US embassy cable - 03TEGUCIGALPA2980

UNCLAS TEGUCIGALPA 002980 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR WHA/CEN AND EB/TPP/ABT 
STATE PLEASE PASS USTR 
DOL FOR ILAB 
 
E.O. 12958: N/A 
TAGS: ETRD, EIND, ELAB, PGOV, HO 
SUBJECT: Honduran Textile Sector Gives CAFTA High Marks 
 
1. (SBU) Summary: Jesus Canahuati, President of the Honduran 
Manufacturers Association, was effusive about the content of 
the textiles chapter of the recently negotiated CAFTA.  He 
identified three areas in particular which are positive 
developments for Honduras: 1) cumulation with Mexico, 2) the 
single transformation rule of origin for certain items, and 
3) the provision that CAFTA tariff rates would be applied 
retroactively to January 1st, 2004.  He is also pleased with 
the expanded short-supply provisions and the revised 
mechanism for qualifying for short supply, while he accepts 
the lack of trade preference levels (TPLs) for Honduras as a 
necessary sacrifice if the agreement is to be ratified by 
the U.S. Congress.  End Summary. 
 
2. (SBU) On December 23rd, EconOff spoke with Jesus 
Canahuati to discuss his views of the textiles chapter of 
the recently negotiated CAFTA.  Canahuati is the President 
of the Honduran Manufacturers Association (formerly known as 
the Honduran Maquila Association), and the owner and manager 
of one of Honduras' largest maquilas.  He is also the 
brother of Honduran Ambassador to the United States Mario 
Canahuati, and Vice President of COHEP, the private sector 
umbrella organization.  Canahuati said he was extremely 
pleased with the agreement, and while the Honduran 
negotiators did not get everything they wanted, Canahuati 
believes that they got enough to place the Honduran textile 
industry on a secure footing heading into 2005 and the 
lifting of worldwide textile quotas. 
 
3. (SBU) In particular, Canahuati identified three major 
aspects of the agreement which will be beneficial for the 
Honduran textile industry.  First: cumulation with Mexico, 
which Canahuati said will encourage integration of the 
industry within the hemisphere.  Second: the granting of a 
single-transformation rule of origin for brassieres, boxer 
shorts and pajamas.  Canahuati said this will be especially 
important for Honduras in the case of brassieres, which can 
be made up of 16 different components and are difficult to 
source under a yarn-forward regime.  And third: the 
provision that CAFTA tariff rates would be applied 
retroactively to January 1st, 2004, which will allow greater 
confidence in making sourcing decisions now for production 
in 2004. 
 
4. (SBU) Canahuati also voiced his satisfaction over the 
expanded short supply provisions, and the proposed mechanism 
for qualifying for short supply.  He acknowledged that some 
in Central America have been frustrated with the slow and 
complex functioning of the existing short supply mechanism, 
and as a result are uncertain whether the new mechanism will 
truly be an improvement.  But for Canahuati, the simplified 
mechanism, particularly the shortened time-frame, and the 
fact that the mechanism takes into account the volume of a 
good required in determining whether a product qualifies for 
short-supply, is a significant improvement.  He said that 
the region's textile producers should give it a chance and 
trust that it will work in practice. 
 
5. (SBU) Canahuati voiced no regret over the near-absence of 
tariff preference levels (TPLs) in the agreement, saying 
that he recognized the political unpopularity of TPLs in the 
United States, and accepted the absence of TPLs as a 
necessary price to pay in order to improve the chances of 
CAFTA being ratified by the U.S. Congress.  He also stated 
that TPLs were not an essential requirement for the Honduran 
textile industry, which relies on locally sourced goods to a 
much greater extent than, for example, the industry in 
Guatemala. 
 
6. (SBU) Comment: The Honduran private sector, as expected, 
is rallying quickly around the cause of selling the benefits 
of CAFTA.  The available information suggests that the 
textile chapter will be particularly beneficial in Honduras, 
where progress is already being made in developing a knit 
textile sector, brassieres and other undergarments are big 
business, and production could quickly expand to include 
higher-value woven products like blue jeans if cumulation 
with Mexican fabric becomes a reality.  The maquila sector 
has been one of the most important sources of employment in 
Honduras in recent years, and has an extremely close, 
symbiotic relationship with the U.S. sector.  We expect the 
influential textile and apparel sector here to be a 
constructive force in pushing for rapid Honduran 
ratification of the agreement, once it is signed.  End 
comment. 
 
Pierce