Economist Bernardo Vega took a look at the export numbers for January, and found them to be indicative of what is happening after the lifting of textile quotas in the United States. China and Hong Kong increased their exports by 18%, in monetary terms, and in sub-categories such as cotton trousers, like those produced in the DR, the increase was an extraordinary 83%. Exports from Vietnam increased 23%, and those from India 14%. Exports to the European Union grew by 46%. All this fulfills the predictions of what would happen with the removal of textile quotas. Nevertheless, exports from Central America continued increasing, in spite of the competition from China. Honduras apparel exports were up 18%, Guatemala by 21%, El Salvador by 7% and Nicaragua by 37%. Haitian exports increased 22%.
By contrast, Dominican exports are stagnant. Export values have been preceded by a five-year continuous decrease in the export values, with 2004 exports reaching only 83% of the value exported in 2000.
Eight years ago, says Vega, the Dominican Republic was the fourth largest exporter of clothing to the United States. Currently the DR is in eighth place and Honduras is in fourth place.
While the January numbers do not necessarily represent a trend, they do show that Central America and the DR did receive even lower prices for each yard of textiles exported to the United States. This, in turn, reduces profits and it is the result of the competition from China.
What does this mean? According to Vega, it means that the Central American countries and Haiti are more competitive than the Dominican Republic, and none of these countries are losing jobs in the textile sector, while here we are losing jobs.
The former Central Bank governor ask, what can be done? In the first place, if the US and DR congresses approve the DR-CAFTA agreement, both Central America and the Dominican Republic can use cloth produced in the region for the clothing exports. While this will help everyone who is capable of manufacturing its own clothing, it will not make the Dominican manufacturers more competitive with the Central Americans. DR manufacturing costs are higher than in Central America. In second place, while the start up of flat cloth production in the Dominican Republic, such as is occurring in some Central American countries, will reduce local costs, it will also require millions in investments that can only be handled by international conglomerates.
A third option is to produce items, which if made in Asia would be highly taxed in the United States. Finally, joint operations, where part of the product is made in Haiti and the rest in the Dominican Republic, would also help the situation. But Vega calls these solutions, “medium term options”, saying that in the short term only the reduction in the overvaluation of the Dominican peso would help the situation.
However, the depreciation of the peso would have the negative effects of increasing the cost of living here, including electricity and other energy sources as well as it would increase the fiscal deficit with the government needing more pesos to pay the foreign debt and the oil bills.
Such a move would also reduce confidence in those investors that still have a peso account.
Meanwhile in the United States and Europe, pressure is increasing to put new roadblocks to stop Chinese textile imports