Breaking the tariff barrier
OFFICIALS CALCULATE THAT GETTING TEXTILES UNDER THE ATPA FENCE WOULD ALLOW PERU TO INCREASE COTTON CULTIVATION FROM 54,000 TO 250,000 HECTARES OVER FIVE YEARS

TEXTIL SAN CRISTOBAL plant in Chincha, one of the most advanced textile factories in South America.

Peru’s textile industry appears to have everything going in its favor, starting with 15 straight years of steep growth. Production of finished garments accounts for three-quarters of all output, and has been increasing by an average 22% annually to become the country’s fourth-ranking source of export revenue, while contributing over half a billion dollars to its GDP.
Most of the sector’s restructuring and expensive equipment upgrades were undertaken about a decade ago, so companies’ debt burden is well within manageable parameters. In addition to the products’ high value-added component, around 80% of total output winds up in the United States. What, then, appears to be the problem?
Put the question to any one of the more than 380 firms operating in the sector and you will receive exactly the same answer: it is about obtaining preferential access to the U.S. market so Peruvian textile products can compete on equal footing with Mexico’s, which enter the United States duty-free under NAFTA.

As things stand at present, textiles with a made-in-Peru label are excluded from the ATPA preferential trade agreement and subject to an average tariff of 20%, rising to 31% for Peru’s star alpaca fiber. Yet these same goods account for a piddling 0.66% of total U.S. textile imports worth $53 billion, says Peruvian Vice President Raúl Diez Canseco Terry, so it is hard to argue a case for this being unwelcome competition.
“The United States would scarcely notice the difference, but it would have a tremendous impact here, creating 120,000 new agricultural jobs and as many more in manufacturing, not to mention giving farmers an incentive to change over from growing the coca plant, from which cocaine is made, to cotton. All you need is a market for what you grow.”

Officials calculate that getting textiles under the ATPA fence would allow Peru to increase cotton cultivation from 54,000 to 250,000 hectares over a five-year period. At the present time, Peru buys around half the cotton it uses to make these textiles from the United States.
Relying to a large extent on its own materials has allowed the Peruvian sector to structure itself with a high degree of vertical integration, from fabric weaving to final assembly. Although some 50 Peruvian companies can boast annual sales of $1 million or more, the government is actively encouraging smaller businesses to look abroad for opportunities by offering them training in international marketing techniques, quality control and other essentials.

Juan Francisco Raffo Chairman of Textil San Cristóbal

What about prospects for Peruvian fabrics in the rest of the world? Of the 20% of output that does not get shipped to the United States, E.U. countries take 17%. Since 1990, Peruvian textiles have been exempt from import duties in Europe.
As chairman of Textil San Cristóbal, a company that has extensive dealings with major brands on both continents, Juan Francisco Raffo is in a position to give an assessment. “Our sales break down almost exactly the same as at
the national level, so although the aggregate markets are roughly the same size, I would say there is a big difference in consumer spending patterns. Then there is the fact that other countries such as Portugal and Turkey, have been granted the same favorable treatment that we have, but they are closer at hand and can beat us on freight costs.”