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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 13:01 | 2011-03-02 16:04 | 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

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