WorldCity Business Magazine

Sewing it all together

by WC

First semester trade results are in and the news is good.

The Miami Customs District which includes airports and seaports in a swath running from Fort Pierce to Key West saw its trade jump to more than $35 billion for the first half of 2006. That’s an 11 percent spike compared with 2005.

Commerce with the countries covered by the U.S.Dominican Republic Central America Free Trade Agreement contributed to the gains.

If the fast pace continues for the rest of the year, South Florida could near or even exceed a $70 billion trade total for the first time. Along the way, its surplus will grow. Already it was $2.9 billion at the end of June, which is more than all of 2005, when Miami galloped to a $65.9 billion trade total and closed the year with a surplus of $2.2 billion.

Although it is too soon to feel the effects of DR-CAFTA, the six nations involved in the free trade pact with the United States posted across the board gains in the first six months of the year. As a bloc, they account for about 24 percent of all South Florida’s trade.

The Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua and Costa Rica are signatories to DR-CAFTA, although Costa Rica has not yet ratified the agreement. The pact entered into force for El Salvador on March 1, for Honduras and Nicaragua on April 1 and for Guatemala on July 1.

“I can’t predict how much more business we will have, but I’m guessing we will see continuous volumes of trade in 2007 once the Dominican Republic and, hopefully, Costa Rica join CAFTA. It will be very healthy for this region,” said Jos Perez-Jones, senior vice president of Seaboard Marine and an instrumental player in the effort to push the agreement through Congress last year.

In the first six months of 2006, Central America’s biggest trade jump 24.6 percent came from Nicaragua. Trade between Nicaragua and the United States had slowed slightly in 2005 to 14 percent, for an annual total of $1.8 billion, thanks to apparel-related commerce. That had followed a robust 2004 that saw overall trade gain 24.4 percent with imports rising 29 percent and exports up 18 percent.

Recently, Cone Denim, part of International Textile Group, announced it would open a $90 million manufacturing plant in Managua. It will be the largest facility every constructed in Nicaragua. Because of tariff relief under the Caribbean Basin Initiative and local incentives, including tax breaks, there are now about 100 textile and apparel companies operating in the country. In 1992, there were just five, according to ProNicaragua, a public-private economic development entity.

Some experts believe that once the pact is implemented, Nicaragua has the most to gain because it has lower wages than most Central American countries, putting it in a better position to fend off competition from Chinese products. It also enjoys special exemptions for the next 10 years that allow it to use fabric with components sourced from outside the CAFTAcountries. However, rising oil prices have already sparked inflation in the country, which is an oil importer.

Seaboard’s Perez-Jones was also apprehensive about the Nicaraguan presidential elections in November. Daniel Ortega, the leftist Sandinista leader who ruled the country from 1985 to 1990, is seeking another shot at the presidency. Recent opinion polls have put him in a dead heat with former banker Eduardo Montealegre of the Nicaraguan Liberal Alliance.

“We are kind of concerned with the possibility of Ortega winning these elections,” Perez-Jones said. “It could jeopardize business involvement and expansion of U.S. companies in Central America. It could have a ripple effect in the entire Central American region.”

Costa Rica also saw its trade with South Florida rise double digits in the first six months of the year. It grew more than 21 percent to push just past the $2 billion mark.

Although Nicaragua and Costa Rica emerged as the fastest growing of the DR-CAFTA countries in the first semester of 2006, the Dominican Republic is South Florida’s top trader in the bloc. In the first six months of this year, the Miami Customs District and the Caribbean nation exchanged $2.1 billion in products, mostly apparel. That was a 3.4 percent gain from the first six months of 2005.

While the Dominican Republic and the CAFTA countries saw first semester gains in their trade with the United States, that was not the case in 2005. Most of the countries posted much smaller single-digit increases and El Salvador saw its trade fall 1.1 percent. From January to June 2006, El Salvador’s trade with South Florida rose 3.2 percent.

Central American countries have been struggling against competition from China in the apparel sector. Trade experts says this not only hurts the volume and value of shipments to the United States from those nearby nations, but it also cuts into U.S. exports destined to supply Central America’s textile sector.

“If there’s not a viable and flexible textile sector in the Americas the U.S. textile industry will lose its market for fabric,” Jonathan Fee, a partner at law firm Alston & Bird in Washington, D.C., said at a recent trade discussion hosted by the Council of the Americas (see”Elusive agreements,” p. 39).

China’s trade with the Miami Customs District in the first semesterrose 18 percent with imports far outweighing exports, leaving a $1.6 billion trade imbalance.

Despite that, South Florida’s overall trade surplus for the first six months of the year was up. And the robust trade set the stage for Miami to step over Cleveland to become the nation’s 12th most important Customs district. Miami had been No. 11 until 2004, when it slipped two spots.

In other trade highlights, Chile made the biggest leap among South Florida traders. The South American country and the Miami Customs District posted a 27.3 percent jump in trade.

Last year Venezuela moved up four spots on South Florida’s roster to become the Customs district’s second most important trading partner behind Brazil. In the first six months of 2006, that dramatic growth continued as trade between Venezuela and South Florida rose 21.7 percent to nearly $2.4 billion largely as a result of a 24 percent leap in exports to the oil rich nation. Although the U.S. government and Venezuela President Hugo Chvez continue their political sparring, trade between the two nations is skyrocketing. For the United States, the growth is fueled by the increasing value of petroleum imports from Venezuela. For South Florida, however, exports are driving the uptick.

The ongoing oil windfall has boosted Venezuela’s economy and restored consumer confidence. The Venezuelan government is buying construction equipment shipped from South Florida while Venezuelan residents are clamoring for U.S.-made consumer products.

Ambler Moss, in the global trade practice group of law firm Greenberg and Traurig in Miami, described the U.S.-Venezuela relationship as “two married people who really hate each other but couldn’t possibly afford to get divorced.”