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Cablegate: Peru Textiles and Apparel Exports Grow

VZCZCXYZ0000
RR RUEHWEB

DE RUEHPE #3339/01 2761941
ZNR UUUUU ZZH
R 031941Z OCT 07
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC 7052
INFO RUEHBO/AMEMBASSY BOGOTA 5147
RUEHQT/AMEMBASSY QUITO 1496
RUEHLP/AMEMBASSY LA PAZ OCT SANTIAGO 1525
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC

UNCLAS LIMA 003339

SIPDIS

SIPDIS

STATE/EEB/TPP/ABT GARY A. CLEMENTS
COMMERCE/ITA/OTEXA MARIA DANDREA
USTR CAROYL MILLER
DEPT FOR WHA/AND, EB/IEP
COMMERCE FOR 4331/MAC/WH/MCAMERON
TREASURY FOR AJEWELL AND JLEVINE
DEPT PASS TO OPIC FOR J BRACHE
DEPT PASS TO EXIM FOR DON HULTMAN

E.O. 12958: N/A
TAGS: ECON EINV EFIN PGOV TBIO USTR PE

SUBJECT: PERU TEXTILES AND APPAREL EXPORTS GROW


1. Summary: Over the last ten years, Peru has made a name for
itself with its exports of cotton apparel, based on its high-quality
pima cotton. In fact, textiles and apparel production is now one of
Peru's more dynamic export industries. Major buyers in the U.S.,
such as Gap and Lands End recognize the quality cotton for some of
their high-margin apparel. Over the last decade and a half, Peru's
export sector has benefited significantly from the one-way trade
preferences that the Andean Trade Preferences Act (ATPA), and
subsequently ATPDEA, have offered Peru since 1990. Locally, the
industry is vibrant, producing both for local department store
chains as well as for wholesale in the Gamarra textile area. On the
export side, companies have specialized in high-end of the casual
apparel segment and small to medium-sized exporting orders, gaining
an advantage over volume-based Chinese exports. Local producers have
nevertheless found tough competition from Chinese apparel imports.
End Summary.

U.S. TAKES 61 PERCENT OF EXPORTS

2. Textiles and apparel production is a very dynamic yet still
small sector of the Peruvian economy. Total Peruvian exports in 2006
were $23.5 billion out of which only 6 percent ($1.4 billion) came
from the textiles and apparel segment. Nevertheless, total textile
and apparel exports grew 9.8 percent from 2005 to 2006. Out of the
total $1.4 billion exported in 2006, exports to the U.S. accounted
for almost 61 percent of that amount ($853.8 million). The ATPDEA
agreement has been a major boost for textile and apparel exports to
the US doubling growth from $403.6 million in 2002 to $853.8 million
in 2006, an increase of over 110 percent. Most of the growth came
from the apparel subsector, which almost tripled in growth from
$390.1 million to $831.8 million (2002-2006).

--------------------------------------------- -------
Peru Exports (in USD millions)
--------------------------------------------- -------
Description 2007 2006 %Share
(Jan-Aug) (2006)
--------------------------------------------- -------
Total Exports 13,646.1 23,498.3
Textile/Apparel 844.2 1,455.4 6.19
--------------------------------------------- -------
Exports to the US 2,461.0 5,625.3
Textile/Apparel to US 457.1 853.8 15.18
--------------------------------------------- -------
Source: Adex, SUNAT

3. Peru's textile and apparel imports are still relatively small. In
2006, Peruvian imports amounted to $14.6 billion, out of which
textiles and apparel made up only 3.38 percent of the total ($494.2
million). When compared to 2005 import figures ($465 million),
growth has been slow, at 6.2 percent, despite local industry
complaints about Chinese competition. Imports from the U.S. totaled
$2.4 billion in 2006 out of which textiles and apparel accounted for
a dismal 1.35 percent of that amount (32.4 million). U.S. imports
consist mainly of the textile sub sector ($30.9 million), which
accounts for 95.3 percent of total imports from the U.S., most of
which is wool and short-staple cotton yarns. (Note: Peru's high
quality pima cotton, used mostly in high margin garments, is
long-staple cotton).

--------------------------------------------- -------
Peru Imports (in USD millions)
--------------------------------------------- -------
Description 2007 2006 %Share
(Jan-Apr) (2006)
--------------------------------------------- -------
Total Imports 5,308.8 14,619.2
Textile/Apparel 185.6 494.2 3.38
--------------------------------------------- -------
Imports from the US 888.7 2,400.8
Textile/Apparel to US 10.8 32.4 1.35
--------------------------------------------- -------
Source: Adex, SUNAT

COMPETING AGAINST CHINA WITH NICHE MARKETS

4. Competition on price and volume against China, India, and
Pakistan has been difficult. Accordingly, many successful companies
in the textile and apparel industry have developed a specialized
high-end niche focused on quality and service. Fernando Garibaldi,
CEO of Peru's fifth largest apparel exporting companies (Ralph
Lauren, Lacoste), says Peru's industry concentrates largely on
creating specialized products and marketing their use of high-end
fabrics such as Peruvian pima cotton. In terms of service, exporters
provide their customers the opportunity to produce smaller volume
and unique apparel products, and great flexibility when designs
change. Despite these efforts, a trend continues towards movement of
basic apparel lines and even high-end apparel brands, to overseas
manufacturers that provide better cost/volume manufacturing.

5. Out of the total number of exporting companies, 92 percent
(1,633) are small and medium sized companies. Nevertheless, it is
the medium and large companies that generate the bulk of the value
in exports at 65 percent. For the large companies, the US is the
main export destination with over 95 percent of exports, followed by
Venezuela with 3.1 percent and France with 1.9 percent. The main
export destination for small and medium sized companies is Venezuela
with 22.3 percent followed by the US with 15.6 percent, Chile with
6.8 percent and Ecuador with 5.9 percent. Venezuela is an
increasingly attractive market for low-end products.

FAVORABLE TRENDS

6. Both quotas imposed by the European Union and the U.S. against
China and the benefits of the ATPDEA to Peru have combined to
allowed the apparel segment a healthy level of growth. The Peru
Trade Promotion Agreement, currently pending in the U.S. Congress,
will likely continue this favorable trend that will encourage
long-term capital investments in the industry. As an indicator of
the level of optimism in the industry, four major textile and
apparel companies of the Chincha area (south of Lima) have recently
announced investment plans of $12 million in new machinery and
infrastructure.


MCKINLEY

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