US embassy cable - 05KINGSTON2163

UNCLAS SECTION 01 OF 03 KINGSTON 002163 
 
SIPDIS 
 
STATE FOR WHA/CAR/ (WBENT), WHA/EPSC (JSLATTERY) 
 
SANTO DOMINGO FOR FCS AND FAS 
 
TREASURY FOR L LAMONICA 
 
E.O. 12958:  NA 
TAGS: ETRD, ECON, EINV, XL JM 
SUBJECT: TEXTILES AND APPAREL SECTOR: UPDATED STATISTICS 
AND PROJECTION OF FUTURE COMPETITIVENESS 
 
REF: A. STATE 146213 
     B. 03 KINGSTON 141419 
 
1. This cable responds to ref A tasking. 
 
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Background 
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2.  Textiles and apparel became Jamaica's leading non- 
traditional export during the early 1990s, after Jamaica 
started benefiting from the Caribbean Basin Initiative 
(CBI).  The benefits from this U.S. program allowed the 
sector to record robust growth between 1990 and 1995 and 
were largely responsible for the mushrooming of the 
island's non-traditional export sector.  In 1990, export 
earnings from the sector amounted to only USD 116 million, 
or just under 10 percent of total exports, but by 1995 
earnings surged to USD 619.6 million or 30.1 percent of 
exports.  However, the sector started to register 
reversals in 1996, due to the onset of NAFTA and the 
consequent diversion of trade to Mexico, as well as the 
relative attractiveness of low cost Latin American labor. 
The decline accelerated after 2000 due to the underlying 
Jamaican macroeconomic environment within which 
manufacturers had to operate, including frequent bouts of 
exchange rate instability, high interest rates and 
relatively high labor costs.  These, combined with rising 
utility and security costs, drove overheads through the 
roof and local manufacturers exited the sector in droves, 
while most free zone producers either closed operations or 
relocated to other low cost destinations such as the 
Dominican Republic. 
 
3.  Jamaica's textiles and apparel sector also became a 
significant contributor to employment, particularly for 
low-and semi-skilled women.  Job creation in the free zone 
rose to a high of 10,714 in 1995.  However, by the end of 
2004 employment had dwindled to 1,367.  This dramatic fall- 
off, combined with a commensurate decline in domestic 
textiles and apparel employment, was largely responsible 
for the rapid increase in Jamaica's female unemployment 
rate, which was 16.4 percent at the end of 2004.  Figures 
from the free zone revealed that the textiles and apparel 
sector has almost disappeared from the Jamaican landscape, 
as earnings have fallen to USD 21.6 million or 3.4 percent 
of exports at the end of May 2005.  Free zone employment 
through July 2005 has also sunk to a low of 128. 
Recognizing that the country's once flourishing textile 
and apparel sector was in trouble, the GOJ embarked on a 
program to transform the industry from basic assembling to 
full package production, which requires value-added 
processes, fabric supplies and a highly skilled labor 
force.  In the last two years Jamaica has also been 
creating waves in the international fashion markets and, 
unlike the previous foray, the recent thrust has been 
largely private sector driven. 
 
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Answers To Reftel 
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4.  Total Jamaican industrial production for 2004 was USD 
1.1 billion, while textiles and wearing apparel output for 
the same period was 8.3 million or 0.8 percent of 
industrial production.  Data is not yet available for 
2005.  Free zone production is not counted as part of GDP 
or domestic exports. 
 
b.  Textiles and apparel exports amounted to USD 137.2 
million (includes free zone) in 2004 and USD 21.6 million 
for January to May 2005.  Textiles and apparel imports for 
January to September 2004 were USD 91.7 million.  Import 
data is not yet available for 2005.  Textiles and apparel 
exports accounted for 8.9 percent of total exports in 2004 
and 3.4 percent for January to May 2005, while textiles 
and apparel imports accounted for 3.2 percent of total 
imports. 
 
c.  Total manufacturing employment was 69,400 in 2004 and 
73,000 for the first six months of 2005.  Total free zone 
textiles and apparel employment was 1,367 during 2004, but 
has declined to 128 at the end of July 2005.  No data is 
available for domestic employment in 2004 or 2005.  When 
domestic employment data was last published in 2002, 
12,054 persons were employed in large establishments 
(companies employing a minimum of 50 persons).  It is 
relatively safe to assume that the number of employees has 
fallen in tandem with the decline in output and earnings 
(down 30.3 and 82.6 percent, respectively). 
 
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Additional Information Requested 
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5.  Despite the downturn in Jamaica's textiles and apparel 
industry, the country's producers have not seen much 
change in prices.  Producers have been receiving a similar 
number of orders, but local operational costs (including 
shipping) have risen faster than competitors' costs have 
risen in China, India and Pakistan.  According to Kenrick 
McFarlane of the Port Authority of Jamaica (PAJ), North 
American and Far Eastern companies who set up operations 
in Jamaica primarily to benefit from quota restrictions in 
their home markets were forced to close their factories 
and relocate. 
 
6.  Jamaica's export prospects have not been affected by 
the U.S. safeguards or the EU agreement with China to 
limit the import growth of certain textiles and apparel 
products.  Arlene Martin of JAMPRO told emboff that the 
GOJ has not seriously considered the implementation of 
safeguards or other measures to reduce the growth of 
imports because the industry has been declining for such a 
long time.  McFarlane, in supporting this view, said that 
once the GOJ realized that the country had become 
uncompetitive, apparel production was de-emphasized and 
information technology became the rising star. 
 
7.  The increased global competition has not affected 
local labor conditions.  On the contrary, it is the 
increasing labor costs relative to competitors that have 
been one of the major reasons for the demise of the local 
industry.  Jamaicans working in the textiles and apparel 
industry are generally paid a premium above the country's 
minimum wage, which acts as a floor.  Therefore with each 
annual increase in the country's minimum wage, there is a 
commensurate increase in wages paid in the industry. 
Jamaica's labor rates are currently over USD 1.50 per hour 
and rising. 
 
8.  Given that the garment industry has been a major 
source of employment and export earnings for the last 
decade, the GOJ took a number of steps to stem its demise. 
The PAJ'S McFarlane said that in the latter part of 1999 a 
fund was established to reduce operational costs, but the 
resources were exhausted in one year and most of the firms 
that benefited closed shop thereafter.  Michael Anderson 
of the Kingston Free Zone also explained that the GOJ made 
frequent adjustments to the Free Zone Act to make it 
easier for companies that did not fit the free zone 
profile to benefit under the act.  In addition, the free 
zone constantly reduced rental cost and improved security 
arrangements.  Attempts were also made to improve the 
bureaucracy at Customs, resulting in a significant 
reduction in red tape.  JAMPRO'S Martin told emboff that 
the GOJ also discussed the revival of the textile 
industry, but no action was taken.  She said the GOJ 
agreed instead to concentrate on the development of the 
design products market.  However, Martin said that the 
country was already experiencing production problems in 
this niche market and serious consideration was being 
given to the idea of outsourcing production to other 
countries. 
 
9.  Jamaica is currently a beneficiary of Caribbean Basin 
Trade Partnership Act (CBTPA), but McFarlane of the PAJ 
said that not even the benefits under this program were 
sufficient to cushion the high overhead costs. (Ref B). 
10.  When asked about the future of the country's textiles 
and apparel industry, Anderson said the sector was dying a 
slow death, largely because producers cannot deal with the 
competition from lower overhead producers in Mexico and 
China.  He said that the largest remaining producer closed 
shop earlier this year, leaving only two apparel firms 
employing 46 people in the Kingston Free Zone.  When posed 
the same question, McFarlane opined that the sector has 
structural problems, which will make it impossible for 
manufacturers to produce large volumes and remain 
competitive.  He pointed to energy and security costs as 
the major problems.  JAMPRO'S Martin, who shares a similar 
view, said that the fashion industry (designer clothing) 
is now Jamaica's best option, since this higher value- 
added product already enjoys a presence in the 
international marketplace.  However, she suggested that 
serious consideration has to be given to outsourcing 
production. 
 
11.  The Jamaican textile and apparel industry faces a 
number of challenges.  Chief among these are the removal 
of preferential access to key markets following the 
removal of the quota system; competition from low cost 
producers; a large untrained labor force; small factories 
that inhibit the achievement of economies of scale; 
dependence on a few markets and on imported inputs; and, 
high overhead costs.  Therefore, unless the country 
creates niche markets in the very short term, the sector 
could be decimated before the end of 2005. 
 
TURNER