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### Viewing cable 05SANJOSE2158, COSTA RICA: TEXTILE AND APPAREL INDUSTRY

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
05SANJOSE2158 | 2005-09-15 00:12 | 2011-03-03 16:04 | UNCLASSIFIED | Embassy San Jose

Appears in these articles:
http://www.nacion.com/2011-03-03/Investigacion/NotasDestacadas/Investigacion2697430.aspx
http://www.nacion.com/2011-03-03/Investigacion/NotaPrincipal/Investigacion2697496.aspx
http://www.nacion.com/2011-03-03/Investigacion/NotasSecundarias/Investigacion2697489.aspx
http://www.nacion.com/2011-03-03/Investigacion/NotasSecundarias/Investigacion2697532.aspx
http://www.nacion.com/2011-03-03/Investigacion/NotasSecundarias/Investigacion2697535.aspx
http://www.nacion.com/2011-03-03/Investigacion/NotasSecundarias/Investigacion2701964.aspx
http://www.nacion.com/2011-03-03/Investigacion/Relacionados/Investigacion2701965.aspx

`

    This record is a partial extract of the original cable. The full text of the original cable is not available.

` `

    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

`