US embassy cable - 05BOGOTA9143

UNCLAS SECTION 01 OF 03 BOGOTA 009143 
 
SIPDIS 
 
DEPT FOR EB/TPP/ABT/EDWARD HEARTNEY 
COMMERCE FOR ITA/OTEXA/MARIA D'ANDREA 
STATE PASS TO USTR/ABIOLA HEYLIGER 
 
E.O. 12958: N/A 
TAGS: ECON, KTEX, FTA 
SUBJECT:  TEXTILE AND APPAREL STATISTICS AND PROJECTION OF 
          FUTURE COMPETITIVENESS 
 
REF:  SECSTATE 146213 
 
1.  This is post's response to REFTEL request for 
information on Colombia's textile and apparel employment and 
production data, and projections of future competitiveness. 
 
2.  Textile and apparel production and employment data: 
 
                                        2004      2005 1/ 
 
Total industrial production (USD Mill)  32,157.2  N/A 
Textile and apparel prod.(USD Mill)     2,578.1   N/A 
Textiles and apparel imports (USD Mill) 868.8     512.7 
Textiles and apparel exports (USD Mill) 1,157.7   671.7 
Total Colombian Imports (USD Mill)      15,626.4  8,154.2 
Total Colombian Exports (USD Mill)      16,729.7  8,091.0 
Total manufacturing employment          2,474,341 2,512,421 
Total textiles and apparel employment   128,141   120,150 
 
1/ Data for January-June 2005 
Sources:  DANE, Ascoltex, ANDI 
 
Q. Are host country producers receiving lower prices due to 
heightened international competition?  Have the 
manufacturers received more, less, or the same number of 
orders as in years past?  Have foreign investors, including 
Asian investors, closed factories or otherwise pulled out of 
local production? 
 
3.  Heightened competition in international markets has 
forced Colombian producers to lower the price of their 
textile and apparel products.  According to Carlos Eduardo 
Botero, President of the Textile Chamber at Colombia's 
Association of Industrialists (ANDI), Colombian sales of 
textiles and apparel are also being hurt by the appreciation 
of the Colombian peso against the U.S. dollar.  The peso 
which was at COP 2777 to USD 1 on December 31, 2003, is 
currently at COP 2297 to USD 1.  These producers have also 
noted competition from a growing contraband market, 
involving mostly Chinese products smuggled into the country 
from Panama.  Due to these three reasons, Colombian 
producers have noted that their orders decreased by 
approximately 10 percent from January to June 2005. 
According to Botero, there is little foreign investment in 
the sector's finished products.  However, there is some 
foreign investment in raw material.  Foreign investors have 
not pulled out of local production.  On the contrary, there 
have been some new investments due to the prospects offered 
by a possible Andean Free Trade Agreement (FTA) with the 
U.S.  Regardless, there are virtually no Asian investors in 
the textile and apparel sector in Colombia. 
 
Q. The USG has approved seven safeguards in 2005 to restrict 
the growth of Chinese imports in those product categories, 
and the European Union has reached an agreement with China 
to limit import growth of certain textiles and apparel 
products.  Have the U.S. safeguards or the EU deal affected 
the export prospects for your host country manufacturers? 
Has your host government implemented, or is it considering 
implementing safeguards or other measures to reduce the 
growth of imports of Chinese textiles and apparel products 
into the host country? 
 
4.  According to Botero, 60 percent of the Colombian textile 
and apparel exports can directly replace those Chinese 
imports that are now being restricted from the U.S. and the 
EU. 
 
5.  Colombia has begun implementing safeguard measures to 
limit Chinese textile and apparel imports.  The GOC intends 
to implement safeguards on most products within the textile 
and apparel production chain.  However, for these measures 
to be approved by the WTO, Colombia must demonstrate the 
effective damage Chinese imports have had on its local 
production.  In addition, at least 50 percent of Colombian 
producers must agree to implement the safeguard measures. 
Decree 2839 of August 17, 2005, imposes safeguards on 
household textiles (bed linens, curtains, etc.) and military 
textile products.  According to Ivan Amaya, President of the 
Colombian Association of Textile and Apparel Producers 
(Ascoltex), the decree is temporary, expiring in February 
2006.  However, there is discussion about making this decree 
permanent.  There are plans to implement additional decrees 
for most of the remaining products in the textile and 
apparel sector as well.  The following products have 
safeguard requests that are expected to be passed: socks, 
pajamas, women's and men's underwear, children's clothes, 
and cotton pants and shirts. 
 
Q. Has increased global competition affected local labor 
conditions by causing employers to reduce wages, seek 
flexibility from government required minimum wages, or 
adversely affected union organizing? 
The Colombian textile and apparel sector observes good labor 
standards practices.  Most Colombian exporters are certified 
internationally as Worldwide Responsible Apparel Producers 
(WRAP), and, according to Botero, most retailers in the U.S. 
and abroad require that their providers observe 
internationally accepted labor standards.  The textile and 
apparel producers have not reduced wages or sought 
flexibility from government required minimum wages. 
However, greater competition has caused the sector to reduce 
the size of the workforce.  Textile producers explain this 
is a necessary action due to sector restructuring, adverse 
market conditions, and lower prices of textile and apparel 
products.  Although there are currently no official 
statistics available, Botero expects that approximately 
15,000 textile and apparel workers will lose their jobs this 
year. 
 
Q. Has the government or private industry taken action to 
increase the host country's competitiveness, such as 
improving infrastructure, reducing bureaucratic 
requirements, developing the textiles (fabric production) 
industry, moving to higher value-added goods, or identifying 
niche markets?  Does post think that the host government or 
private industry's strategy will be successful? 
 
6.  The GOC and Colombian private industry are constantly 
seeking new ways to improve competitiveness within the 
textile and apparel sector, a key industry within the 
Colombian economy.  Ongoing negotiations toward a Free Trade 
Agreement with the U.S. has focused the GOC's attention on 
the development of the country's trade infrastructure, 
including roads, ports, and other modes of communication. 
To combat the profit leakage resulting from contraband 
trade, the GOC and private sector have begun seeking ways to 
effectively control these pirated products.  They are also 
negotiating a proposal which would reduce taxes on new 
investments within the sector.  However, this is very 
unlikely to come to fruition due to the difficult fiscal 
situation that the GOC currently faces. 
 
7.  The sector has also started to focus on the production 
of high value-added goods with recognized brand names.  It 
is expected that these products will produce greater profit. 
Lastly, the sector is searching for ways to improve its 
distribution chains, especially among small and medium-sized 
businesses in the U.S. market. 
 
Q. If your host government is the partner in a free trade 
agreement or a beneficiary of a preference program such as 
AGOA, CBTPA or ATPDEA, will this be sufficient for the 
country to remain competitive? 
 
8.  Although Colombia's ATPDEA preference program expires on 
December 31, 2006, the GOC hopes to replace this with the 
FTA that it is currently negotiating with the U.S.  Colombia 
seeks to include all textile and apparel products currently 
excluded from ATPDEA's preferences program.  According to 
Botero, ATPDEA has not by itself guaranteed that the country 
remain competitive in the textile and apparel sector.  The 
ATPDEA preferences, however, have stimulated the growth of 
the sector.  Most Colombian textile exports to the U.S. are 
pursuant to contracts with U.S. retailers or distributors. 
Without ATPDEA or a free trade agreement, these contractual 
arrangements would cease, perhaps quite abruptly.  Such a 
change would lead to a drastic decline in employment and 
incomes in the sector, with consequences for other U.S. 
objectives in Colombia.  Therefore, textile sector 
representatives believe a preference program must be in 
place for continued success.  The sector fears that the 
worst of all possible scenarios would be if ATPDEA expires 
and the FTA is not signed. 
 
Q. Overall, does post think that the host country can be 
competitive in textiles and apparel exports with the end of 
global textile and apparel quotas? 
9.  The textile and apparel sector operates under profit 
margins of a maximum of four to five percent.  This means 
that the competitiveness of the sector depends largely on 
the level of tariffs imposed in international markets, 
especially in the U.S., Colombian textile and apparel 
exporters' largest market.  Thus, the sector feels its 
competitiveness is contingent upon an extension of ATPDEA or 
the signing of an FTA that allows the export of duty-free 
textile and apparel products to the U.S. 
 
10.  Colombia's textile sector enjoys certain comparative 
advantages when compared to other competitors.  Colombia's 
geographic proximity to the U.S. and the fact that it is the 
only country in South America that has ports both on the 
Atlantic and Pacific oceans add to its competitiveness.  In 
addition, the Colombian textile and apparel industry has 
begun focusing on high-value fashion products with brand 
name recognition.  If the industry continues its focus on 
these value added products, it has the potential to carve 
out a lucrative niche in the competitive textile and apparel 
global economy. 
 
Wood