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