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

UNCLAS SECTION 01 OF 04 SAN JOSE 002158 
 
SIPDIS 
 
WHA/CEN 
EB/TPP/ABT FOR EHEARTNEY 
EB FOR WCRAFT 
BLAMPRON 
E FOR DEDWARDS 
WHA/EPSC FOR KURS 
LGUMBINER 
COMMERCE/ITA/OTEXA FOR MDANDREA 
 
STATE PASS TO USTR FOR RVARGO, NMOORJANI, AHEYLIGER 
 
E.O. 12958: N/A 
TAGS: ETRD ECON KTEX PGOV PREL CS
SUBJECT: COSTA RICA: TEXTILE AND APPAREL INDUSTRY 
 
REF: A. (A) SECSTATE 146213 
     ¶B. (B) SAN JOSE 00678 
 
¶1.  Summary:  The textile industry in Costa Rica is regarded 
as efficient and productive.  However, the low labor costs of 
China and the preferential treatment Mexico was granted under 
the North American Free Trade Agreement (NAFTA) put the Costa 
Rican textile industry at a disadvantage.  As a result of 
these and other competitive factors, Costa Rican textile 
industry exports declined, and employment in the sector more 
than halved from 1990 through 2004.  In 2001, Caribbean Basin 
Initiative (CBI) nations began realizing the benefits of the 
textile-related provisions of the Caribbean Basin Trade 
Promotion Act (CBTPA).  Although still declining in exports 
and employment, in recent years the Costa Rican textile 
industry has maintained viability by concentrating on niche 
products, leveraging the skills of its efficient workforce, 
and taking advantage of its relative proximity to the U.S. 
market.  End Summary. 
 
-------------------- 
REQUESTED STATISTICS 
-------------------- 
                                    2004*    Jan-Jun 2005* 
 
Total Industrial Production        4,765           2,504 
 
Textile/Apparel Production           630             268 
Share of Total Production (%)       13.2            10.7 
 
Total Imports (M)                  8,300           4,600 
 
Textile/Apparel Imports              588**           288** 
Share of M (%)                       7.1             6.3 
 
 
Total Exports (X)                  6,300           3,400 
 
Textile/Apparel Exports              547             218 
Share of X (%)                       8.7             6.4 
 
Total Work Force               1,654,000       1,654,000 
 
Manufacturing Employment (ME)    230,000         230,000 
 
Textile/Apparel Employment        15,000          15,000 
Share of ME (%)                      6.5             6.5 
 
 
*Source: The Foreign Trade Corporation of Costa Rica 
(PROCOMER) and Council of Textile Quotas, all figures in USD 
millions 
**Based on information provided by the Costa Rican Textile 
Chamber ) includes imports into Free Trade Zones. 
 
¶2.  According to GOCR and industry sources, the total number 
of people directly employed in the textile industry is 
between 11,000 and 15,000.  The GOCR Social Security Agency 
records approximately 11,000 workers in this industry. 
However, industry experts claim at least 15,000 direct jobs, 
as well as another 5,000 jobs that are indirectly tied to the 
textile industry.  There are approximately 67 companies in 
the industry in Costa Rica.  Of the estimated 15,000 
employees, approximately two thirds are employed by four 
large companies including Sara Lee (and its contractors), 
Vanity Fair (VF), Jockey, and Borkar.  Products are varied 
and include suits, casual style pants, knit shirts, 
underwear, and clothes with high tech sport fabrics.  For the 
2004 calendar year, Costa Rica exported USD 546.7 million of 
textiles, of which USD 523 million went to the U.S.  Seventy 
seven percent of total exports to the U.S. used almost 
exclusively U.S. inputs to comply with CBTPA rules. 
 
¶3.  Recent news about loss of textile and apparel jobs 
include the closing of Lovable/Celebrity Co.,s operations by 
the end of September 2005, reportedly due to increased 
competition from China.  Lovable/Celebrity makes women,s 
underwear and is headquartered in Honduras, has operated in 
Costa Rica for 33 years, and, at its peak 20 years ago, 
employed 1,500 workers.  The closing of operations in Costa 
Rica means that 76 workers will have to find other jobs. 
Lovable/Celebrity is moving work to its other facilities in 
Honduras due to the pressure to lower labor costs and the 
fact that Honduras has ratified the United States-Central 
American-Dominican Republic FTA (CAFTA-DR).  A Celebrity 
representative stated that the textile and apparel sector is 
facing many threats in Costa Rica such as the GOCR,s 
indecision about CAFTA-DR.  Another large company, Vanity 
Fair, let 300 workers go in January 2005, and job shedding in 
the industry is likely to continue. 
 
-------------------------- 
QUESTIONS AND ANSWERS 
-------------------------- 
 
¶4.  As requested in Paragraph 5 of Ref A, Post offers the 
following input. 
 
Q1:  Are host country products 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? 
 
A1:  Prices in the apparel market are declining not only due 
to the increase in competition, but also because of more 
effective and efficient production processes and the decline 
in prices of raw materials, especially fabric. 
 
In Costa Rica the companies are receiving the same number of 
orders as last year.  However, due to market forces such as 
the above-mentioned influences, the value of textile and 
apparel production is decreasing. 
 
Industry sources say that there have not been any Asian 
investors or Asian-owned textile or apparel manufacturers in 
Costa Rica for several years.  A U.S.-owned producer of 
relatively low-end children,s clothing, Garan, is moving its 
operation to El Salvador and to contractors in China. 
 
¶5.  Q2:  The USG has approved seven safeguards in 2005 to 
restrict the growth of Chinese imports in those product 
categories, and the European Union (EU) 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 of (Costa Rican) 
manufacturers?  Has your host government implemented, or is 
it considering implementing safeguards or other measures to 
reduce growth of imports of Chinese textiles and apparel 
products into (Costa Rica)? 
 
A2:  In the case of socks, industry experts said the 
safeguards implemented by the U.S. had a positive effect by 
fomenting some uncertainty, at least in the minds of U.S. 
buyers, about the potential supply of products from China. 
That is, since the safeguards potentially limit the 
importation of socks made in China, supply from Costa Rican 
sock suppliers was seen as more reliable.  Industry experts 
also revealed that they have discussed the possibility of 
implementing safeguards in textiles.  However, this is a very 
expensive and time-consuming process in which the sector has 
to prove damages.  Many years ago the Costa Rican Textile 
Chamber, an industry association, tried to make such a case, 
and they were not successful.  Furthermore, the governmental 
agency responsible for reviewing such requests, the Ministry 
of Economy, Industry, and Trade, does not have sufficient 
personnel to perform such reviews.  As a result, neither the 
industry nor the GOCR is thinking about pursuing safeguards 
at this time. 
 
¶6.  Q3:  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 organization? 
 
A3:  Because Costa Rican textile and apparel manufacturers 
have survived due to finding niche products, emphasizing 
efficiency, and employing highly-skilled personnel, neither 
labor standards nor wages have decreased.  Workers are 
relatively well paid, and their standard of living is high 
not only compared to their neighbors in Central America but 
also compared to other countries of the world.  Since the 
majority of exports go to the U.S., labor standards have 
increased due to complying with the standards of labor 
certifications which are required by major U.S. buyers. 
Also, Costa Rica has a relatively strong sense of social 
egalitarianism, and proposals to suppress the minimum wage 
would not be looked upon positively and would be highly 
unlikely to be approved.  Note:  Inflation is currently a 
problem in Costa Rica, and wages are not keeping up.  The 
GOCR mandates the annual percentage increase in private and 
public sector wages and has recently held them to a level 
below the rate of inflation.  Therefore, the real purchasing 
power of workers, wages of is declining.  Although there is 
a union presence in most factories, the operations are 
usually funded by the plant owner and are focused more on 
social issues and activities.  The relationships between 
owners and unions in the textile industry tend to be 
non-confrontational. 
 
¶7.  Q4:  Has the government or private industry taken action 
to increase (Costa Rica,s)competitiveness, such as improving 
infrastructure, reducing bureaucratic requirements, 
developing the textiles (fabric production) industry, moving 
to higher-valued goods, or identifying niche markets.  Does 
Post think that the host government or private industry,s 
strategy will be successful? 
 
A4:  During the 1990s, the Costa Rican textile industry was 
whittled down to those manufacturers that were efficient 
and/or specialized.  Today, the Costa Rican Textile Chamber 
works actively with the Ministry of Foreign Trade (COMEX) and 
Customs to increase the efficacy and efficiency of the 
exporting and importing process.  Customs is currently 
implementing a new registration system for imports, although 
it is not yet up and running.  Reportedly, some technical 
problems have delayed its full use.  The quasi-government 
organization, the National Association of Industrial Textile 
Exporters, works with government and private industry to 
educate them on the different importing/exporting regimens 
such as the Special 807 requirements and, if and when it 
takes effect in Costa Rica, the U.S.-Central 
American-Dominican Republic Free Trade Agreement (CAFTA-DR) 
requirements.  The Textiles Chamber also works with private 
industry companies to upgrade their capabilities and help 
steer them to more efficient methods and more 
customer-friendly services. 
 
Many of the companies in Costa Rica have already found niche 
markets or have begun to offer a broader range of services to 
their customers.  For example, Capas Vaqueros makes GORTEX to 
produce waterproof jackets and garments, one of very few 
companies outside of the U.S. that is authorized to do so. 
Cordero y Chavarria transitioned from only performing cutting 
and trimming services to offering design and manufacturing 
services for exercise wear.  Coloplast started making 
prosthesis bras for women who have had mastectomies and now 
also makes swimwear for the same clientele. 
 
With respect to the survival of the textile and apparel 
industry in Costa Rica, the most productive step the GOCR can 
take is to expeditiously approve CAFTA-DR, which will 
facilitate access to the U.S. market.  Lack of sufficient 
infrastructure is an important issue and affects all 
manufacturers, especially those that are located farther from 
the port of Limon or the airports in San Jose. 
Infrastructure improvements are planned to accompany the 
implementation of CAFTA-DR as part of its complementary 
agenda. 
 
¶8.  Q5:  If (Costa Rica) is a 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? 
 
A5:  As stated previously, many textile and apparel companies 
have already found their niche products, but still most rely 
on the preferences granted under CBI/CBTPA to compete against 
lower cost producers such as China.  This industry imports 
approximately 77 percent of its raw materials from the U.S. 
and exports most of its finished products to the U.S., which 
amounted to approximately USD 523 million in 2004.  Seventy 
seven percent of this amount was exported to the U.S. under 
the Special 807 program.  Industry experts see CAFTA-DR as 
absolutely necessary for the survival of the industry in 
Costa Rica and the rest of Central America.  If Costa Rica 
has not implemented CAFTA-DR before CBTPA expires in 
September 2008, it is very unlikely that the Costa Rican 
textile industry will survive with the exception of a few 
very special niche products and high-valued items. 
 
¶9.  Q6:  Overall, if not already addressed, does Post think 
that (Costa Rica) can be competitive in textiles and apparel 
exports with the end of global textiles and apparel quotas? 
 
A6: With respect to the threat due to low labor costs in 
China, the full effects of the expiration of global quotas 
have not yet been felt, and Costa Rica has not yet seen a 
large migration of textile jobs to places such as China. 
This is due in part to high efficiency, production of niche 
products, and the benefits of the Caribbean Basin Trade 
Preference Act (CBTPA).  However, industry experts told us 
that in 2003 CarterTex moved its operation from Costa Rica to 
Mexico and then later to China due to lower labor costs; this 
despite the fact that the factory in Costa Rica was much more 
efficient than either of those in Mexico or China.  If 
CAFTA-DR is not approved and the benefits of CBTPA go away, 
experts believe the Costa Rican textile industry will all but 
disappear.  The loss of 15,000 jobs from the textile industry 
in Costa Rica would affect a population five times that size 
when family members of workers are included. 
 
The only hope to maintain exports of textiles and employment 
in Costa Rica is to have some advantage in efficiency, labor, 
and/or trade preferences.  Benefits under CBTPA, unless 
extended, will expire in September 2008.  Costa Rican 
industry representatives are some of the most fervent 
supporters of CAFTA-DR because the agreement makes permanent 
the tariff-free exporting to the U.S. of their products. 
Costa Rican textile and apparel manufacturers will continue 
to be highly efficient and employ highly-skilled workers. 
However, it is difficult to see the Costa Rican textile 
industry being able to contend with the fierce competition 
from China without the advantage of CAFTA-DR. 
FRISBIE 
FRISBIE