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RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHSF #1464/01 2921454
ZNR UUUUU ZZH
R 191454Z OCT 06
FM AMEMBASSY SOFIA
TO RUEHC/SECSTATE WASHDC 2708
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 03 SOFIA 001464 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD KTEX BU
SUBJECT: BULGARIAN TEXTILES AND APPAREL SECTOR UPDATE 
 
REF:  SECSTATE 138090 
 
¶1. SUMMARY  The abolition of import quotas for Asian 
producers from 1 January 2005 has had no adverse effect on 
Bulgaria's textiles and apparel production and export 
capacity.  The sector experienced an increase in new 
investment and technology, which supported higher labor 
productivity and wages.  Both production and exports 
continued to rise, helping local producers maintain a strong 
position in the EU--Bulgaria's traditional export market. 
Nevertheless, the abolition of the quotas introduced 
stronger international competition to the industry, with a 
subsequent decrease in employment.  The GOB adheres to its 
international commitments, including initiatives aimed at 
significant reduction or elimination of tariffs, but will 
adopt a number of strategic measures to equip local industry 
with effective tools against rising global competition.  END 
SUMMARY 
 
The information below was gathered from the Bulgarian 
Association of Apparel and Textile Producers and Exporters; 
The Association of Companies in the Light Industry and the 
National Statistics Institute. 
 
¶2. Requested statistics 
----------------------- 
 
--Total industrial production in USD value 
 
Total industrial production grew 7.3 percent year-on-year in 
¶2005.  The gross value added (GVA) of industry in 2005 was 
estimated at USD 7 billion.  In the first half of 2006, 
industrial production increased 8.9 percent year-on-year; 
and GVA of industry was USD 4 billion. 
 
--Indices of textiles and apparel production in USD value 
 
Combined textiles and apparel production continued to grow 
in 2005 despite the removal of trade barriers on January 1. 
Total textiles and apparel production increased 5.3 percent 
in 2005.  However, the index of production of textiles in 
December 2005 decreased to 203.8 (2000=100) compared to 205 
in December 2004.  The index of apparel production grew from 
196 to 200.3 (December 2004/December 2005).  This shows that 
in 2005 the industry's production growth succeeded in 
maintaining its production activity.  In June 2006, the 
index of the production of textiles stood at 102.7 compared 
to June 2005, and 248.1 compared to June 2000.  In 
comparison with the first half of 2005, the index of 
production of apparel, including leather, was 114.1 greater, 
and 216.4 greater compared to June 2000. 
 
--Textiles/Apparel share of host country's imports and 
exports 
 
Total imports of T and A in Bulgaria (USD 1.7 billion) 
contributed 10.1 percent to the total volume of imports in 
¶2005.  The overall imports of apparel and textiles were an 
estimated USD 920 million in the first half of 2006, 
comprising 9.2 percent of the total imports as of the first 
half of 2006. 
 
The T and A sector continued to be export-oriented in 2005. 
The total T and A exports (USD 2.1 billion) contributed 17.9 
percent to the Bulgarian total exports in 2005.   Textiles 
and apparel exports (USD 1.1 billion) represented 15.5 
percent of Bulgaria's total exports as of the first half of 
¶2006.  T and A exports continued to decrease over the last 
two and a half years as a share to the economy total, 
estimated at 17.9 percent in 2005 and 21.1 percent in 2004. 
A total of 86 per cent of Bulgarian apparel and textiles 
exports is for the European Union, while the industry's 
total EU exports constitute a third of Bulgaria's total EU 
exports. 
 
--Exports in textiles and apparel to the US 
 
Exports to the US decreased drastically by 37 percent to USD 
63 million in 2005.  The negative trend has continued in 
2006, and as of first half 2006 exports to the US are down 
by 16 percent. Presently the US is the fourth biggest 
textiles export market of Bulgaria, behind the EU, Turkey 
and Romania. 
 
--Total manufacturing employment 
 
Total manufacturing employment (processing industry) in 2005 
was 622,757 people. 
 
--Total apparel and textiles employment 
 
Total apparel and textiles employment in 2005 was 177,155 
people, which was 7 percent less than in 2004.  The number 
 
SOFIA 00001464  002 OF 003 
 
 
of employed in the production of apparel decreased by 3 
percent, and by 21 percent in the textiles industry.  The 
overall trend of employment growth in the sector over the 
last few years was interrupted in 2005.  The decrease in 
employment in this sector is largely due to the rise in 
labor productivity and the lack of skilled people who wish 
to work in the sector, according to the Bulgarian 
Association of Apparel and Textiles Producers and Exporters 
(BAATPE).  Competition from low-cost imports has also 
accelerated the process. 
 
New investment and technology bring higher labor 
--------------------------------------------- --- 
productivity and wages 
---------------------- 
 
¶3. The sector has seen an increase in new investment and 
technology, which boosted overall labor productivity in 
¶2005.  This has also led to the introduction of a more 
highly-skilled, leaner labor force in the industry.  Wages 
in the sector have subsequently increased 10 percent in 
¶2005.  According to the National Statistics Institute (NSI), 
the average wage in the sector in 2005 was 205.6 Bulgarian 
leva (USD 134) per month.  Actual wages in 2005 were 
probably somewhat higher due to the practice of paying 
additional wages in cash to avoid taxes.  The expectations 
are for a 10 percent rise of wages in the sector in 2006. 
 
Sales prices and volumes increase 
--------------------------------- 
 
¶4. Sales prices in the sector increased by 4.3 percent in 
¶2005.  The index of T and A sales on the domestic market 
increased from 161 (December 2004) to 215.7 (December 2005). 
With legal import growth declining (1 percent for textiles 
and 6 percent for apparel) in 2005, the share of domestic T 
and A producers to the sales total increased in 2005.  In 
the first half of 2006, sales revenue from textiles and 
apparel, including leather, rose 10.2 percent.  BAATPE 
estimate that revenues from the sale of apparel and textiles 
will continue to rise in 2006, given also the increased 
number of orders from abroad. 
 
¶5. There is no data for 2005 and 2006 showing outflow of 
foreign investors from the sector.  This is largely 
explained by the competitive advantages of the Bulgarian 
industry and the attractive profit/expenses ratio. 
Competitive edge includes: 
-- Long-lasting traditions in textiles and apparel 
manufacturing; 
-- Good quality at reasonable prices; 
-- Short timetable for implementation of the orders; 
-- Highly skilled workforce; 
-- Proximity to Europe and major fabric producers in the 
Euro-Mediterranean zone; 
-- No impediments to the import of raw materials. 
 
EU restrictions on Chinese exports benefited Bulgaria . . . 
--------------------------------------------- --------- 
 
¶6. In June 2005, a Memorandum of Understanding (MoU) between 
the EU and China was signed, which aimed at limiting 
specific categories of Chinese T and A exports to the EU 
considered to be the most sensitive to EU industry. 
According to analysis of the European Commission and the 
GOB, Bulgaria has since increased its exports in all 10 
quota categories subject to limitations on China.  During 
2005, Bulgaria has increased its EU exports in value terms 
by 1.1% as well as its export prices, while the volume of 
exports has fallen by 3%.  There was a 10% increase in 
Bulgaria's exports to the EU in value terms in the first 
half of 2006 as well. 
 
. . . while US restrictions appear to have had no positive 
--------------------------------------------- ------------- 
effect 
------ 
 
¶7. Evidenced by latest trade figures, US restrictions on 
Chinese exports, effective through 2008, have produced no 
positive effect on Bulgaria's total exports to the US.  The 
exports to the US decreased both in 2005 and in the first 
half of 2006. 
 
 
Chinese T and A maintain competitive pressure 
--------------------------------------------- 
 
¶8. As a result of new investment and technology policies, as 
well as low-paid labor, Chinese T and A producers maintain 
lower prices and create competitive pressure on local 
industry.  Local producers also suffer from a lack of IPR 
enforcement by Chinese T and A producers and a high 
 
SOFIA 00001464  003 OF 003 
 
 
incidence of pirated goods sneaking through border checks. 
While textiles imports from China remained within the range 
of 3 percent in the first half of 2006, the import of 
apparel rose significantly to 6.7 percent of total imports 
of apparel, compared to 4 percent in 2005. 
 
GOB adheres to EU, WTO tariff reduction/elimination 
--------------------------------------------- ------ policies 
-------- 
 
¶9. Current GOB policies involve adhesion to international 
commitments and effective use of liberal trade mechanisms. 
The GOB supports the EU initiatives aiming at significant 
reduction or elimination of tariffs and/or non-tariff 
barriers in the context of bilateral negotiations or through 
WTO consultation mechanisms.  The GOB is also involved in 
addressing IPR problems, rules of origin, eco-labeling, etc. 
Currently, the GOB, in cooperation with business 
associations from the sector, is creating a set of measures 
aimed at improving the competitiveness of the textiles and 
apparel branch. 
 
Concrete GOB action is planned 
------------------------------ 
 
¶10. In 2005, the GOB has been involved in a joint initiative 
with the textiles and apparel associations in Bulgaria on 
the development of "The Strategy for the Development of the 
Textile Sector - Perspective 2010" (drafted in 2005).  Some 
key recommendations from the strategy include: 
  --Drafting and following modern requirements for quality 
  of the products; 
  --Introduction of integrated information management 
  systems; 
  --Introduction of quality management certificates 
  (ISO 9002); 
  --Participation in innovation projects; 
  --Use of new methods, base products and technologies; 
  --Creation and development of own trade marks and 
  designers' collections; 
  --Creation of marketing departments at the companies; 
  --Development of clusters; 
  --New human resources policies and training of new 
  specialists; 
  --Better communication within the sector and between the 
  associations; 
  --Increase of control of the customs authorities and the 
  national administration with a view to stop unfair 
  competitive practices; 
  --Introduction of a flexible tax system, allowing for re- 
  investment of the profit in new equipment; 
  --Consistent trade policy and effective use of trade 
  defense instruments. 
 
COMMENT: The textiles and apparel industry still plays a 
significant role in the Bulgarian economy.  For the past 5 
years it has been one of the most competitive sectors in 
Bulgarian industry and one of the major employers in the 
country.  Bulgaria's forthcoming EU membership increases the 
prospects of local T and A producers to maintain their 
competitive position in the EU internal market.  However, 
the majority of smaller enterprises will be increasingly 
exposed to foreign competition produced by trade 
liberalization and low-cost imports from China.  Only those 
companies that incorporate high-technology equipment will 
survive.  The sector will become more capital intensive, and 
further lay-offs are foreseen. 
BEYRLE