Citing sluggish demand in the United States, Costa Rica’s biggest clothing exporter announced it will close down its local operations next month, leaving 400 workers unemployed.
The firm, Manufacturera WR Alajuela, assembles Wrangler and Lee brand jeans for the U.S. market from two plants in the northwestern San José district of La Uruca and one in Atenas, northwest of San José.
The firm, which came to the country in 1988 and at its peak employed 4,000 people, has in recent years gradually eliminated its operations here. It closed down plants in Coronado, a mountain town northeast of San José, in December 2005, La Uruca in January 2007, and the western San José district of Pavas last November (TT, Dec. 7).
“This is unfortunate,” Gerardo Castagnet, manufacturing vice president of VF Corporation, the plant’s parent company, said. “Personally, this has been a painful experience. It was my job to open the Costa Rica operation. Our employees don’t deserve this. They are not at fault. Neither is it the country’s fault; it has treated us very well.
The Winston-Salem, North Carolinabased VF Corporation is the world’s largest clothing company. VF is best known for the Wrangler, Lee, JanSport, Vans shoes, and Nautica. The company retains operations in Mexico, Honduras, Nicaragua, Argentina and Chile.
WR Alajuela is the latest in a series of textile firms that have left the country in recent years. The sector’s workforce has been halved over the last decade from a peak of 30,000 workers to approximately 14,000 today, according to the National Association of Textile Exporters (ANEIT). The sector’s exports have also dropped substantially from a peak of $690 million in 2002 to $429 million last year, according to the Foreign Trade Promotion Office (PROCOMER).
The success of firms in Costa Rica and other Central American and Caribbean countries has been based on preferential access to the U.S. market, which expires at the end of September. This preferential access extends to most types of clothing assembled in the region as long as it uses materials produced in the United States.
The region’s clothing assembly industry has been hit hard by increased competition from China and other Asian countries, which have benefited from the elimination of global textile quotas in 2005. Prior to that, countries could only export a fixed volume of clothing to each market, and any amount above that faced prohibitive tariffs.
With the intent of ensuring the sector’s long-term survival, Costa Rica took part in the negotiation the Central American Free-Trade Agreement with the United States (CAFTA), which guarantees permanent and improved access to the U.S. market. It was hoped that secure and expanded access, combined with the country’s proximity to North America and a skilled workforce, would allow some segments of the sector to compete. From the U.S. perspective, access to cheap labor and rules favoring the use of U.S.-made materials were seen as a way of extending the life span of U.S. textile firms hit hard by Asian competition.
However, four years after the CAFTA negotiations concluded and eight months after the country approved CAFTA in a referendum, Costa Rica has yet to approve bills required to implement the agreement.
lothing assembly sector leaders worry the delays will drive them out of business.
Will CAFTA Save Them?
Castagnet said the slowing U.S. economy and Costa Rica’s high labor costs – not delays in CAFTA’s approval – prompted VF’s decision. However, he added that VF would be been forced to leave if CAFTA were not to go into effect this October.
But delays in CAFTA’s approval have negatively impacted other companies.
“They have hurt us badly,” said Michael Borg, president of Confecciones Borkar, a wool suit exporter. “But we are optimistic that it will get done and we will get on the road to recovery.”
Borg and Miguel Schyfter, president of ANEIT, said the delays could permanently damage the industry.
“CAFTA will allow us to recover,” Borg said. “As for the rest of the industry, probably not.” Borkar will benefit from a provision in CAFTA that allows wool suits to use fabrics from non-CAFTA countries while still retaining duty-free access to the U.S. market.
Schyfter called the delays the main factor holding the sector back. Competition from China is not really an issue for Costa Rica as most of the firms that depended on low wages to compete have already been priced out of the country, he said.
“The companies that are still here are here because of the advantages the country offers in terms of proximity to the United States or fast turn around times, or because they need Costa Rica’s skilled labor,” Schyfter explained.
Schyfter cited Borkar, which produces fine clothing that requires skilled labor, Confecciones Jinete, a Jockey brand underwear plant whose efficiency has made it the company’s most cost-effective producer, and Coloplast, a Denmark-based company that makes swimwear for women who have undergone mastectomies. Coloplast will receive the same type of provision for its swimsuits that Borkar does for its suits.
“Most of the people who are still here have developed other abilities and talents that make them super competitive,” Borg explained. “What’s depressing about the delays in the trade agreement is that these companies had figured out how to compete and would have stayed here for many years.”
In contrast, Castagnet sees little future for clothing assembly in Costa Rica. “There are other countries (where production is) not as costly,” he said. “Costa Rica itself is looking for investments beyond textiles. The country has attracted high-tech investment.
Tourism and non-traditional exports are also strong. At one point, textileras were the biggest thing.”