US embassy cable - 05TEGUCIGALPA642

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