VZCZCXRO1694
RR RUEHCHI RUEHFK RUEHHM RUEHKSO RUEHPB
DE RUEHPE #1825/01 1311637
ZNR UUUUU ZZH
R 111637Z MAY 06
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC 0394
INFO RUEHBO/AMEMBASSY BOGOTA 3373
RUEHQT/AMEMBASSY QUITO 0324
RUEHLP/AMEMBASSY LA PAZ 3327
RUEHSG/AMEMBASSY SANTIAGO 0506
RUEHCV/AMEMBASSY CARACAS 9426
RUEHBU/AMEMBASSY BUENOS AIRES 2385
RUEHBR/AMEMBASSY BRASILIA 6732
RUEHBJ/AMEMBASSY BEIJING 0370
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEHZU/ASIAN PACIFIC ECON COOP COLLECTIVE
RHEHNSC/NSC WASHDC

UNCLAS SECTION 01 OF 02 LIMA 001825 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
DEPT FOR WHA/AND, WHA/EPSC, EB/TPP/ABT 
TREASURY FOR OASIA/INL 
COMMERCE FOR 4331/MAC/WH/MCAMERON 
USDA FOR FAS/ITP/GRUNENDFELDER 
 
E.O. 12958: N/A 
TAGS: KTEX ETRD ECON PGOV PE
SUBJECT: TEXTILE SECTOR GROWING AT DIMINISHED RATE 
 
REF:  05 Lima 2523 
 
¶1. (SBU) Summary.  Peru's textile and apparel industry 
witnessed a 2.6 percent increase in exports during the first 
quarter of 2006 year-on-year, substantially less than the 13 
percent growth witnessed during the same period in 2005. 
Government officials attribute this slow down in growth to 
concerns about the status of the U.S.-Peru free trade 
agreement and the upcoming expiration of ATPDEA benefits. 
Ministry of Production officials also claim that textile 
production has matured and the sector needs new investment. 
GOP officials believe that the sector will pick up again 
after the June 4 Presidential elections, when the future 
path of Peru will be more clearly defined.  Chinese apparel 
imports have risen dramatically in 2006, prompting the GOP 
to review the need for safeguards.  End Summary. 
 
Slow but Steady Export Growth 
----------------------------- 
 
¶2.  (U)  Since the implementation of ATPDEA in 2002, which 
granted duty-free access to the U.S. market for more than 
6,500 Peruvian products, Peru's textile and apparel sector 
has grown by more than 30 percent.  This growth is primarily 
seen in the export sector, as domestic market sales have 
increased by approximately 3 percent since 2002.  In 2005, 
textile and apparel products now accounted for slightly less 
than 10 percent of Peru's exports, the majority of which are 
destined for the United States. 
 
¶3.  (U)  In 2005, Peru exported approximately $1.7 billion 
in textiles and apparel products, up from the $1.2 billion 
exported in 2004.  While Peru has more than 15,000 companies 
registered in the apparel sectors, 25 companies account for 
72 percent of total apparel exports. 
 
--------------------------------------------- -------------- 
           Peruvian Textile Exports, 2003-2006* 
--------------------------------------------- -------------- 
                  USD, millions           Export Share % 
               2004    2005    2006*    2004   2005   2006* 
--------------------------------------------- -------------- 
Textiles      204.7    211.3    51.4     1.7    1.2     1.2 
Apparel       887.3   1062.4   246.8     7.2    6.2     5.6 
Txtl/Appl    1092.2   1273.7   298.1     8.8    7.5     6.7 
Total Expts 12370.1  17000.6  4435.8   100.0  100.0   100.0 
--------------------------------------------- -------------- 
Source: INEI (Statistics Bureau), Central Bank, National 
Society of Industry 
*Through First Quarter 2006 
 
¶4.  (U)  While Peru's textile and apparel sector grew 13 
percent in 2005, first quarter 2006 statistics are not as 
promising.  The textile and apparel sector exported $298.1 
million during the first quarter 2006 - only a 2.6 percent 
higher than the $290.3 million exported during the same 
period last year.  Overall textile and apparel exports to 
the United States actually decreased by 3.2 percent, from 
$192.3 million in first quarter 2005 to $186.1 million 
during the same period in 2006. 
 
Accounting for the Slow Down: 
The Importance of the FTA 
----------------------------- 
 
¶4.  (SBU)  Officials from the Ministry of Trade (Mincetur) 
and the Ministry of Production informed us that the slow 
down in the textile sector is due to several reasons, 
including the uncertainty in the political sector, 
maturation of investment in the textile sector, and concerns 
about the status of the Andean Trade Promotion and Drug 
Eradication Act (ATPDEA) and the pending free trade 
agreement.  Carlos Ferraro, Director of Industry at the 
Ministry of Production, noted that, under ATPDEA, the 
 
LIMA 00001825  002.2 OF 002 
 
 
textile and apparel sectors quickly expanded; manufacturers 
have reached their output capacity.  The sector, in order to 
grow and meet increasing demand, will need to attract new 
investment. 
 
¶5.  (SBU)  Vice Minister of Industry Antonio Castillo 
confirmed that orders for apparel products have decreased 
during 2006 -- a phenomenon he linked to the imminent 
expiration of ATPDEA benefits in December 2006 and the 
uncertainty surrounding the U.S.-Peru free trade agreement. 
The FTA, he declared, is vital to the health of Peru's 
textile and apparel sector.  Without duty free access to the 
U.S. market, Peruvian textiles would be subject to a 20 
percent tariff rate, making them uncompetitive with cheaper 
products from China, India and even the Central American 
countries.  According to the Peruvian Statistical Institute, 
close to 500,000 indirect and direct textile jobs are 
dependent on the textile export sector.  Without a free 
trade accord, Castillo and Ferraro opined, many of these 
jobs may be eliminated in the coming years. 
 
¶6.  (SBU)  Ferraro echoed comments made by Mincetur 
officials to the press: that the economic uncertainty in 
Peru should level out after the second round of Presidential 
elections on June 4.  Once the new President is elected and 
his economic plans become more clearly defined, Ferraro 
asserted (assuming the President supports a pro-trade 
agenda) that orders for apparel products would increase. 
The Ministry of Trade predicts that overall growth in the 
textile and apparel sector should reach 10 percent by the 
end of 2006. 
 
Threat of Chinese Imports 
------------------------- 
 
¶7.  (SBU) Castillo noted that imports of textile and apparel 
products have increased from $109.8 million in first quarter 
2005 to $124 billion in the same period of 2006, a 12.8 
percent increase.  Products from China, totaling $22.9 
million, account for almost 20 percent of these imports. 
Ferraro explained that Chinese textile and apparel imports 
have increased by 264 percent during the first quarter 2006, 
which has led many in Congress to call for the reapplication 
of safeguards.  Minister of Production David Lemor has gone 
on record, denouncing the need for safeguards on Chinese 
apparel products, but the Ministry of Production will study 
the issue and make its recommendation to the Peruvian 
Congress. 
 
¶8.  (SBU) Castillo informed us that Minster Lemor believes 
that the solution to increasing Chinese imports is not the 
application of safeguards, but rather a bilateral agreement 
between Peru and China to limit imports.  According to the 
Chinese Embassy in Peru, the GOP has not yet discussed this 
option with the Chinese. 
 
Comment 
------- 
 
¶9.  (SBU)  The United States continues to be the most 
important market for Peruvian apparel products.  With the 
free trade accord and duty-free access to U.S. markets, 
Peru's textile and apparel industry will become more 
competitive.  Officials in the textile and apparel sector, 
as well as within the GOP, clearly recognize the importance 
of maintaining duty-free access to the United States.  The 
political uncertainty surrounding the Peruvian Presidential 
elections, the imminent expiration of ATPDEA, and the 
pending status of the FTA continue to deter needed 
investment in these sectors.  It is evident that the U.S.- 
Peruvian trade accord is key to the continued expansion of 
the Peruvian textile and apparel industries. 
 
STRUBLE