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UNCLAS SECTION 01 OF 02 KATHMANDU 001801 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EEB/TPP/ABT GARY A. CLEMENTS, COMMERCE/ITA/OTEXA 
MARIA D'ANDREA, USTR CAROYL MILLER 
 
E.O. 12958: N/A 
TAGS: ECON ETRD KTEX IN NP
SUBJECT: NEPAL: TEXTILES AND APPAREL PRODUCTION 
 
REF: SECSTATE 114799 
 
Data Requested 
-------------- 
 
¶1. In response to EEB's request, Post gathered the following 
2007 data on textiles and apparel production in Nepal. Note 
that Nepal's fiscal year runs from July 16 to July 15 so the 
date is given as FY 05/06 and FY 06/07. 
 
- Total industrial production: FY 05/06 USD 2.39 billion and 
FY 06/07 USD 2.61 billion. 
- Total textile and apparel production:  not available. 
- Textile and apparel share of Nepal's imports:  FY 05/06 4.8 
percent and FY 06/07 2.6 percent. 
- Textile and apparel share of Nepal's exports:  FY 05/06 
15.8 percent and FY 06/07 14.8 percent. 
- Exports in textile and apparel to the U.S.:  2005 USD 50.72 
million, 2006 USD 47.78 million, and through July 2007 USD 
17.9 million. 
- Total number of people employed in manufacturing: 223,102 
as of July 15. 
- Total number of people employed in textile and apparel 
industry: 6,000 (or 12 percent of total industrial 
employment). 
 
Requested Analysis 
------------------ 
 
¶2. Nepal's manufacturing industry continues to be plagued by 
falling prices and profit margins due to both heightened 
international competition and the depreciation of the U.S. 
dollar against the Indian rupee to which the Nepali rupee is 
tied. 
 
¶3. Manufacturers who have been able to weather the downturn, 
report a slight increase in demand over last year.  However, 
due to political unrest, the depreciation of the U.S. dollar 
and diminishing profit margins most manufacturers are 
unwilling to increase supply. 
 
¶4. Currently, there is only one foreign investor in Nepal: an 
Indian company manufacturing cotton shirts for the Indian 
market.  However, there are a growing number of Nepali 
investors who are shifting their production base from Nepal 
to India in response to increasing labor unrest.  Workers and 
labor unions are demanding unsustainable salary increases and 
permanent employment for seasonal workers.  Frequent 
demonstrations, protest and work disturbances have forced a 
number of manufacturers to close. 
 
¶5. The U.S. and European Union's restrictions on certain 
exports of textiles and apparel from China have only resulted 
in a slight increase in demand for Nepali textiles.  The 
Government of Nepal (GON) has not introduced any measures to 
reduce the growth of Chinese textile and apparel imports 
because the Nepalese textile industry is largely export based 
and manufacturers do not cater to the domestic market. 
 
¶6. The GON does not have any policy or programs to assist 
workers dislocated due to increased global competition. 
Faced with growing labor demands and increased global 
competition, many Nepalese manufacturers have been forced to 
close down.  Some manufacturers are remaining in operation at 
only break-even levels in order to maintain their 
relationships with international buyers.  Some are seeking 
flexibility from the government to reduce wages and, in some 
cases, their work force. 
 
¶7. To date the GON has not taken any concrete steps to 
protect its textile and apparel industry. Nepal is not a 
member of any preference program. 
 
¶8. Given the current security situation, Post does not 
believe that Nepal's textile and apparel industry can compete 
in the global market.  In the future, Nepalese producers may 
be able to find niche high-end markets, such as artisan 
 
KATHMANDU 00001801  002 OF 002 
 
 
quality rugs.  However, the current labor conditions, 
constant work disruptions and political instability will 
probably preclude the creation of a broader manufacturing 
base in textiles and apparel. 
POWELL