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Viewing cable 07SANJOSE1926, COSTA RICA: SNAPSHOT OF TEXTILE SECTOR
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Reference ID | Created | Released | Classification | Origin |
---|---|---|---|---|
07SANJOSE1926 | 2007-10-31 13:38 | 2011-03-02 16:00 | UNCLASSIFIED | Embassy San Jose |
Appears in these articles: http://www.nacion.com/2011-03-02/Investigacion.aspx |
VZCZCXYZ0008
RR RUEHWEB
DE RUEHSJ #1926/01 3041338
ZNR UUUUU ZZH
R 311338Z OCT 07
FM AMEMBASSY SAN JOSE
TO RUEHC/SECSTATE WASHDC 9124
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
UNCLAS SAN JOSE 001926
SIPDIS
SIPDIS
STATE FOR EEB/TPP/ABT - GARY A CLEMENTS AND WHA/CEN
COMMERCE FOR ITA/OTEXA - MARIA D?ANDREA
USTR FOR - CAROYL MILLER
E.O. 12958: N/A
TAGS: ETRD ECON ELAB KTEX CS
SUBJECT: COSTA RICA: SNAPSHOT OF TEXTILE SECTOR
REF: A) STATE 114799 B) SAN JOSE 1783
¶1. SUMMARY: The textile sector in Costa Rica is a
relatively small yet productive industry, accounting for
approximately 7.4 percent of manufacturing exports and 6.2
percent of manufacturing employment in 2006. Although
textile export receipts in Costa Rica have declined by
approximately 23.7 percent since 2002, the industry has
successfully maintained its economic viability through
product specialization, access to a highly skilled and
efficient workforce, and geographic proximity to the U.S.
market. Furthermore, the Costa Rican textile industry is
reliant on the US market and the preferential treatment it
receives under the Caribbean Basin Trade Promotion Act
(CBTPA). The U.S. accounted for 86.4 percent of its total
textile exports in 2006 and CBTPA lowers the U.S. tariff
that applies to most of its products from 18 percent to
zero. END SUMMARY.
=======================================
COSTA RICAN TEXTILE INDUSTRY STATISTICS
=======================================
¶2. In response to Ref A, post collected the following
trade data, which provides context and a snapshot of the
state of the industry in Costa Rica:
C.R. Textile Exports 2005 2006 %CHG
GDP, ($MM) 19,824 21,390 8%
Total Exports, ($MM) 7,005 8,198 17%
Total Imports, ($MM) 9,807 11,576 18%
Manufacturing Exports, ($MM) 5,369 6,317 18%
Manufacturing Imports, ($MM) 9,090 10,795 19%
Textile Exports, ($MM) 616 557 -10%
As % of Manufacturing Exports 11.5% 8.8% -23%
Textile Exports to U.S., ($MM) 540 481 -11%
As % of Textile Exports 87.7% 86.4% -1%
C.R. Textile Employment 2005 2006
Total Employment (pers) 1,776,903 1,829,928 3%
Manufacturing Employment (pers) 242,683 243,897 1%
Textile Employment (pers) 15,000 15,000 0%
As % of Manufacturing Employment 6.2% 6.2% 0%
C.R. Cttn Tex., Rel. Exp to US ($MM) 2005 2006
62-APRL ARTCLS, ACCES; NOT KNIT 246 233 -5%
61-APRL ARTCLS, ACCES; KNIT/CROCHET 238 232 -3%
63-TEX. ART NESOI; NDLECRFT SETS;
WRN TXT ART 0.8 0.7 -13%
60-KNITTED OR CROCHETED FABRICS 0.4 0.3 -25%
Total ($MM) 485 466 -4%
As % of Manufacturing Exports 9.0% 7.4% -18%
C.R. Cttn Tx, Rel. Imp from US ($MM) 2005 2006
61-APRL ARTCLS, ACCES; KNIT/CROCHET 82 73 -11%
62-APRL ARTCLS, ACCES; NOT KNIT 102 58 -43%
60-KNITTED OR CROCHETED FABRICS 31 28 -10%
63?TEX. ART NESOI; NDLECRFT SETS;
WRN TXT ART 4 5 7%
Total 220 164 -25%
As % of Manufacturing Imports 2.2% 1.4% -36%
Note: ($MM) denotes millions of USD.
Note: (pers) denotes persons.
Note: Totals may vary from column sums due to rounding.
Source: PROCOMER, BCCR, CIA Factbook, and tse.export.gov.
===============
EMPLOYMENT DATA
===============
¶3. According to GOCR and industry sources, the total
number of people directly employed in the textile industry
ranges from 11,000 to 15,000. The GOCR Social Security
Agency?s official estimate is 11,000 while industry experts
claim at least 15,000 direct jobs as well as another 5,000
indirect jobs in supporting economic activity such as
transportation and facility maintenance. There are
approximately 40 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 2006 calendar year, Costa Rica
exported USD 557 million of textiles, of which USD 481
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.
=============================
IMPORTANCE OF CAFTA AND CBTPA
=============================
¶4. The continued economic viability of the Costa Rican
textile industry is viewed as contingent on the nation?s
timely implementation of the Dominican Republic?Central
America Free Trade Agreement (CAFTA-DR). The preferential
treatment presently extended to Costa Rica?s textile
industry through CBTPA is scheduled to expire on October 1,
2008 and implementation of CAFTA-DR prior to that date
will, in effect, make those provisions permanent. If
CAFTA-DR is not implemented in Costa Rica prior to that
date, expectations are that its textile industry will (1)
lose its economic competitiveness with CBTPA?s expiration
and (2) not be reconsidered for CBTPA coverage until after
the next U.S. administration enters office on January 20,
¶2009.
¶5. Due to the uncertainty surrounding this scenario, Costa
Rican textile exporters sensitive to the U.S. market have
declared their intention to move the entirety of their
operations to other CAFTA-DR countries if the agreement
fails to be implemented locally. Industry sources note
that a significant portion of textile employment -- greater
than 12,000 -- could possibly move outside of Costa Rica
without CAFTA-DR. CAFTA-DR?s ratification in the October 7
referendum was a welcome first step for CBTPA-dependent
exporters, but they need the agreement to be implemented.
Therefore, some textile producers and the textile
exporters? chamber are poised to lobby the national
legislature for timely passage of implementing legislation.
=====================
QUESTIONS AND ANSWERS
=====================
¶6. As requested in Paragraph 5 of Ref A, Post offers the
following responses. We believe this responds to
Department's questions, but if supplementary information is
required, please advise.
IMPACT OF INTERNATIONAL COMPETITON:
Q1: Are (Costa Rican) 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, but the overall value of textile and
apparel production is decreasing due to the drop in prices.
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 Costa Rican operation to El Salvador and to contractors
in China.
IMPACT OF SAFEGUARDS AND RESTRICTIONS:
¶7. Q2: Have U.S. and EU restrictions on certain exports
of textiles and apparel from China, effective through
2007/2008, affected export prospects for (Costa Rican)
manufacturers?
A2: In the case of socks, industry experts said the
safeguards implemented by the U.S. had a positive effect by
creating uncertainty, at least in the minds of U.S. buyers,
about the potential supply of products from China, thus
making supply from Costa Rican companies as more reliable
(and more desirable).
¶8. Q3: Has the 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)?
A3: Industry experts 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. In 1995,
the Costa Rican Textile Chamber, an industry association,
tried to make such a case, but was not successful.
Furthermore, the understaffed Ministry of Economy,
Industry, and Trade lacks personnel to perform such
reviews. As a result, neither the industry nor the GOCR is
thinking about pursuing safeguards at this time. Also, in
the wake of officially recognizing the PRC, the GOCR plans
on expanding its commercial ties to China (Ref B). (Trade
is one of the items on President Oscar Arias?s agenda
during his October 22-29 visit to China.)
IMPACT ON TEXTILE WORKFORCE:
¶9. Q4: Does the (GOCR) have policies or programs in place
to deal with any dislocated workers in the sector resulting
from increased competition?
A4: Currently, the GOCR does not have a policy or program
to specifically accommodate dislocated workers resulting
from CAFTA-DR. The only form of unemployment compensation
is severance pay. If, for any reason, workers lose their
jobs, they are entitled to one month?s salary for every
year of work, paid by the employer. There will be,
however, additional monies available to the GOCR for labor
and environment capacity building once CAFTA-DR is ratified
and implemented. The Administration committed to USD 20
million FY 2005 and USD 40 million FY 2006 ? FY 2009 for
CAFTA-DR countries.
¶10. Q5: Has increased global competition affected (Costa
Rican) labor conditions by causing employers to reduce
wages, seek flexibility from government required minimum
wages, or adversely affected union organizing?
A5: 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 paid well and their standard of living is high
compared to their neighbors in Central America. Since the
majority of exports go to the U.S., labor standards have
increased due to complying with labor certification
standards required by major U.S. buyers. Also, given Costa
Rica?s strong sense of social egalitarianism, any proposals
to suppress the minimum wage are highly unlikely to be
approved.
GOCR ACTIONS TO IMPROVE COMPETITIVENESS:
¶11. Q6: Has the host government or private industry taken
action to increase (Costa Rican) 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?
A6: During the 1990s, the Costa Rican textile industry
contracted in part due to company dislocation to Mexico due
to NAFTA. The remaining manufacturers were the more
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. The quasi-
government National Association of Industrial Textile
Exporters works with government and private industry to
educate the industry on the different importing/exporting
regimens such as the Special 807 requirements and CAFTA-DR
requirements. The Textiles Chamber also works with private
industry companies to upgrade their capabilities,
production methods, and services for customers.
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
manufactures GORETEX for 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 implement 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 airport in San Jose.
Infrastructure improvements are planned to follow the
implementation of CAFTA-DR as part of the Arias
administration?s development agenda.
IMPACT OF CAFTA-DR:
¶12. Q7: If (Costa Rica) is a partner in a free trade
agreement or a beneficiary of a preference program such as
AGOA, CBTPA, CAFTA, or ATPDEA, what impact does the program
have on local sector industry competitiveness?
A7: Most companies rely on the preferences granted under
CBI/CBTPA to compete against lower cost producers such as
China. The 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 481 million in 2006, down from 540
million in 2005. The price factor, increased Chinese
competition, and a decrease in demand contributed to the
drop in value of exports to the US. Seventy seven percent
of this amount was exported to the U.S. under the Special
807 program. Industry experts see CAFTA-DR as critical for
the survival of the industry in Costa Rica and the rest of
Central America. If Costa Rica does not implement CAFTA-DR
before CBTPA expires in September 2008, it is unlikely that
the Costa Rican textile industry will survive with the
exception of a few special niche products and high-valued
items. As noted in para 5, Costa Rican textile producers
have stated their willingness to move operations outside of
Costa Rica if they cannot produce without the benefit of
trade preferences or CAFTA-DR.
¶13. Q8: 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?
A8: With respect to the threat due to low labor costs and
expanding production in China, the full effects of the
expiration of global quotas in Costa Rica have yet to be
fully understood. Costa Rica has not yet seen a large
migration of textile jobs off shore. 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 implemented and the benefits of CBTPA go
away, experts believe the Costa Rican textile industry will
significantly contract. The loss of more than 12,000 jobs
from the textile industry in Costa Rica would have a
cascading multiplier effect on supporting businesses and
consumer consumption. Costa Rican textile industry
representatives thus 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.
¶14. Q9: CAFTA specific: Has the delay in implementation
for a few countries had a tangible effect on exports to the
U.S.?
A9: Overall, the delay in implementation for a few
countries has not had a concrete effect on exports to the
U.S. from Costa Rica. In general, exports to the U.S. are
growing; however, non-traditional exports such as textiles
and clothing are decreasing. This can be attributable to
China?s increased competition and also a decrease in
demand. The perception within the Costa Rican textile
industry is that if CAFTA-DR is not implemented and if
CBTPA expires, the industry?s economic competitiveness will
diminish rapidly. The prevailing opinion among industry
experts is that CAFTA-DR is necessary for industry survival
in Costa Rica.
LANGDALE