Cablegate: Chile - 2006 Updated Statistics for Textiles and Apparel

VZCZCXYZ0006
PP RUEHWEB

DE RUEHSG #1699/01 2921804
ZNR UUUUU ZZH
P 191804Z OCT 07
FM AMEMBASSY SANTIAGO
TO RUEHC/SECSTATE WASHDC PRIORITY 2300
INFO RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS SANTIAGO 001699

SIPDIS

SIPDIS

STATE FOR EB/TPP/ABT - GARY A. CLEMENTS
COMMERCE FOR ITA/OTEXA - MARIA D'ANDREA
STATE PLEASE PASS TO USTR FOR CAROYL MILLER

E.O. 12958: N/A
TAGS: ECON ETRD KTEX CI
SUBJECT: CHILE - 2006 UPDATED STATISTICS FOR TEXTILES AND APPAREL
SECTOR

REF: STATE 114799

1. Per reftel, Post provides the following data for textile and
apparel production in Chile in 2006. Please note that some of the
final figures for all of 2006 are not yet available.

VALUE OF TOTAL INDUSTRIAL PRODUCTION IN USD
-------------------------------------------

2. Total industrial production in Chile for 2006 was USD 18.6
billion. According to SOFOFA, Chile's Chamber of Commerce and
Industry, total industrial production increased 2.4 percent on a
year-to-year basis from July 2006 to July 2007. Total production
for the first 7 months of 2007 grew 3.9 percent. Industrial
production represented 17.1 percent of Chile's total GDP in 2006.

VALUE OF TOTAL TEXTILES AND APPAREL PRODUCTION IN USD
--------------------------------------------- --------

3. Textiles and apparel production totaled USD 694 million in 2005
and USD 262 million during the first half of 2006. Data for the
second half of 2006 and for the first half of 2007 is incomplete in
part because many Chilean textile producers are going out of
business. The industry is losing market share and competitiveness
due to cheaper imports. Textile and apparel industrial production
has experienced a drop of close to 20 percent during the last 12
months. Textile and apparel production constituted less than 4
percent of Chile's total industrial production in 2006. In 2005,
textile and apparel production constituted 4.5 percent of total
industrial production.

TEXTILE AND APPAREL'S SHARE OF CHILE'S TRADE
--------------------------------------------

4. Chile's total exports for 2006 were USD 58.1 billion, of which
USD 16.5 billion were industrial exports. Textile and apparel
exports totaled only USD 179 million in 2006. Overall industrial
exports represented 37 percent of Chile's total exports for 2006.
Textiles and apparel represented only 1.3 percent of total
industrial exports and 0.5 percent of Chile's total exports.

5. Chile's imports during 2006 totaled USD 35.9 billion. Of that,
USD 30.2 billion were industrial imports. Textile and apparel
imports totaled USD 1.54 billion in 2006 (up from USD 1.28 billion
in 2005), representing 5 percent of total industrial imports.
Industrial imports represented 84 percent of Chile's total imports
of which 4.96 percent were textiles and apparel. Just as a point of
reference, Chile's importation of textiles and apparel is up nearly
100 percent in the period 2003-2006.

TEXTILE AND APPAREL EXPORTS TO THE UNITED STATES
--------------------------------------------- ---

6. Total Chilean exports to the U.S. in 2006 were USD 8.9 billion,
of which USD 1.4 billion were industrial exports. Total Chilean
imports from the U.S. in 2006 reached USD 5.5 billion, an 18 percent
growth over 2005. Import growth was strongly influenced by
petroleum oil imports (gas oil, diesel oil, and gasoline) which
totaled USD 1.2 billion, equivalent to 21 percent of the total
import value from the United Sates. Even excluding these energy
imports, U.S.-produced goods exported to Chile grew by 16 percent.
According to Chilean Customs Service data, Chile exported to the
United States USD 33.3 million worth of textile and apparel while
similar imports from the United States to Chile totaled USD 72
million in 2006.

TOTAL MANUFACTURING EMPLOYMENT
------------------------------

7. The manufacturing/industrial sector provided employment for
836,000 workers in 2006. During 2006, 25 thousand new jobs were
created in the industrial sector. Employment in the
manufacturing/industrial sector represented 13.3 percent of total
employment. There is no disaggregated data available for
sub-sector.

OTHER QUESTIONS
---------------

8. The Textile Institute (INTECH) -- Chile's national association of
the textile, apparel and shoes industries -- provided 2006 updates
to this year's questions:

-- Are Chile's producers receiving lower prices due to heightened
international competition? Have manufacturers received more, less,
or the same number of orders as in years past? Have foreign
investors, particularly Asian investors, closed factories or
otherwise pulled out of local production?

According to INTECH, prices in Chile continue to drop in response to
international competition. About 60 percent of Chile's imports of
textiles and apparels come from Asia, predominantly China. At the
same time, the cost of energy in Chile has increased the cost for
the industry by about 30 percent. Together with the peso's
appreciation this has prompted re-structuring of the industrial
sector in general. There is no discernable Asian investment in the
textile and apparel industry in Chile. Asian companies are focused
on the import of textile and apparel production rather than setting
up production in Chile.

-- Have U.S. and EU restrictions on certain exports of textiles and
apparel from China, effective through 2007/2008, affected Chilean
export prospects for host country manufacturers?

In general terms, the U.S.-Chile Free Trade Agreement (FTA) created
preferential access to the U.S. textile and apparel market,
providing trade benefits to the Chilean textile sector. According
to INTECH, since the implementation of the FTA in January 2004,
Chile's sales to the U.S. have increased by about 50 percent, with
the immediate tariff elimination under the FTA accounting for that.
However, it is INTECH's view that U.S. and EU restrictions on
Chinese textiles and apparel prompted China to look for alternative
markets, such as Chile.

China's increasing participation in the Chilean textile and apparel
domestic market is clearly hurting local producers. Chinese
textiles and apparel imports represents about 57 percent of Chile's
total imports of these items, with Chinese participation in this
market growing by 29 percent from 2005 to 2006. For comparison, the
United States is the third most important supplier of textiles and
apparel to Chile, with a market share of only about 4.7 percent.

-- Has Chile implemented, or is it considering implementing
safeguards or other measures to reduce the growth of imports of
Chinese textile and apparel products into the country?

During the 1980's economic crisis in Chile, most textile and apparel
companies went bankrupt. To support the re-structuring of the
industry the GOC, through the National Committee for Analysis of
Economic Distortions, imposed a tariff surcharge between 10 to 15
percent on textile imports. This mainly affected imports from South
Korea, Brazil, Argentina and Colombia. This surcharge was applied
from 1983 to 1993. The Chilean domestic sector was able to recover,
but according to INTECH, since 1991 Chile has been facing unfair
competition from Asian countries exporting undervalued products.
About two years ago, the Chilean National Customs Service, at the
request of INTECH, formed a joint committee to analyze cases of
dumping of undervalued products. INTECH has requested the GOC on
several occasions to initiate an investigation for safeguard
measures. To date, no such measures have been applied.

INTECH believes the Chile-China FTA signed in November 2005, and
recently ratified by the Chilean Congress, will provide for the
implementation and oversight of proper regulation to protect Chilean
textile and apparel producers from unfair Chinese competition. The
chapter on dispute resolutions and the Regulatory Joint Commission
provide mechanisms to channel the industry's claims and concerns.

-- 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
organizing?

Except for one company that reduced by 10 percent some of the
benefits - not wages - offered to its workers, the industry has not
decreased wages. Nor have wages been increased. Wages in the
sector have remained the same for the last 5 years, with yearly
adjustments for CPI. However other issues such as peso appreciation
and the cost of energy could prompt some work force reductions in
the industry.

That being said, Chilean textile and apparel producers are clearly
under pressure. Though employment figures are not broken down to
show a decrease in jobs in the sector, anecdotal evidence indicates
the sector is rapidly losing jobs.

-- Will Chile remain competitive in textile and apparel given more
competition?

INTECH blames unfair competition from Asia, primarily China, for the
declining domestic Chilean textile and apparel industry. Its claims
of dumping have not been verified by the Chilean government. While
dumping is a possibility, it is more likely that small, inefficient
Chilean producers are simply unable to compete with cheaper imports
from Asia. High energy costs, a strong peso and inflexible labor
laws likely are further disadvantages for Chile's producers.

URBAN

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