Industry

Out Of Whole Cloth

Textile Industry

It is a moment of flux for the Latin American textile industry, as competition from Asian producers and shifting trade winds have forced them to reassess their traditional production and […]

It is a moment of flux for the Latin American textile industry, as competition from Asian producers and shifting trade winds have forced them to reassess their traditional production and export models. The Dominican Republic is no different. Still trying to assess the fallout from governmental changes in the US and the possible failure of the Trans-Pacific Partnership (TPP) trade deal, the industry is looking to Asia as a source of new investment, all the while pushing to improve technological standards and make the industry more efficient and productive.

Like several other Latin American countries, the Dominican Republic has embarked upon an aggressive free-trade program over the past two decades. Today, the Dominican Republic has one of the most successful industrial free trade zone (FTZ) regimes in Latin America, exporting USD5.03 billion in 2013. The textile industry has benefited greatly from this growth, exporting USD1.28 billion in textile goods in 2013, a quarter of all FTZ goods, and employing 44,744 employees, 27.8% of all FTZ workers. While clearly a significant part of the economy, the textiles industry has been dealing with a number of structural and market-based problems over the past 15 years that has led to a gradual downward trend in the industry. In 2000, 145,000 Dominicans worked in FTZs, producing USD2.5 billion in exports. The sectored rebounded somewhat after hitting a low in 2010, but remains well below its heights of the late 1990s and early 2000s.

The US, the EU, and Canada ended the 1974 Multi-Fiber Arrangement (MFA), which had enacted quotas on the amount that developing countries could export to those economic giants. The Dominican Republic had taken advantage of the MFA to become a major exporter of cotton trousers, cotton underwear, and knit shirts, but the elimination of MFA quotas meant they lost a good deal of this business to Asian producers. In 2004, the Dominican Republic became a signatory to the Dominican Republic-Central American Free Trade Agreement (CAFTA-DR), which aimed to create a NAFTA-like free trade zone between the US and its Central American neighbors. While a boon to the agribusiness sector, the agreement has benefited the Dominican Republic much less than its Central American relatives; since 2000, the value of Dominican exports have multiplied by 1.7, well below Honduras (2.3), Costa Rica, (2.0), and El Salvador (1.9). The Dominican Republic’s trade deficit has been rising, and textile manufacturers have struggled to compete with the low labor costs and advanced production techniques of Central American competitors.

The textile industry may have gotten a much-needed break with the impending failure of the TPP. Government and industry officials had decried it harmful to the Dominican Republic’s textile industry, noting that garments would account for 88% of the expected increase in exports from TPP countries, giving Vietnam and Malaysia an additional edge over the Dominican Republic. The failure of the agreement will help the Dominican Republic industry in the short-term, but the continued erosion of the country’s comparative advantage in textiles does not appear to be reversing anytime soon.

To change the industry’s fortunes, a shift is needed. Industry and government leaders will need to begin to focus on quality and fundamental competitiveness instead of depending on labor costs and tariffs to give Dominican products an advantage in global markets. A recent World Bank report cited adding value through vertical integration, increasing innovation, and grouping manufacturing and services activities within FTZ as three possible options to revitalize the sector. As the Dominican Republic will not be able to compete simply on the basis of low prices, becoming a leader in advanced manufacturing and processing techniques will be key in the years to come. Adapting technological quality with its geographic advantages will produce the best results for the sector.

Industry participants also recognize the need to form new relationships in order to open new markets. While the share of exports to the US has declined in recent years, together with Haiti it still accounts for more than 70% of total exports, which makes the Dominican Republic one of the least diversified exporters in Latin America. There is considerable untapped potential in the South American and Asian markets, which are both expected to continue expanding rapidly in the future. In an interview with TBY, Ricardo Pérez, VP Caribbean Operations for Hanes, explained that he views the Asian market as central to the future of the sector. “I do not forecast much growth unless the government begins to partner with the big corporations in Asia to come to the Dominican Republic and invest,“ Pérez told TBY. “As for now, I see the sector remaining flat.“ The near-passage of the TPP could be a wake-up call in this regard, spurring new ties between the Dominican Republic and China.

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