VZCZCXYZ0014
RR RUEHWEB

DE RUEHMN #0328/01 1631103
ZNR UUUUU ZZH
R 121103Z JUN 09
FM AMEMBASSY MONTEVIDEO
TO RUEHC/SECSTATE WASHDC 9086
INFO RUCNMER/MERCOSUR COLLECTIVE

UNCLAS MONTEVIDEO 000328 
 
STATE FOR WHA/BSC BRUCE FRIEDMAN 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECIN EINV ETRD UY
SUBJECT: URUGUAY'S TEXTILE SECTOR FACES TOUGH TIMES 
 
Ref: A) Montevideo 312, B) 07 Montevideo 785 
 
¶1. SUMMARY: (SBU) GOU officials and private sector representatives 
told Staffdel Meacham that Uruguay was interested in getting 
preferential access on textiles and apparel.  This cable provides 
background information on the situation of the sector, beset by 
challenges such as China's trade and the lack of an FTA with the 
United States.  In 2008, the GOU passed a package to support the 
three textile sub-sectors, which has been well-received by the 
industry.  END SUMMARY. 
 
¶2. (SBU) Carl Meacham, Senior Advisor for Senator Lugar, and Bruce 
Friedman, Deputy Director of WHA/BSC visited Montevideo April 26-28. 
 During their visit, GOU officials and private sector 
representatives asked Mr. Meacham and Mr. Friedman to convey to the 
USG Uruguay's interest in getting preferential access on textiles 
and apparel (Ref A).  This cable provides background information on 
the recent developments and the situation of the T&A sector. 
 
--------------------------------------------- ----- 
WOOL-BASED TEXTILES: A SHRINKING SECTOR IN URUGUAY 
--------------------------------------------- ----- 
 
¶3. (U) Uruguay's textiles and apparel industry is heavily based on 
wool production and the production of wool-based fabrics.  Uruguay 
does not produce any cotton items.  Uruguay's sector has shrunk over 
the last two decades, with many firms going out of business.  Total 
production fell over 40 percent from 1988 through 1998, and dropped 
further during the harsh 1999-2002 economic crisis.  Since 2003, the 
sector has recovered slightly, and exports, which had nose-dived 
from USD 105 million in 1998 to USD 30 million in 2002, are now at 
about USD 40 million.  The local textile and apparel industry 
employs about 5,000 workers.  As of April 2009, the industry had an 
unemployment rate that was almost three times the national average. 
 
 
------------------------ 
MAIN EXPORT DESTINATIONS 
------------------------ 
 
¶4. (U) Wool exports account for 60-70 percent of total textile 
exports (USD 206 million of a total of USD 290 million in 2008). 
China is Uruguay's traditional principal market for wool, absorbing 
about one-third of Uruguay's wool exports.  Italy and Germany are 
also important buyers of wool.  Exports of wool fabrics (USD 20 
million in 2008), are concentrated in Argentina, Brazil and to a 
lesser extent the U.S.  In turn, sales of apparel (USD 64 million in 
2008) are largely focused on Argentina, Mexico and Brazil.  An FTA 
with Mexico (signed in 1999 and strengthened in 2003) pushed 
Mexico's purchases of apparel from 3 percent of Uruguay's exports in 
1999 to over 23 percent in 2008.  Given lack of preferential access 
to the U.S., Uruguay has reoriented its sales from the U.S. to 
Argentina.  NOTE: Between 2002 and 2006, the U.S. share in total 
exports fell from 32 percQ to 12 percent while Argentina's rose 
from 7 percent to 32 percent.  END NOTE. 
 
--------------------------------------------- -- 
ON TRADE PREFERENCES: URUGUAY CAN'T GET A BREAK 
--------------------------------------------- -- 
 
¶5. (U) Uruguay only has FTAs with its Mercosur partners and Mexico, 
which are currently its major markets for textile and apparel. In 
contrast, Uruguay is generally shut out of the U.S. market. 
Uruguayan textile and apparel producers face high tariffs in the 
U.S. market (in the 17.5 percent-25 percent range), as well as 
strong competition from FTA signatories (mainly Chile, Mexico and 
Peru) and countries with unilateral trade preferences.  Furthermore, 
Uruguay faces difficulties in exporting fabrics to the U.S. (given 
the contraction of the U.S. industry) and even to Latin FTA 
signatories that export to U.S. (since such agreements require that 
apparel be produced with US-sourced or local fabrics).  Local 
producers are also challenged by the small size of the local apparel 
industry, and high transportation costs -particularly air cargo- to 
Asian markets. 
 
¶6. (U) Uruguayan textile and apparel exporters to most markets do 
not face direct competition from China since they focus on 
Italian-style high-quality products. China, however, tends to 
purchase raw wool and carded wool, rather than higher value-added 
goods such as shirts and blouses.  The local Association of Apparel 
Producers is also concerned about illegal under-invoiced imports of 
Chinese apparel that enter South America through the Chilean port of 
Iquique and are later distributed in the Southern Cone.  Supplying 
about one-fourth of imports, Brazil has been Uruguay4s main supplier 
of textile and apparel over the last decade (Argentina was number 
two).  However, imports from China have rocketed since 2003 and 
China is now competing closely against Brazil. 
 
¶7. (SBU) In November 2008, Argentina imposed non-automatic licenses 
on about 200 goods, including imports from Mercosur members.  While 
only 6 percent of Uruguay's exports to Argentina are subject to 
licensing, the measure is having a strong impact on specific sectors 
like textile and apparel and furniture.  Argentina is by far 
Uruguay's major export market for knitted fabrics and Uruguay is 
Argentina's principal supplier of wool overcoats and sleeveless 
jackets (with as much as 70 percent-90 percent market share). 
Industry sources recently told us that on top of the licenses, the 
GOA is explicitly deterring importers from purchasing in Uruguay. 
 
------------------------------------- 
GOU MEASURES TO ASSIST LOCAL INDUSTRY 
------------------------------------- 
 
¶8. (U) In its 2008 budget, the GOU included a USD 20 million package 
to support the three textile sub-sectors: wool, fabrics and apparel. 
 The package - valid from 2007 through 2009 - created a USD 5 
million collateral fund to facilitate Small and mid-sized 
enterprises' access to credit.  It also allotted USD 6 million to 
help apparel producers develop high-end niches abroad, USD 6 million 
to fabric and textile producers to strengthen their cash positions 
and USD 3 million to producers of combed wool bates who face 
shortages of uncombed wool (their raw material) as is being shifted 
to China.  The GOU also improved financing conditions for T&A 
exporters. 
 
----------------------------------- 
PRIVATE SECTOR VALUES GOU'S PACKAGE 
----------------------------------- 
 
¶9. (SBU) On June 10 Elbio Fuscaldo, a textile entrepreneur and head 
of Uruguay's Apparel Chamber, assessed the GOU's assistance as "very 
productive."  During a conversation with emboffs, he celebrated that 
the package has helped textile producers improve their 
competitiveness, and told us that some of the funds have been used 
to set up a training center for operators of apparel machinery, 
finance the purchase of a foreign trade software (U.S. made), and 
help local firms open new markets abroad. 
 
MATTHEWMAN