VZCZCXYZ0010
RR RUEHWEB

DE RUEHQT #0924/01 2692214
ZNR UUUUU ZZH
R 252214Z SEP 08
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC 9429
INFO RUEHBO/AMEMBASSY BOGOTA 7759
RUEHCV/AMEMBASSY CARACAS 3197
RUEHLP/AMEMBASSY LA PAZ SEP LIMA 2819
RUEHGL/AMCONSUL GUAYAQUIL 3822
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS QUITO 000924 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR MEWENS 
 
E.O. 12958: N/A 
TAGS: ETRD EINV ECON KTEX EC
SUBJECT: ECUADOR'S TEXTILE SECTOR: SURPRISING SIGNS OF STRENGTH 
 
REFTEL: Quito 601 
 
¶1.  (U) Summary: Ecuador's textile sector has had to deal with the 
bankruptcy of a large exporter and stagnant investment due to 
uncertainty over Ecuador's political climate, the renewal of ATPA, 
and the potential impact of the U.S.-Columbia free trade agreement 
(FTA).  However, exports of some products to Colombia and Venezuela 
are growing, companies are planning new investments, and the 
industry may rebound this year.  End Summary. 
 
¶2.  (U) Ecuador's textile industry has shown flat investment and 
declining exports for the past year.  Due to concern over whether 
the Andean Trade Preference Act (ATPA) will be renewed, textile 
producers that export principally to the U.S. have invested only 
amounts necessary to maintain business operations, rather than 
expand exports.  In addition, the industry has expressed concern 
that if Colombia has an FTA with the U.S., Ecuadorian inputs into 
Colombian products for export to the U.S. would not count toward 
accumulation for origin purposes (as they do now under ATPA).  This 
is a significant market for Ecuador, and the impact of its loss 
could be substantial. 
 
¶3.  (U) Total textile exports from Ecuador have declined steadily 
over the last year, with manufactured textiles (sheets, towels, 
tablecloths) the only subsector to experience export growth between 
2006 and 2007.  These problems mask hidden strengths in the 
industry, however, and several factors suggest that the industry may 
be well-positioned for the future. 
 
Regional and International Strength 
----------------------------------- 
 
¶4.  (SBU) The growth in manufactured textile exports from Ecuador 
can be attributed to a growing competitive advantage vis-a-vis 
Colombia and Venezuela.  According to La Escala, a large U.S.-owned 
textile company in Ecuador, the appreciation of the Colombian peso 
has made Colombia's textile products more expensive, boosting demand 
for imports from neighboring Ecuador.  In Venezuela, government 
policies have destroyed the textile industry, indirectly creating a 
market opportunity for Ecuadorian textile exporters.  La Escala 
stated that it will expand its exports to both Colombia and 
Venezuela this year. 
 
¶5.  (U) Ecuadorian textile companies also find themselves 
increasingly competitive in comparison with companies from China. 
Textile production costs are rising in China due to higher wages, 
the elimination of export rebates, forced environmental compliance, 
and the appreciation of the yuan.  This has made Ecuadorian 
companies more competitive and has allowed them to raise prices. 
The industry has also benefited from a GOE crackdown on the 
importation of cheap contraband goods from China (reftel), and from 
changes to the GOE's procurement policy, both of which have 
encouraged the development of the local textile industry. 
 
Stagnant Investment May Soon Recover 
------------------------------------ 
 
¶6.  (SBU) Although companies remain concerned about the renewal of 
ATPA and the draft constitution, La Escala noted that its 2007-2008 
investments will total $1.3 million.  Other textile companies within 
the Ecuadorian Textile Association (AITE) plan to invest a combined 
$18 million in Ecuador during 2008.  La Escala credits the improved 
2008 textile investment climate to companies' ability to raise 
prices in order to offset higher raw material costs.  AITE suggests 
that last year's declining exports were primarily due to the 
bankruptcy of La Internacional, a large Ecuadorian textile exporter 
that was taken over by Vicuna of Brazil.  Vicuna took almost nine 
months to reorganize La Internacional, but its exports are expected 
to increase this year as Vicuna implements a $20 million expansion 
of denim production.  AITE expects additional investment to come 
from a new government program to help textile producers in 
Atuntaqui, a town near Otavalo known for quality textile goods, 
prepare their products for export. 
 
COMMENT: 
-------- 
 
¶7.  (SBU) In spite of the continuing uncertainties, Ecuador's 
textile industry is evidently strong enough that investors are 
willing to devote resources (as seen by Brazilian firm Vicuna's 
takeover of a bankrupt Ecuadorian company and planned 2008 
investment).  The combination of Colombia and China's rising textile 
prices, the decline of the Venezuelan textile industry, and GOE 
crackdowns on contraband have all improved Ecuador's competitive 
position.  The pending FTAs with Colombia and Peru have yet to have 
an impact on Ecuador's textile industry. 
 
CHRITTON