RESPONSE TO REQUEST FOR TEXTILE DATA: HONDURAN

UNCLAS SECTION 01 OF 03 TEGUCIGALPA 000642

SIPDIS

SENSITIVE

STATE FOR EB/TPP, WHA/EPSC, WHA/PPC, DRL/IL, AND WHA/CEN
TREASURY FOR DDOUGLASS
DOL FOR ILAB
STATE PASS AID FOR LAC/CAM

E.O. 12958: N/A
TAGS: ETRD KTEX ELAB PGOV HO
SUBJECT: RESPONSE TO REQUEST FOR TEXTILE DATA: HONDURAN
INDUSTRY DESPERATE FOR PASSAGE OF CAFTA-DR

REF: A. 05 STATE 47496


B. 04 TEGUCIGALPA 2276


1. (U) Summary: The Honduran textile and apparel sector is
increasingly concerned that it is about to lose out to China
as a supplier to the U.S. market. While the elimination of
quotas on January 1, 2005 has not yet translated into factory
closings and job losses, such an impact is widely expected to
be felt strongly within the next two months. As a result,
the sector is desperate for the passage of CAFTA-DR to
provide an additional competitive edge. The sector
represents roughly 120,000 jobs, employs mostly women
(especially single mothers),and pays them a wage five times
greater than the national minimum wage. Large-scale loss of
textile and apparel sector jobs to China or other low-cost
Asian producers would have a devastating effect on the
Honduran economy, especially in the northern area around San
Pedro Sula and Puerto Cortes, where most maquilas are
located. End summary.


2. (U) The responses below are keyed to ref A. Some of the
information below has been previously reported in ref B.

--Total employment in the industry and trends


3. (U) The Central Bank and the Honduran Manufacturers'
Association (AHM) each provide annual data for employment in
the "maquila sector," defined as those companies which are
incorporated under either the Industrial Processing Zones
legislation or Free Zones legislation. The textile and
apparel sector accounts for the great majority, but not all,
of the activity in the "maquila sector". For this reason,
the employment statistics below overstate employment specific
to the textile and apparel sector. Figures from the Central
Bank and the AHM differ slightly, as follows.

Employment in "Maquila Sector"
--------------
According to According to AHM (Honduran
Year Central Bank Manufacturers Association)

2001 94,416 110,000
2002 105,556 107,000
2003 114,237 123,000
2004 n/a 131,701
Jan 2005 n/a 133,198
Feb 2005 n/a 132,848

Central Bank figures for 2004 and 2005 are not yet available.


--Employment by gender, socioeconomic make-up of the workforce


4. (U) The AHM reports that 69 percent of maquila workers are
women, and that many, perhaps most, of these women are single
mothers (though exact figures are not available). Maquilas
typically try to hire workers with at least a sixth grade
education, just slightly above the Honduran average of 5.5
years of education completed.

--Value of U.S. cloth, yarn, notions, and other inputs


5. (U) The AHM, citing statistics from the U.S. Department of
Commerce, reports that in 2003, Honduras imported 137.9
million kgs of yarn from the United States, more than Mexico
and all other CBI countries combined.

--Any other pertinent information that would assist
Washington agencies in emphasizing the need to bolster
Central American and Dominican textile industries through
approval of CAFTA/DR.


6. (U) The maquila sector makes up one of the largest sectors
of the Honduran economy, with maquila value-added accounting
for US$831 million in 2004, equivalent to 11.3% of GDP. The
maquila sector, therefore, accounts for greater earnings than
the exports of Honduras' top six export commodities combined
(coffee, bananas, shrimp, gold, palm oil, and soap). It is
also one of the economy's fastest growing sectors. While
growth stalled in 2001 with the recession in the U.S.
economy, in the past two years the sector has resumed the
double-digit rates of growth that it showed throughout the
1990s.

Value Added by Maquila Sector
--------------
Value Added Growth Over As %
Year in US$m Previous Year of GDP

1999 539 18.5% 10.1%
2000 575 6.7% 9.7%
2001 561 -2.4% 9.0%
2002 613 9.3% 9.6%
2003 710 15.8% 10.5%
2004 831 17.0% 11.3%

Source: Central Bank of Honduras


7. (U) Unionization: According to the Ministry of Labor,
there are 77 active unions in the country's approximately 227
maquilas. These unions represent 17,063 workers, or
approximately 13 percent of the total maquila workforce.
This is a higher unionization rate than in the formal sector
overall, where, as of September 2003, 95,000 workers of the
1.1 million workers in the formal sector were unionized, or
8.6 percent.


8. (U) It is also important to note that maquila jobs pay a
much higher wage than most other available jobs. The average
annual salary (including bonuses) for a maquila worker is
over five times greater than the average salary of a worker
earning the minimum wage.

Average Maquila Wage (including bonuses) and Minimum Wage
Annual Wage in US Dollars
-------------- --------------

Average Wage Minimum Ratio, Maquila
Year in Maquila Wage Wage to Minimum Wage

1999 $3,124 $636 4.9
2000 $3,171 $689 4.6
2001 $3,658 $717 5.1
2002 $3,718 $720 5.2
2003 $3,992 $774 5.2

Source: AHM


9. (U) In addition, employees of the manufacturing industry
in Honduras represent 26.2% of all contributors to the
Honduran Social Security system, and contribute 57.9% of the
Honduran Social Security system's income. (Source: 2003
figures from the Honduran Social Security Institute (IHSS)
and the AHM.)

--Shifts in manufacturing and trade toward Chinese or other
producers (statistical data or anecdotal)


10. (U) No statistical data is yet available which captures
the impact of quota elimination in January. However,
anecdotal evidence does suggest that the pressure of Chinese
competition is already being felt, and could lead to factory
closures and lay-offs by May.


11. (SBU) On March 18, EconOff spoke to a U.S. citizen who
manages a medium-size maquila (about 1,000 employees) in San
Pedro Sula. While he knew of no maquilas that have been
forced to close since New Year's (nor do EconOffs),he
reported that the impact of quota elimination and Chinese
competition is being felt generally across the industry in
the form of an increasing demand for lower and lower prices.
He said that many U.S. retailers are demanding that an order
be filled at a price much lower than would have been
requested six months ago for the same product, with the
unspoken understanding that if the factory can't meet that
price, the customer will look to China.


12. (SBU) Furthermore, there is a sense that the impact of
quota elimination will be felt much more severely as early as
May. This is because many maquilas in Honduras, particularly
those which rely on large runs and take orders from the big
retailers such as Target and WalMart, are having difficulty
securing purchase orders beyond that point. These factories
would normally plan their work several months out, and so
would have filled their schedule through the first few months
of this year back in late 2004. The elimination of quotas in
January, therefore, would only be expected to have an impact
starting around May -- and that is exactly what is being
observed.

13. (SBU) Other maquilas, which rely on orders for small runs
of specific, high-value products, are insulated from Chinese
competition to some extent, due to the comparative advantage
that Honduras has in this niche of the market (thanks to
quick reaction time to specific orders and the shorter
time-to-market that Central America enjoys). However the
sense throughout the industry is that, without the benefits
of CAFTA-DR, this is the only part of the Honduran textile
and apparel sector which will be able to remain competitive.

--If available, textile trade data for January and February
of 2005.


14. (U) Neither the GOH nor the AHM releases monthly trade
data for the textile industry.

Palmer
Palmer