Vice President Kamala Harris recently announced commitments by U.S. businesses to invest over $1.2 billion in economic opportunities in Northern Central America. While well-intentioned, this short-sighted attempt to stabilize the region simply throws money at a strategy that fails to address the root causes of migration, including restrictive and anti-competitive rules codified in the Central America-Dominican Republic Free Trade Agreement (CAFTA-DR). These rules must be updated to address the instability and economic stagnation that they perpetuate in the region.
Enacted in 2005, CAFTA-DR was intended to provide job growth and economic stability in the region through increased duty-free trade. However, onerous provisions like the “rule of origin” require apparel products to be made with materials wholly sourced from member countries to qualify for duty-free trade. While some might find these rules appealing on paper, the reality is that U.S. textile producers only produce a tiny fraction of the yarns and fabrics needed to make the full range of clothing that Americans wear. As a result, most clothing is imported from Asia instead of the Western Hemisphere.
These few U.S. textile producers have been protected at the cost of Central American workers and businesses who would otherwise benefit from economic growth conditions if they could access a broader variety of materials from other countries and still qualify for duty-free trade. Even more so, the rules could be written in a way that diversifies apparel trade away from China, which should be a priority for the Biden Administration. Instead, by doubling down on the “yarn-forward” rule of origin, the Administration prevents the creation of Western Hemisphere competition to China’s lock as the No. 1 apparel supplier to the United States.
As a result, companies with factories and production based in Central America have been laying off workers and moving operations overseas to low-wage countries in Asia. These actions result in Central American employees losing their jobs, which encourages workers to migrate for job opportunities, further exacerbating the issues at our border.
Unfortunately, rather than update the “rule of origin” requirement in the agreement to ensure CAFTA-DR is working, the Biden administration is doubling down on a misguided strategy that fails to address trade regulations causing economic stagnation in Central America and leads to increased illegal immigration.
If lawmakers allowed apparel producers to diversify the materials they source by updating the “yarn forward rule of origin” requirement, textile suppliers in CAFTA-DR countries would be able to produce a wider variety of products at a lower cost while offering more competitive prices for American consumers. This would drive increased investment in textile production in the US and Central America and create thousands of jobs in apparel production—an industry in which women make up 80 percent of the workforce.
Instead, the Biden administration plans to continue supporting a protectionist stance that benefits only a few textile producers at the expense of thousands of women in Central America and despite 15 years of declining apparel trade. The data shows that Central American producers will never reach their full potential, so long as the onerous “yarn forward rule of origin” limits their ability to compete and expand production in this sector. Despite a small resurgence after the pandemic, U.S. apparel imports from Central America have been down $1.6 billion since the agreement was enacted in 2005.
Vice President Harris’ recent announcement unfortunately shows a reluctance by the Biden administration to alter a policy which has been fundamentally broken from the start of CAFTA-DR. President Biden and members of Congress must work to update the agreement and revise the “yarn forward rule of origin” to bolster job and economic growth for Central American apparel producers, which will also create more demand for US textiles, not less, reduce prices for American consumers and help address the immigration challenges at our border.