations beyond their political boundaries.

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