This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 LIMA 004184 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR WHA/AND, EB/TPP/ABT - E HEARTNEY 
COMMERCE FOR ITA/OTEXA/MARIA D'ANDREA 
USTR FOR B. HARMAN and A. HEYLIGER 
 
E.O. 12958: N/A 
TAGS: KTEX ETRD ECON EINV PE
SUBJECT: PERU: UPDATED TEXTILE AND APPAREL INFORMATION 
 
REF: A) STATE 146213  B) LIMA 68   C) 04 LIMA 5445 
 
¶1. (SBU) Summary.  Peru's textile and apparel sectors have 
grown rapidly in the past few years, due primarily to 
benefits under the Andean Trade Promotion and Drug 
Eradication Act (ATPDEA).  While textile and apparel exports 
values increased from $823 million in 2003 to $1.09 billion 
in 2004, this sector accounts for less than 12 percent of 
Peru's overall exports.  Peru's textile sector faces severe 
competition from cheaper Chinese imports, which undermines 
the ability of local producers to sell domestically.  Peru 
lifted its safeguards on Chinese textiles in May, but the 
GOP is currently negotiating with the Chinese government to 
apply "self-imposed" limitations on Chinese exports to Peru. 
The key to the competitiveness of Peru's textile sector is 
ATPDEA, which will expire in December 2006.  Without a free 
trade agreement (FTA) to replace ATPDEA, Peru's textile and 
apparel production would decline and products would be less 
competitive on the world market.  End Summary. 
 
Production 
---------- 
 
¶2. (U) According to the Central Bank, manufacturing and 
industrial production in 2004 totaled $10.5 billion, an 
increase from 2003 level of $9.2 billion.  Textile and 
apparel production accounts for a small portion of Peru's 
total industrial production.  The Central Bank reports that 
Peru's 2004 textile and apparel production reached $1.5 
billion, an increase from $1.4 billion in 2003. 
 
Imports and Exports 
------------------- 
 
¶3. (U) Peruvian total imports increased from $8.25 billion 
in 2003 to $9.8 billion in 2004.  Textile and apparel 
imports comprised approximately 3.6 percent of this total. 
According to the Central Bank, Peruvian imports of textiles 
and apparel totaled $358 million in 2004, increasing from 
$314 million in 2003. 
 
¶4. (U) The Central Bank also reported that Peru's total 
exports in 2004 reached $12.6 billion, a dramatic increase 
from $9.1 billion in 2003.  As a percentage of exports, 
textiles and apparels accounted for only 8.7 percent of 
exports in 2004, a slight decrease from 9.1 percent in 2003. 
Although textile and apparel exports account for a small 
portion of total exports, these exports grew at a rate of 
25% from 2003 to 2004, from $823 million to $1.1 billion. 
The majority of Peruvian textile and apparel exports include 
manufactured cotton garments and basic textile products 
(spun and woven cotton and wool).  Textile industry 
representatives indicate that the substantial increase in 
Peruvian exports, particularly of textiles and apparel, is 
directly linked to ATPDEA, which expanded benefits to 
include Peruvian apparel products. 
 
--------------------------------------------- -------------- 
        Peruvian Import and Export Levels, 2003-2004 
--------------------------------------------- -------------- 
                   USD, millions           Percent Share 
                 2003     2004               2003     2004 
--------------------------------------------- -------------- 
Exports 
Textiles         165.0      218.0             1.5       1.7 
Apparel          654.0      874.0             7.6       7.0 
Textile/Apparel  823.0     1092.0             9.1       8.7 
Total Exports   9091.0    12617.0           100.0     100.0 
 
Imports 
Textiles         207.2      238.0             2.5       2.4 
Apparel          107.6      120.0             1.3       1.2 
Textiles/Apparel 314.8      358.0             3.8       3.6 
Total Imports   8254.5     9824.0           100.0     100.0 
--------------------------------------------- -------------- 
Source: INEI (Statistics Bureau), Central Bank 
 
¶5.  (SBU) While official statistics on 2005 textile exports 
are not yet available, local industry officials informed us 
that approximately 65 percent of Peruvian apparel was 
shipped to the United States during the first six months of 
the year.  According to the Lima Chamber of Commerce, 
textile and apparel exports totaled $390.4 million through 
June 2005, an increase of 17 percent year/year.  The Lima 
Chamber of Commerce emphasized that USG limitations on 
certain Chinese textile and apparel products enables 
Peruvian products to compete for the U.S. market. 
 
Employment 
---------- 
 
¶6. (U) The Peruvian Census Bureau estimates that there are 
currently close to 14 million people in the labor force, 
with 10 percent working in the manufacturing sector.  Of 
these, the Ministry of Trade and Tourism (Mincetur) 
estimates that in 2004, approximately 130,000 individuals 
were gainfully employed in the textile and apparel industry, 
accounting for less than 3 percent of total employment. 
Much of the employment in the textile industry, however, is 
informal and these statistics do not accurately reflect true 
employment patterns. 
 
--------------------------------------------- -------------- 
   Total Manufacturing and Textiles/Apparel Employment 
                        2002-2003 
--------------------------------------------- -------------- 
                                              Percent Share 
                      2002         2003        2002    2003 
 
Total Manufacturing  1,173,260   1,164,086       9.7    8.9 
Textiles               353,943     354,140       2.9    2.7 
Total employment    12,070,072  13,013,298     100.0  100.0 
--------------------------------------------- -------------- 
Source: Unpublished data from Peruvian Department of Labor 
 
No Safeguards on Chinese Products 
--------------------------------- 
 
¶7.  (U) Peru was one of the few countries that imposed 
safeguards on Chinese textiles before the elimination of the 
WTO's Multi-Fiber Agreement (MFA) (ref B).  In October 2004, 
the GOP established temporary safeguards on 20 sensitive 
textile products; these protections expired on May 1.  After 
conducting a review of the textile industry from October 
2004-March 2005, the GOP decided not to extend these 
safeguards.  To appease the opponents, the GOP passed new 
customs regulations calling for "special attention" on 36 
different imported items, including 13 sensitive textile 
products, stating that if not monitored, these products 
could harm local industry.  The new regulations also gave 
Customs the power to place additional tariffs on these 36 
products if it detects that importers are engaging in 
fraudulent behavior, such as dumping. 
 
¶8.  (U) Despite new regulations, local industry and several 
export societies continue to demand that the GOP reinstate 
textile safeguards.  Instead of bowing to public pressure, 
the Ministry of Production began negotiations with China in 
August to encourage China to place a "self-imposed" 
limitation on Chinese textile exports to Peru.  Although the 
Ministry of Production claims that GOP officials made 
significant advances during the last round of negotiations 
with China in early September, the GOP is unable to specify 
when the negotiations will end. 
 
Comment 
------- 
 
¶9. (SBU) Peru's small but vibrant textile sector benefits 
greatly from ATPDEA, which is set to expire at the end of 
¶2006.  Without ATPDEA, or a free trade agreement to replace 
ATPDEA, Peruvian apparel would be unable to compete with 
Chinese products and products from countries that have 
preferential trade agreements (such as the Central American 
countries).  The Peruvian Government remains committed to 
concluding FTA negotiations by November 2005; the government 
recognizes that the economic benefits of trade are too good 
to pass up. 
 
STRUBLE