URUGUAY'S TEXTILE SECTOR FACES TOUGH TIMES

UNCLAS MONTEVIDEO 000328 STATE FOR WHA/BSC BRUCE FRIEDMAN SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECIN EINV ETRD UY SUBJECT: URUGUAY'S TEXTILE SECTOR FACES TOUGH TIMES Ref: A) Montevideo 312, B) 07 Montevideo 785 ¶1. SUMMARY: (SBU) GOU officials and private sector representatives told Staffdel Meacham that Uruguay was interested in getting preferential access on textiles and apparel. This cable provides background information on the situation of the sector, beset by challenges such as China's trade and the lack of an FTA with the United States. In 2008, the GOU passed a package to support the three textile sub-sectors, which has been well-received by the industry. END SUMMARY. ¶2. (SBU) Carl Meacham, Senior Advisor for Senator Lugar, and Bruce Friedman, Deputy Director of WHA/BSC visited Montevideo April 26-28. During their visit, GOU officials and private sector representatives asked Mr. Meacham and Mr. Friedman to convey to the USG Uruguay's interest in getting preferential access on textiles and apparel (Ref A). This cable provides background information on the recent developments and the situation of the T&A sector. -------------- -------------- WOOL-BASED TEXTILES: A SHRINKING SECTOR IN URUGUAY -------------- -------------- ¶3. (U) Uruguay's textiles and apparel industry is heavily based on wool production and the production of wool-based fabrics. Uruguay does not produce any cotton items. Uruguay's sector has shrunk over the last two decades, with many firms going out of business. Total production fell over 40 percent from 1988 through 1998, and dropped further during the harsh 1999-2002 economic crisis. Since 2003, the sector has recovered slightly, and exports, which had nose-dived from USD 105 million in 1998 to USD 30 million in 2002, are now at about USD 40 million. The local textile and apparel industry employs about 5,000 workers. As of April 2009, the industry had an unemployment rate that was almost three times the national average. -------------- MAIN EXPORT DESTINATIONS -------------- ¶4. (U) Wool exports account for 60-70 percent of total textile exports (USD 206 million of a total of USD 290 million in 2008). China is Uruguay's traditional principal market for wool, absorbing about one-third of Uruguay's wool exports. Italy and Germany are also important buyers of wool. Exports of wool fabrics (USD 20 million in 2008),are concentrated in Argentina, Brazil and to a lesser extent the U.S. In turn, sales of apparel (USD 64 million in 
2008) are largely focused on Argentina, Mexico and Brazil. An FTA with Mexico (signed in 1999 and strengthened in 2003) pushed Mexico's purchases of apparel from 3 percent of Uruguay's exports in 1999 to over 23 percent in 2008. Given lack of preferential access to the U.S., Uruguay has reoriented its sales from the U.S. to Argentina. NOTE: Between 2002 and 2006, the U.S. share in total exports fell from 32 percQ to 12 percent while Argentina's rose from 7 percent to 32 percent. END NOTE. -------------- -- ON TRADE PREFERENCES: URUGUAY CAN'T GET A BREAK -------------- -- ¶5. (U) Uruguay only has FTAs with its Mercosur partners and Mexico, which are currently its major markets for textile and apparel. In contrast, Uruguay is generally shut out of the U.S. market. Uruguayan textile and apparel producers face high tariffs in the U.S. market (in the 17.5 percent-25 percent range),as well as strong competition from FTA signatories (mainly Chile, Mexico and Peru) and countries with unilateral trade preferences. Furthermore, Uruguay faces difficulties in exporting fabrics to the U.S. (given the contraction of the U.S. industry) and even to Latin FTA signatories that export to U.S. (since such agreements require that apparel be produced with US-sourced or local fabrics). Local producers are also challenged by the small size of the local apparel industry, and high transportation costs -particularly air cargo- to Asian markets. ¶6. (U) Uruguayan textile and apparel exporters to most markets do not face direct competition from China since they focus on Italian-style high-quality products. China, however, tends to purchase raw wool and carded wool, rather than higher value-added goods such as shirts and blouses. The local Association of Apparel Producers is also concerned about illegal under-invoiced imports of Chinese apparel that enter South America through the Chilean port of Iquique and are later distributed in the Southern Cone. Supplying about one-fourth of imports, Brazil has been Uruguay4s main supplier of textile and apparel over the last decade (Argentina was number two). However, imports from China have rocketed since 2003 and China is now competing closely against Brazil. ¶7. (SBU) In November 2008, Argentina imposed non-automatic licenses on about 200 goods, including imports from Mercosur members. While only 6 percent of Uruguay's exports to Argentina are subject to licensing, the measure is having a strong impact on specific sectors like textile and apparel and furniture. Argentina is by far Uruguay's major export market for knitted fabrics and Uruguay is Argentina's principal supplier of wool overcoats and sleeveless jackets (with as much as 70 percent-90 percent market share). Industry sources recently told us that on top of the licenses, the GOA is explicitly deterring importers from purchasing in Uruguay. -------------- GOU MEASURES TO ASSIST LOCAL INDUSTRY -------------- ¶8. (U) In its 2008 budget, the GOU included a USD 20 million package to support the three textile sub-sectors: wool, fabrics and apparel. The package - valid from 2007 through 2009 - created a USD 5 million collateral fund to facilitate Small and mid-sized enterprises' access to credit. It also allotted USD 6 million to help apparel producers develop high-end niches abroad, USD 6 million to fabric and textile producers to strengthen their cash positions and USD 3 million to producers of combed wool bates who face shortages of uncombed wool (their raw material) as is being shifted to China. The GOU also improved financing conditions for T&A exporters. -------------- PRIVATE SECTOR VALUES GOU'S PACKAGE -------------- ¶9. (SBU) On June 10 Elbio Fuscaldo, a textile entrepreneur and head of Uruguay's Apparel Chamber, assessed the GOU's assistance as "very productive." During a conversation with emboffs, he celebrated that the package has helped textile producers improve their competitiveness, and told us that some of the funds have been used to set up a training center for operators of apparel machinery, finance the purchase of a foreign trade software (U.S. made),and help local firms open new markets abroad. MATTHEWMAN