CAFTA-DR FIRST YEAR SUCCESS STORIES: MAQUILAS & TEXTILES

Reference ID: 07SANSALVADOR1779
Created: 2007-09-05 22:33
Released: 2011-08-30 01:44
Classification: UNCLASSIFIED
Origin: Embassy San Salvador


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E.O. 12958: N/A
TAGS: ECON ETRD EINV ES
SUBJECT: CAFTA-DR FIRST YEAR SUCCESS STORIES: MAQUILAS & TEXTILES

REF: A. SAN SALVADOR 1484 B. SAN SALVADOR 1423

Summary

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Â¶1. CAFTA-DR has shown very positive results in El Salvador during

its first year of implementation. Manufacturing is expanding and

diversifying, the local food and beverage industry is booming, and

new investments are arriving to sectors before unexplored. It is the

general view among entrepreneurs that CAFTA-DR has not only opened

new trade opportunities in the U.S. but also has greatly improved

and facilitated the steps and requirements to export to the United

States. During the first year of CAFTA-DR, the maquila and textile

sector alone has received over $260 million in investment and

created more than 2400 direct and 3300 indirect jobs. The maquila

industry has also begun a process of restructuring that will lead to

increased vertical integration and value-added production. Other

sectors will be reported septel. End Summary.

Â¶2. Although the Salvadoran maquila industry has been severely

affected by external competition (reftel A), several textile

companies are making or expanding investments. Part of the local

industry is being restructured into production clusters, increasing

the vertical integration of the industry and the value added in

production. For example, before CAFTA-DR, elastics were purchased

in Asia. Now local industry manufactures and supplies elastics,

polyester and nylon fibers.

Â¶3. This has led to more sophisticated production processes,

increasing the demand for better qualified and higher paid workers.

The current minimum wage in the maquila industry is $157.25 per

month, but in new maquila-related industries workers earn at least

$400 per month.

Â¶4. The maquila sector has also benefited by the World Trade

Organization's (WTO) extension of the use of the Free Zones scheme

in El Salvador until 2015. This gives the sector time to articulate

a new "full package" production policy (reftel B).

Â¶5. One example of success is U.S. elastic producer George Moore,

which announced plans to invest and additional $4 million and

increase employment from 294 to 325 by the end of 2007. Peter Moore,

the firm's owner, attributed the expansion to 45% growth in sales

and production since 2005. He said that the quality and

competitiveness of the Salvadoran work force and El Salvador's

proximity to the U.S. gives them an advantage in satisfying urgent

orders.

Â¶6. Similarly, Brazilian textile firm Pettenati will invest $95

million in 2007 in a 30,000 square meter production plant in La

Libertad. Pettenati plans to invest $150 million over the next five

years, generating 750 direct jobs. Pettenati chose El Salvador

because of economic stability, geographical location, labor

availability, and the free trade agreements.

Â¶7. According to Eduardo Prisco, Ambassador of Brazil in El Salvador,

CAFTA-DR was critical for the Pettenati investment. Petternati will

make elastic fabric, which was not produced before in Central

America. It produces for clients like Puma, Reebok, Adidas, Under

Armour, and Nike. The project will hasten vertical integration and

require a higher level of technology and research processes, which

promises higher paying jobs. The firm is also interested in

creating new firms to supply the local operations, including a

chemical producer and a spinning mill.

Â¶8. Other specific examples of new investments or expansion in the

sector during the first CAFTA-DR year include:

-- Cupid Foundations (U.S.) invested in the maquila industry. $5

million, 400 direct and 800 indirect jobs

-- Fruit of the Loom (U.S.) opened a new packaging center. $3.5

million, 400 direct and 800 indirect jobs

-- Asheboro elastics (U.S.) produces knitted narrow elastic fabrics

for the apparel industry. $3 million, 100 direct and 200 indirect

jobs

-- Tom Sawyer (U.S.) operates as a clothing producer under the free

zones law. $2 million, 400 direct and 800 indirect jobs

-- Algodon de Staple, Cotton, y Mallorie Alexander (U.S.) operates

as a cotton bales distribution center under the free zones law.

$500,000

-- Partex (U.S.) expanded its maquila operations. $500,000, 100

SAN SALVAD 00001779 002 OF 002

direct and 200 indirect jobs

-- GARAN (U.S.) expanded its maquila operations. $500,000, 100

direct and 200 indirect jobs

-- Spintex (Canada) produces threads. $9 million, 150 direct and

300 indirect jobs

-- Union Plastics (Korea) operates as packaging materials

distribution center under the free zones law. $200,000

-- Corporacion Rey (Peru) works as a zipper distributor for the

maquila industry. $100,000

Â¶9. According to the National Investment Promotion Agency (PROESA),

six textile companies (from the U.S., Guatemala, Brazil, and El

Salvador) invested a total of $132.8 million in the country during

the first semester of 2007. They invested in textiles accessories

distribution, sweaters assembly, and the production of threads,

knitwear cloths, and patterns. Two logistic and distribution firms

from Guatemala and Uruguay also invested $8.5 million during the

same period.

Comment

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Â¶10. Upcoming cables will report on other sectors that have

increased exports and/or added employees since the implementation of

CAFTA-DR in El Salvador some 18 months ago. These success stories

early into CAFTA-DR are good news, but big issues remain. The

violent crime problem and the 2009 elections loom largest. In

January and March 2009, El Salvador will decide if it wants to

continue on the road to economic modernization or follow the path of

the FMLN and the populist policies espoused by others in the region.

To ensure the continuation of the economic policies we endorse,

Salvadorans must feel that the current government has delivered on

both the economic and security fronts.

Glazer

WWeek 2015