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Viewing cable 05SANJOSE2158, COSTA RICA: TEXTILE AND APPAREL INDUSTRY
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UNCLAS SECTION 01 OF 04 SAN JOSE 002158
SIPDIS
WHA/CEN
EB/TPP/ABT FOR EHEARTNEY
EB FOR WCRAFT
BLAMPRON
E FOR DEDWARDS
WHA/EPSC FOR KURS
LGUMBINER
COMMERCE/ITA/OTEXA FOR MDANDREA
STATE PASS TO USTR FOR RVARGO, NMOORJANI, AHEYLIGER
E.O. 12958: N/A
TAGS: ETRD ECON KTEX PGOV PREL CS
SUBJECT: COSTA RICA: TEXTILE AND APPAREL INDUSTRY
REF: A. (A) SECSTATE 146213
¶B. (B) SAN JOSE 00678
¶1. Summary: The textile industry in Costa Rica is regarded
as efficient and productive. However, the low labor costs of
China and the preferential treatment Mexico was granted under
the North American Free Trade Agreement (NAFTA) put the Costa
Rican textile industry at a disadvantage. As a result of
these and other competitive factors, Costa Rican textile
industry exports declined, and employment in the sector more
than halved from 1990 through 2004. In 2001, Caribbean Basin
Initiative (CBI) nations began realizing the benefits of the
textile-related provisions of the Caribbean Basin Trade
Promotion Act (CBTPA). Although still declining in exports
and employment, in recent years the Costa Rican textile
industry has maintained viability by concentrating on niche
products, leveraging the skills of its efficient workforce,
and taking advantage of its relative proximity to the U.S.
market. End Summary.
--------------------
REQUESTED STATISTICS
--------------------
2004* Jan-Jun 2005*
Total Industrial Production 4,765 2,504
Textile/Apparel Production 630 268
Share of Total Production (%) 13.2 10.7
Total Imports (M) 8,300 4,600
Textile/Apparel Imports 588** 288**
Share of M (%) 7.1 6.3
Total Exports (X) 6,300 3,400
Textile/Apparel Exports 547 218
Share of X (%) 8.7 6.4
Total Work Force 1,654,000 1,654,000
Manufacturing Employment (ME) 230,000 230,000
Textile/Apparel Employment 15,000 15,000
Share of ME (%) 6.5 6.5
*Source: The Foreign Trade Corporation of Costa Rica
(PROCOMER) and Council of Textile Quotas, all figures in USD
millions
**Based on information provided by the Costa Rican Textile
Chamber ) includes imports into Free Trade Zones.
¶2. According to GOCR and industry sources, the total number
of people directly employed in the textile industry is
between 11,000 and 15,000. The GOCR Social Security Agency
records approximately 11,000 workers in this industry.
However, industry experts claim at least 15,000 direct jobs,
as well as another 5,000 jobs that are indirectly tied to the
textile industry. There are approximately 67 companies in
the industry in Costa Rica. Of the estimated 15,000
employees, approximately two thirds are employed by four
large companies including Sara Lee (and its contractors),
Vanity Fair (VF), Jockey, and Borkar. Products are varied
and include suits, casual style pants, knit shirts,
underwear, and clothes with high tech sport fabrics. For the
2004 calendar year, Costa Rica exported USD 546.7 million of
textiles, of which USD 523 million went to the U.S. Seventy
seven percent of total exports to the U.S. used almost
exclusively U.S. inputs to comply with CBTPA rules.
¶3. Recent news about loss of textile and apparel jobs
include the closing of Lovable/Celebrity Co.,s operations by
the end of September 2005, reportedly due to increased
competition from China. Lovable/Celebrity makes women,s
underwear and is headquartered in Honduras, has operated in
Costa Rica for 33 years, and, at its peak 20 years ago,
employed 1,500 workers. The closing of operations in Costa
Rica means that 76 workers will have to find other jobs.
Lovable/Celebrity is moving work to its other facilities in
Honduras due to the pressure to lower labor costs and the
fact that Honduras has ratified the United States-Central
American-Dominican Republic FTA (CAFTA-DR). A Celebrity
representative stated that the textile and apparel sector is
facing many threats in Costa Rica such as the GOCR,s
indecision about CAFTA-DR. Another large company, Vanity
Fair, let 300 workers go in January 2005, and job shedding in
the industry is likely to continue.
--------------------------
QUESTIONS AND ANSWERS
--------------------------
¶4. As requested in Paragraph 5 of Ref A, Post offers the
following input.
Q1: Are host country products receiving lower prices due to
heightened international competition? Have the manufacturers
received more, less, or the same number of orders as in years
past? Have foreign investors, including Asian investors,
closed factories or otherwise pulled out of local production?
A1: Prices in the apparel market are declining not only due
to the increase in competition, but also because of more
effective and efficient production processes and the decline
in prices of raw materials, especially fabric.
In Costa Rica the companies are receiving the same number of
orders as last year. However, due to market forces such as
the above-mentioned influences, the value of textile and
apparel production is decreasing.
Industry sources say that there have not been any Asian
investors or Asian-owned textile or apparel manufacturers in
Costa Rica for several years. A U.S.-owned producer of
relatively low-end children,s clothing, Garan, is moving its
operation to El Salvador and to contractors in China.
¶5. Q2: The USG has approved seven safeguards in 2005 to
restrict the growth of Chinese imports in those product
categories, and the European Union (EU) has reached an
agreement with China to limit import growth of certain
textiles and apparel products. Have the U.S. safeguards or
the EU deal affected the export prospects of (Costa Rican)
manufacturers? Has your host government implemented, or is
it considering implementing safeguards or other measures to
reduce growth of imports of Chinese textiles and apparel
products into (Costa Rica)?
A2: In the case of socks, industry experts said the
safeguards implemented by the U.S. had a positive effect by
fomenting some uncertainty, at least in the minds of U.S.
buyers, about the potential supply of products from China.
That is, since the safeguards potentially limit the
importation of socks made in China, supply from Costa Rican
sock suppliers was seen as more reliable. Industry experts
also revealed that they have discussed the possibility of
implementing safeguards in textiles. However, this is a very
expensive and time-consuming process in which the sector has
to prove damages. Many years ago the Costa Rican Textile
Chamber, an industry association, tried to make such a case,
and they were not successful. Furthermore, the governmental
agency responsible for reviewing such requests, the Ministry
of Economy, Industry, and Trade, does not have sufficient
personnel to perform such reviews. As a result, neither the
industry nor the GOCR is thinking about pursuing safeguards
at this time.
¶6. Q3: Has increased global competition affected local
labor conditions by causing employers to reduce wages, seek
flexibility from government-required minimum wages, or
adversely affected union organization?
A3: Because Costa Rican textile and apparel manufacturers
have survived due to finding niche products, emphasizing
efficiency, and employing highly-skilled personnel, neither
labor standards nor wages have decreased. Workers are
relatively well paid, and their standard of living is high
not only compared to their neighbors in Central America but
also compared to other countries of the world. Since the
majority of exports go to the U.S., labor standards have
increased due to complying with the standards of labor
certifications which are required by major U.S. buyers.
Also, Costa Rica has a relatively strong sense of social
egalitarianism, and proposals to suppress the minimum wage
would not be looked upon positively and would be highly
unlikely to be approved. Note: Inflation is currently a
problem in Costa Rica, and wages are not keeping up. The
GOCR mandates the annual percentage increase in private and
public sector wages and has recently held them to a level
below the rate of inflation. Therefore, the real purchasing
power of workers, wages of is declining. Although there is
a union presence in most factories, the operations are
usually funded by the plant owner and are focused more on
social issues and activities. The relationships between
owners and unions in the textile industry tend to be
non-confrontational.
¶7. Q4: Has the government or private industry taken action
to increase (Costa Rica,s)competitiveness, such as improving
infrastructure, reducing bureaucratic requirements,
developing the textiles (fabric production) industry, moving
to higher-valued goods, or identifying niche markets. Does
Post think that the host government or private industry,s
strategy will be successful?
A4: During the 1990s, the Costa Rican textile industry was
whittled down to those manufacturers that were efficient
and/or specialized. Today, the Costa Rican Textile Chamber
works actively with the Ministry of Foreign Trade (COMEX) and
Customs to increase the efficacy and efficiency of the
exporting and importing process. Customs is currently
implementing a new registration system for imports, although
it is not yet up and running. Reportedly, some technical
problems have delayed its full use. The quasi-government
organization, the National Association of Industrial Textile
Exporters, works with government and private industry to
educate them on the different importing/exporting regimens
such as the Special 807 requirements and, if and when it
takes effect in Costa Rica, the U.S.-Central
American-Dominican Republic Free Trade Agreement (CAFTA-DR)
requirements. The Textiles Chamber also works with private
industry companies to upgrade their capabilities and help
steer them to more efficient methods and more
customer-friendly services.
Many of the companies in Costa Rica have already found niche
markets or have begun to offer a broader range of services to
their customers. For example, Capas Vaqueros makes GORTEX to
produce waterproof jackets and garments, one of very few
companies outside of the U.S. that is authorized to do so.
Cordero y Chavarria transitioned from only performing cutting
and trimming services to offering design and manufacturing
services for exercise wear. Coloplast started making
prosthesis bras for women who have had mastectomies and now
also makes swimwear for the same clientele.
With respect to the survival of the textile and apparel
industry in Costa Rica, the most productive step the GOCR can
take is to expeditiously approve CAFTA-DR, which will
facilitate access to the U.S. market. Lack of sufficient
infrastructure is an important issue and affects all
manufacturers, especially those that are located farther from
the port of Limon or the airports in San Jose.
Infrastructure improvements are planned to accompany the
implementation of CAFTA-DR as part of its complementary
agenda.
¶8. Q5: If (Costa Rica) is a partner in a free trade
agreement or a beneficiary of a preference program such as
AGOA, CBTPA, or ATPDEA, will this be sufficient for the
country to remain competitive?
A5: As stated previously, many textile and apparel companies
have already found their niche products, but still most rely
on the preferences granted under CBI/CBTPA to compete against
lower cost producers such as China. This industry imports
approximately 77 percent of its raw materials from the U.S.
and exports most of its finished products to the U.S., which
amounted to approximately USD 523 million in 2004. Seventy
seven percent of this amount was exported to the U.S. under
the Special 807 program. Industry experts see CAFTA-DR as
absolutely necessary for the survival of the industry in
Costa Rica and the rest of Central America. If Costa Rica
has not implemented CAFTA-DR before CBTPA expires in
September 2008, it is very unlikely that the Costa Rican
textile industry will survive with the exception of a few
very special niche products and high-valued items.
¶9. Q6: Overall, if not already addressed, does Post think
that (Costa Rica) can be competitive in textiles and apparel
exports with the end of global textiles and apparel quotas?
A6: With respect to the threat due to low labor costs in
China, the full effects of the expiration of global quotas
have not yet been felt, and Costa Rica has not yet seen a
large migration of textile jobs to places such as China.
This is due in part to high efficiency, production of niche
products, and the benefits of the Caribbean Basin Trade
Preference Act (CBTPA). However, industry experts told us
that in 2003 CarterTex moved its operation from Costa Rica to
Mexico and then later to China due to lower labor costs; this
despite the fact that the factory in Costa Rica was much more
efficient than either of those in Mexico or China. If
CAFTA-DR is not approved and the benefits of CBTPA go away,
experts believe the Costa Rican textile industry will all but
disappear. The loss of 15,000 jobs from the textile industry
in Costa Rica would affect a population five times that size
when family members of workers are included.
The only hope to maintain exports of textiles and employment
in Costa Rica is to have some advantage in efficiency, labor,
and/or trade preferences. Benefits under CBTPA, unless
extended, will expire in September 2008. Costa Rican
industry representatives are some of the most fervent
supporters of CAFTA-DR because the agreement makes permanent
the tariff-free exporting to the U.S. of their products.
Costa Rican textile and apparel manufacturers will continue
to be highly efficient and employ highly-skilled workers.
However, it is difficult to see the Costa Rican textile
industry being able to contend with the fierce competition
from China without the advantage of CAFTA-DR.
FRISBIE
FRISBIE