US embassy cable - 04SANTODOMINGO5757

UNCLAS SECTION 01 OF 02 SANTO DOMINGO 005757 
 
SIPDIS 
 
STATE FOR WHA/CAR, WHA/EPSC, EB/TPP/ABT (HEARTNEY); 
COMMERCE FOR ITA/OTEXA MARIA D'ANDREA; 
 
E.O. 12958: N/A 
TAGS: ECON, ELAB, ETRD, KTEX, DR, EINV 
SUBJECT: DOMINICAN TEXTILES - PROSPECTS FOR PRODUCTION AND 
LABOR 
 
REF: A. SECSTATE 184238 
 
     B. FAX KENDRICK/USDOC 04OCT2004 
 
1. Embassy Santo Domingo  provides the following information 
in response to reftel. 
 
2. Nominal GDP in billions of USD 
FY 2002  21.6 
FY 2003  16.8 
 
Nominal Manufacturing GDP (industrial production) in billions 
of USD 
FY 2002  3.48 (16.1 percent of total GDP) 
FY 2003  2.57 (15.3 percent of total GDP) 
 
3. Total textiles and apparel production in millions of USD 
FY 2002 2,241.4 
FY 2003 2,201.7 
 
4. Textiles and apparel's share of the Dominican Republic's 
imports and exports 
 
Exports (percentage) 
FY 2002 43.4 
FY 2003 40.5 
 
Imports (percentage) 
FY 2002 17.4 
FY 2003 18.9 
 
5. Total manufacturing employment 
FY 2002 441,301 (14.2 percent of total employment) 
FY 2003 455,994 (14.7 percent of total employment) 
 
Sources: Banco Central and the Consejo Nacional de Zonas 
Francas de Exportacion. 
 
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TEXTILE AND APPAREL PRODUCTION IMPORTANT FOR DOMINICAN ECONOMY 
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6. Textile and apparel production is very important to the 
Dominican economy as it constitutes 13 percent of overall 
production in the economy and provides more than 150,000 jobs 
in a country of 8.2 million people.  In 2003, total foreign 
investment in the free zone textile sector amounted to 448.7 
million dollars.  U.S. investment in free-zone textile 
facilities was 153 million dollars or 34.2 percent of the 
free zone total. Textiles are an essential part of the 
Dominican economy. 
 
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FREE ZONES DOMINATE TEXTILE AND APPAREL PRODUCTION 
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7.  Most textile based employment is concentrated in 269 
enterprises in free-zone manufacturing activity throughout 
the country.  Most free zones are located in Santiago and 
Santo Domingo. In 2003, textile manufacturers outside of the 
free zones produced only 8.3 million dollars worth of 
production of a 2.2 billion dollar industry or 3.7 percent of 
textile production. The government-run Consejo Nacional de 
Zonas Francas de Exportacion (CNZFE) generally collects 
textile employment data on a quarterly basis though in some 
years it has been collected only every six months.  Each 
quarter CNZFE officials send out by fax requests for 
employment statistics from all textile enterprises in the 
country.  The response rate averages around 90 percent.  The 
Executive Director of CNZFE, Luisa Fernandez, volunteered 
that the CNZFE has the ability to collect monthly data if 
necessary. Once a year five officials from CNZFE conduct 
visits and collect census data from all free zone textile 
enterprises. During these census visits CNZFE officials 
compile employment and production statistics.  CNZFE is 
financially supported both by the government and by free zone 
enterprises and appears to have the resources to produce 
accurate statistics on textile production and employment. 
 
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ESTIMATED 48,000 JOBS WOULD BE LOST AFTER QUOTA ELIMINATION 
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8. A USAID-financed study done by Nathan Associates in 
September 2004, estimates that the Dominican Republic's free 
zone textile and apparel industry will lose 48,628 direct 
jobs because of quota elimination and macroeconomic and 
financial conditions. (Note: since the USAID report the peso 
has appreciated by 42 percent relative to the dollar in the 
months of September and October)  Ratification and 
implementation of a free trade agreement could mitigate these 
textile job losses, reducing them by almost 60 percent to 
23,346 jobs.  This analysis finds that if Dominican producers 
can become more cost-effective, meet buyer demands for 
full-package service, and streamline production chains, they 
will boost their competitve position in the U.S. market and 
could further reduce or even avoid job losses. 
 
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COMMENT AND POSSIBLE COURSES OF ACTION FOR DOMINICAN TEXTILES 
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9. Studies available to the embassy suggest that as a result 
of the ending of textile quotas as of January 2005, apparel 
shipments from the Dominican Republic will decline by 31 
percent, resulting in a direct employment loss in the sector 
of 36,853 jobs.  Higher costs related to the economic crisis, 
including new taxes and higher energy prices, will result in 
the loss of another 11,775 jobs in the sector - for total 
direct job losses of 48,628.  A possible 10 percent 
appreciation of the Chinese renminbi could reduce the 
Dominican Republic's job losses by an estimated 2,750 jobs. 
In contrast, ratification and implementation of the trade 
agreement with the United States and the Central American 
states would mean direct job losses of 23,346 and a reduction 
of shipments by 419 million dollars. Dominican enterprise and 
the Dominican government could ameliorate these prospects by 
resorting to the following strategies: 
 
(a) assisting small and medium size firms to share resources 
and knowledge, 
(b) ratifying the free trade agreement and implementing its 
provisions, 
(c) designing and coordinating domestic policies on wages, 
taxes, and energy costs so as to maintain competitiveness and 
encourage new investments, 
(d) diversifying production from products with significant 
quota protection to products with significant tariff 
protection, 
(e) diversifying into new appararel markets, and 
(f) diverisfying exports away from textiles and apparel. 
 
10. (U) Drafted by Mark Kendrick. 
 
11. (U) This report and others can be read on the SIPERNET at 
http://www.state.sgov.gov/p/wha/santodomingo/ indez.cfm along 
with extensive other current material. 
HERTELL