Honduran Textile Sector Gives CAFTA High Marks

UNCLAS TEGUCIGALPA 002980

SIPDIS

SENSITIVE

STATE FOR WHA/CEN AND EB/TPP/ABT
STATE PLEASE PASS USTR
DOL FOR ILAB

E.O. 12958: N/A
TAGS: ETRD EIND ELAB PGOV HO
SUBJECT: Honduran Textile Sector Gives CAFTA High Marks


1. (SBU) Summary: Jesus Canahuati, President of the Honduran
Manufacturers Association, was effusive about the content of
the textiles chapter of the recently negotiated CAFTA. He
identified three areas in particular which are positive
developments for Honduras: 1) cumulation with Mexico, 2) the
single transformation rule of origin for certain items, and
3) the provision that CAFTA tariff rates would be applied
retroactively to January 1st, 2004. He is also pleased with
the expanded short-supply provisions and the revised
mechanism for qualifying for short supply, while he accepts
the lack of trade preference levels (TPLs) for Honduras as a
necessary sacrifice if the agreement is to be ratified by
the U.S. Congress. End Summary.


2. (SBU) On December 23rd, EconOff spoke with Jesus
Canahuati to discuss his views of the textiles chapter of
the recently negotiated CAFTA. Canahuati is the President
of the Honduran Manufacturers Association (formerly known as
the Honduran Maquila Association),and the owner and manager
of one of Honduras' largest maquilas. He is also the
brother of Honduran Ambassador to the United States Mario
Canahuati, and Vice President of COHEP, the private sector
umbrella organization. Canahuati said he was extremely
pleased with the agreement, and while the Honduran
negotiators did not get everything they wanted, Canahuati
believes that they got enough to place the Honduran textile
industry on a secure footing heading into 2005 and the
lifting of worldwide textile quotas.


3. (SBU) In particular, Canahuati identified three major
aspects of the agreement which will be beneficial for the
Honduran textile industry. First: cumulation with Mexico,
which Canahuati said will encourage integration of the
industry within the hemisphere. Second: the granting of a
single-transformation rule of origin for brassieres, boxer
shorts and pajamas. Canahuati said this will be especially
important for Honduras in the case of brassieres, which can
be made up of 16 different components and are difficult to
source under a yarn-forward regime. And third: the
provision that CAFTA tariff rates would be applied
retroactively to January 1st, 2004, which will allow greater
confidence in making sourcing decisions now for production
in 2004.


4. (SBU) Canahuati also voiced his satisfaction over the
expanded short supply provisions, and the proposed mechanism
for qualifying for short supply. He acknowledged that some
in Central America have been frustrated with the slow and
complex functioning of the existing short supply mechanism,
and as a result are uncertain whether the new mechanism will
truly be an improvement. But for Canahuati, the simplified
mechanism, particularly the shortened time-frame, and the
fact that the mechanism takes into account the volume of a
good required in determining whether a product qualifies for
short-supply, is a significant improvement. He said that
the region's textile producers should give it a chance and
trust that it will work in practice.


5. (SBU) Canahuati voiced no regret over the near-absence of
tariff preference levels (TPLs) in the agreement, saying
that he recognized the political unpopularity of TPLs in the
United States, and accepted the absence of TPLs as a
necessary price to pay in order to improve the chances of
CAFTA being ratified by the U.S. Congress. He also stated
that TPLs were not an essential requirement for the Honduran
textile industry, which relies on locally sourced goods to a
much greater extent than, for example, the industry in
Guatemala.


6. (SBU) Comment: The Honduran private sector, as expected,
is rallying quickly around the cause of selling the benefits
of CAFTA. The available information suggests that the
textile chapter will be particularly beneficial in Honduras,
where progress is already being made in developing a knit
textile sector, brassieres and other undergarments are big
business, and production could quickly expand to include
higher-value woven products like blue jeans if cumulation
with Mexican fabric becomes a reality. The maquila sector
has been one of the most important sources of employment in
Honduras in recent years, and has an extremely close,
symbiotic relationship with the U.S. sector. We expect the
influential textile and apparel sector here to be a
constructive force in pushing for rapid Honduran
ratification of the agreement, once it is signed. End
comment.

Pierce