TEXTILE AND APPAREL STATISTICS AND PROJECTION OF

UNCLAS SECTION 01 OF 03 BOGOTA 009143 SIPDIS DEPT FOR EB/TPP/ABT/EDWARD HEARTNEY COMMERCE FOR ITA/OTEXA/MARIA D'ANDREA STATE PASS TO USTR/ABIOLA HEYLIGER E.O. 12958: N/A TAGS: ECON KTEX FTA SUBJECT: TEXTILE AND APPAREL STATISTICS AND PROJECTION OF FUTURE COMPETITIVENESS REF: SECSTATE 146213 ¶1. This is post's response to REFTEL request for information on Colombia's textile and apparel employment and production data, and projections of future competitiveness. ¶2. Textile and apparel production and employment data: 2004 2005 1/ Total industrial production (USD Mill) 32,157.2 N/A Textile and apparel prod.(USD Mill) 2,578.1 N/A Textiles and apparel imports (USD Mill) 868.8 512.7 Textiles and apparel exports (USD Mill) 1,157.7 671.7 Total Colombian Imports (USD Mill) 15,626.4 8,154.2 Total Colombian Exports (USD Mill) 16,729.7 8,091.0 Total manufacturing employment 2,474,341 2,512,421 Total textiles and apparel employment 128,141 120,150 1/ Data for January-June 2005 Sources: DANE, Ascoltex, ANDI ¶Q. Are host country producers 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? ¶3. Heightened competition in international markets has forced Colombian producers to lower the price of their textile and apparel products. According to Carlos Eduardo Botero, President of the Textile Chamber at Colombia's Association of Industrialists (ANDI),Colombian sales of textiles and apparel are also being hurt by the appreciation of the Colombian peso against the U.S. dollar. The peso which was at COP 2777 to USD 1 on December 31, 2003, is currently at COP 2297 to USD 1. These producers have also noted competition from a growing contraband market, involving mostly Chinese products smuggled into the country from Panama. Due to these three reasons, Colombian producers have noted that their orders decreased by approximately 10 percent from January to June 2005. According to Botero, there is little foreign investment in the sector's finished products. However, there is some foreign investment in raw material. Foreign investors have not pulled out of local production. On the contrary, there have been some new investments due to the prospects offered by a possible Andean Free Trade Agreement (FTA) with the U.S. Regardless, there are virtually no Asian investors in the textile and apparel sector in Colombia. ¶Q. The USG has approved seven safeguards in 2005 to restrict the growth of Chinese imports in those product categories, and the European Union 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 for your host country manufacturers? Has your host government implemented, or is it considering implementing safeguards or other measures to reduce the growth of imports of Chinese textiles and apparel products into the host country? ¶4. According to Botero, 60 percent of the Colombian textile and apparel exports can directly replace those Chinese imports that are now being restricted from the U.S. and the EU. ¶5. Colombia has begun implementing safeguard measures to limit Chinese textile and apparel imports. The GOC intends to implement safeguards on most products within the textile and apparel production chain. However, for these measures to be approved by the WTO, Colombia must demonstrate the effective damage Chinese imports have had on its local production. In addition, at least 50 percent of Colombian producers must agree to implement the safeguard measures. Decree 2839 of August 17, 2005, imposes safeguards on household textiles (bed linens, curtains, etc.) and military textile products. According to Ivan Amaya, President of the Colombian Association of Textile and Apparel Producers (Ascoltex),the decree is temporary, expiring in February ¶2006. However, there is discussion about making this decree permanent. There are plans to implement additional decrees for most of the remaining products in the textile and apparel sector as well. The following products have safeguard requests that are expected to be passed: socks, pajamas, women's and men's underwear, children's clothes, and cotton pants and shirts. ¶Q. 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 organizing? The Colombian textile and apparel sector observes good labor standards practices. Most Colombian exporters are certified internationally as Worldwide Responsible Apparel Producers (WRAP),and, according to Botero, most retailers in the U.S. and abroad require that their providers observe internationally accepted labor standards. The textile and apparel producers have not reduced wages or sought flexibility from government required minimum wages. However, greater competition has caused the sector to reduce the size of the workforce. Textile producers explain this is a necessary action due to sector restructuring, adverse market conditions, and lower prices of textile and apparel products. Although there are currently no official statistics available, Botero expects that approximately 15,000 textile and apparel workers will lose their jobs this year. ¶Q. Has the government or private industry taken action to increase the host country's competitiveness, such as improving infrastructure, reducing bureaucratic requirements, developing the textiles (fabric production) industry, moving to higher value-added goods, or identifying niche markets? Does post think that the host government or private industry's strategy will be successful? ¶6. The GOC and Colombian private industry are constantly seeking new ways to improve competitiveness within the textile and apparel sector, a key industry within the Colombian economy. Ongoing negotiations toward a Free Trade Agreement with the U.S. has focused the GOC's attention on the development of the country's trade infrastructure, including roads, ports, and other modes of communication. To combat the profit leakage resulting from contraband trade, the GOC and private sector have begun seeking ways to effectively control these pirated products. They are also negotiating a proposal which would reduce taxes on new investments within the sector. However, this is very unlikely to come to fruition due to the difficult fiscal situation that the GOC currently faces. ¶7. The sector has also started to focus on the production of high value-added goods with recognized brand names. It is expected that these products will produce greater profit. Lastly, the sector is searching for ways to improve its distribution chains, especially among small and medium-sized businesses in the U.S. market. ¶Q. If your host government is the 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? ¶8. Although Colombia's ATPDEA preference program expires on December 31, 2006, the GOC hopes to replace this with the FTA that it is currently negotiating with the U.S. Colombia seeks to include all textile and apparel products currently excluded from ATPDEA's preferences program. According to Botero, ATPDEA has not by itself guaranteed that the country remain competitive in the textile and apparel sector. The ATPDEA preferences, however, have stimulated the growth of the sector. Most Colombian textile exports to the U.S. are pursuant to contracts with U.S. retailers or distributors. Without ATPDEA or a free trade agreement, these contractual arrangements would cease, perhaps quite abruptly. Such a change would lead to a drastic decline in employment and incomes in the sector, with consequences for other U.S. objectives in Colombia. Therefore, textile sector representatives believe a preference program must be in place for continued success. The sector fears that the worst of all possible scenarios would be if ATPDEA expires and the FTA is not signed. ¶Q. Overall, does post think that the host country can be competitive in textiles and apparel exports with the end of global textile and apparel quotas? ¶9. The textile and apparel sector operates under profit margins of a maximum of four to five percent. This means that the competitiveness of the sector depends largely on the level of tariffs imposed in international markets, especially in the U.S., Colombian textile and apparel exporters' largest market. Thus, the sector feels its competitiveness is contingent upon an extension of ATPDEA or the signing of an FTA that allows the export of duty-free textile and apparel products to the U.S. ¶10. Colombia's textile sector enjoys certain comparative advantages when compared to other competitors. Colombia's geographic proximity to the U.S. and the fact that it is the only country in South America that has ports both on the Atlantic and Pacific oceans add to its competitiveness. In addition, the Colombian textile and apparel industry has begun focusing on high-value fashion products with brand name recognition. If the industry continues its focus on these value added products, it has the potential to carve out a lucrative niche in the competitive textile and apparel global economy. Wood