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Identifier
Created
Classification
Origin
02AMMAN6952
2002-12-01 10:37:00
CONFIDENTIAL
Embassy Amman
Cable title:  

QIZ UPDATE - IRAQ WORRIES, TRANSSHIPMENT RUMORS,

Tags:   ETRD  EINV  IS  IZ  JO 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
						C O N F I D E N T I A L SECTION 01 OF 03 AMMAN 006952 

SIPDIS

STATE PASS USTR FOR NED SAUMS
COMMERCE FOR 4520/ITA/MAC/ONE/P.THANOS
ROME FOR CUSTOMS ATTACHE

E.O. 12958: DECL: 12/01/2012
TAGS: ETRD EINV IS IZ JO
SUBJECT: QIZ UPDATE - IRAQ WORRIES, TRANSSHIPMENT RUMORS,
BUT POSITIVE NUMBERS CONTINUE


Classified By: Ambassador Edward W. Gnehm, reasons 1.5 (b,d)

Summary



1. (sbu) Despite continuing political uncertainty in the
region, QIZ exporters in Jordan continue to report solid
production and growth. Most exporters are booked through the
winter, some new investor interest is evident, and many
current investors are expanding production. Many QIZ
exporters continue to voice the same business concerns that
have become a staple of the QIZ story - problems with Israeli
inputs, procedural delays, and labor cost gripes. Adding to
this "background noise," though, is a slowly growing level of
discomfort over the political situations facing Jordan's
neighbors. While increased political instability is unlikely
to derail QIZ production, West Bank violence or war with Iraq
will undoubtedly dampen new investor interest and potentially
increase QIZ production costs in the short term. End summary.

First, The Good News



2. (u) QIZ output numbers continue to show strong growth.
Exports from the Al Hassan QIZ in Irbid totaled over $229
million through October 2002, a 47% increase over the same
period last year. Similarly, QIZ exports from Al Dulayl QIZ
near Zarqa totaled over $49 million for the first 9 months of
2002, compared to $21.5 million for CY 2001. Dulayl's
exports this year represent over 31% of total exports from
the Zarqa Governorate. Based on these figures, and assuming
Tajammouat's numbers track in similar fashion (there are no
separate export figures for Tajammouat), the QIZ's should
meet our earlier estimate of $400 million in exports for 2002.



3. (sbu) Anecdotal evidence supports these aggregate
numbers nicely. The dozen or so QIZ exporters we have spoken
with over the past month have been upbeat about current and
planned production. Most exporters are booked through March
2003 (bookings for April and beyond typically start around
November/December). Indeed, a small number of exporters
claim to be booked beyond their current capacity and are
looking for local subcontractors. A number of current
investors are buying new building space to expand long-term
production, and there has been a smattering of new
investments in the past three months. One exporter in Kerak
noted that he was "upgrading" his production from generic
lines to labels, including Ralph Lauren and Jockey. He also
said he had been contacted by Jones New York about setting up
a washing, embroidery, and silkscreen facility in Jordan.
Another exporter said he was talking to a potential partner
about establishing a weaving mill and attached bedsheet
manufacturing facility in the QIZ's.



4. (sbu) On the labor front, expat worker percentages
appear to be roughly stable at around one-third of total

workers. There is a great deal of variance in reports from
the government and the private sector, though, with estimates
of expat QIZ workers ranging from 25% to 40%. Of particular
note on the labor/social front, the management team at
Tajammouat recently inaugurated a program to boost Jordanian
employment by recruiting girls from the town of Tafileh in
southern Jordan and hosting them dormitory-style at the park.
The program has been well received in both the QIZ and, we
are told, by the Tafileh girls. As a result, management in
Dulayl is putting together a similar program to bring in
girls from the Baqaa refugee camp to work in the QIZ's.

Business Complaints



5. (u) Business complaints from QIZ exporters remain
largely the same - requests to reduce Israeli inputs below
8%, requests to improve QPR approval times on the Israeli
side, and complaints about product quality of Israeli inputs.
In addition to these usual gripes, new specific concerns
have been raised. First, some exporters have noted that some
U.S. freight forwarders and even some customs officials are
unfamiliar with documentary requirements for imports of QIZ
goods. Exporters say this lack of familiarity can delay
importation of QIZ goods, which can be expensive with
time-sensitive garment imports. We have promised to raise
this issue with Customs.



6. (u) Second, a number of exporters are frustrated by
contractual obligations imposed by U.S. garment retailers.
Many retailers require exporters to work with, e.g., a
particular trim manufacturer or a particular hanger maker.
This ties the hands of exporters, who cannot source these
items out of Israel and so meet their 8% requirements.
Compounding the problem, they say Israeli trim makers etc.
have not made an effort to become "approved" suppliers for
many larger retailers for these goods.



7. (u) Finally, we are hearing increasing rumors of
transshipment of third-country garments through Jordan. In
particular, we have heard reports of (mostly Chinese)
garments being shipped in to Aqaba, re-labeled in the QIZ,
and exported as QIZ goods to the U.S. These rumors are short
on specifics, making it difficult to track them. Jordanian
customs has confirmed that there have been isolated incidents
of attempted transshipment. We have also heard
counter-rumors that customs officials have refused entry to
trans-shipments and have begun to closely scrutinize QIZ
exporters with chequered pasts. Jordanian customs has thus
far been unable to confirm those rumors.

Uneasiness Over Political Developments



8. (c) In addition to the usual "background noise" of
complaints over Israeli inputs, some exporters and park
managers have expressed a low, but growing, sense of disquiet
over continued political uncertainty in the neighborhood.
Some of this unease is simply generalized anxiety over the
smorgasbord of problems in the region, from possible war with
Iraq to ongoing violence in the West Bank and Israel to
increased incidents of violence against Americans in the
region. Some exporters have cited cancellation of orders
tied to this generalized uncertainty, while others note that
new orders are coming in more slowly than usual - due in part
to a slow U.S. economy, partly to the first quarter being a
traditionally slow time, and partly to political uncertainty.
Similarly, the investment promotion officer for Tajammouat
noted that, during a recent trip to China, previously
scheduled meetings with prospective investors were canceled
at the last minute because they were no longer interested in
investing in a "war zone."



9. (c) This generalized anxiety has been compounded by
growing concern over the impact of war with Iraq on the
QIZ's. Specifically, exporters note that, in the previous
war with Iraq, sea and air ports in Israel and Jordan were
closed for a time and war risk insurance premiums kept boats
out of Aqaba. Should history repeat, some exporters fear
increased production costs from raised insurance premiums,
problems importing inputs from Israel or East Asia, and
problems exporting finished goods. They note that similar
concerns arise from the possibility of a sharp increase in
violence in the West Bank causing closure of border crossings
and hence, access to Israeli inputs. We have continued to
reiterate both the USG's and the Israeli government's support
for the QIZ's, noting that the northern crossing has closed
for security reasons for only a handful of days in the last
two years, including closure after the September 11 terror
attacks in the U.S. Exporters nevertheless continue to seek
assurances that we have contingency plans in place to support
continued QIZ operations in the event that access to Israeli
inputs is curtailed for an extended period of time.

Comment



10. (sbu) Overall, news form the QIZ's remains positive.
Park managers and key investors are particularly excited
about the proposed QIZ event to be held December 13 on the
margins of the FTA Joint Commission meeting in Washington,
which they feel will go a long way toward relieving retailer
concerns over political instability, and will ultimately lead
to increased sourcing and new investment for Jordan. Most of
the complaints we continue to hear are normal complaints from
businessmen trying to optimize profit and efficiency. The
Israeli and Jordanian governments are currently talking about
restructuring Israeli input requirements, and the result of
those talks should have a net positive impact on current
investors. The fact that the complaints over the 8% continue
and that U.S. retailers are looking for contract suppliers of
inputs indicates that, once tariff relief under the FTA
approximates relief under the QIZ's, many current exporters
will export under the FTA, reducing costs and increasing
quality by moving away from Israeli suppliers. On the
political side, it will be useful to have a mechanism in
place in the future to address the possibility of loss of
access to Israeli inputs for QIZ production.
GNEHM