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