JORDAN QIZ UPDATE - BUFFETED BUT UNBOWED, THE

UNCLAS SECTION 01 OF 05 AMMAN 007292 SIPDIS SENSITIVE STATE PASS USTR FOR NED SAUMS STATE PASS TRANSCOM FOR C. DOBIAS AND D. HUGHES USDOC FOR 4520/ITA/MAC/ONE/PTHANOS TREASURY/OASIA FOR A. DEMOPULOS DOL FOR ILAB E.O. 12958: N/A TAGS: ETRD EINV ELAB EAID IS IZ JO SUBJECT: JORDAN QIZ UPDATE - BUFFETED BUT UNBOWED, THE DOUGHTY QIZS KEEP ON GROWING REF: A. AMMAN 6220 ¶B. AMMAN 4735 ¶C. AMMAN 4503 ¶D. AMMAN 3056 SENSITIVE BUT UNCLASSIFIED. PROTECT ACCORDINGLY. ¶1. (SBU) SUMMARY: Hit hard by unpredictable delays in delivery of fabric inputs through congested Aqaba port and even less-predictable Israeli port and customs bottlenecks, Jordan's Qualifying Industrial Zones (QIZs) nonetheless continue to outperform last year's record export volumes. Government of Jordan (GOJ) export figures show that the QIZs had shipped garments worth USD 426.6 million to the U.S. by the end of September, easily on track for another record-breaking year at over USD 500 million. Unprepared for post-Iraq-conflict effects on shipping and transportation operations, a number of QIZs saw flat months in September and October, but many report strong early bookings for the spring season and expect dramatic upswings in operations, if they can find skilled labor. Managers plan multiple routes for inbound raw products and outbound finished goods, and prepare contingency plans in the face of potential Israeli customs strikes. ¶2. (SBU) SUMMARY CONTINUED: The GOJ is trying hard to fix the Aqaba port problem, with mixed results. Consequently, a few of the low-end garment factories with less experienced, less flexible management may go under. The GOJ is developing a strategy to support the garment industry as the 2005 end to quotas approaches. A government committee is working on a national strategy with private sector partners. USAID's AMIR program is offering policy support, but some old QIZ hands request that the USG be more forthright with policies or pronouncements on the end of the Multifiber Agreement. In the meantime, Turkish and Gulf state investors are setting up shop in some QIZs. Labor appears to be doing well: 4,000 Jordanians are being trained under a GOJ program with Tunisian trainers and salary increases are generally available in a labor-friendly job market. Judging from a recent visit by Nike compliance officers, the situation of foreign laborers is tolerable. A model Village Program that hires mainly women from the south is expanding. END SUMMARY. �0A; AQABA PORT REACHES ITS "NATURAL" LIMITS -------------- ¶3. (SBU) With Iraq-bound goods flooding into Aqaba in the April-September period, the Port of Aqaba Authority followed its standard operating procedure of increasing manpower and using all available equipment around the clock. Container volume (TEU) rose 60 percent from April to September, but most significantly the number of vehicles destined for Iraq (many of them used cars) shot up by 600 percent from May to June. Old systems broke down as the port was overwhelmed. Traders said they would pay "hunters" to go track a vehicle; three days later, after roaming through miles of makeshift vehicle yards, the car's location would be reported. Unloading of ships took longer, and full ships began to fill the harbor. A manual card-system for handling containers, and an inefficient ship-to-yard-to-customer system overwhelmed the straddle carriers that were making too many "false moves" to physically locate and remove a container out of the port. To move ships quickly out of the port, empty containers were left behind, filling up needed storage space. Overused port equipment broke down and the problems mounted. In the end, by September, big container ships went back to Jeddah and unloaded there. Since that time, only smaller feeder ships have been going to Aqaba, requiring an inefficient transfer in Jeddah first. Compounding the problem in the post-conflict period, suppliers for the World Food Program started sending many more shipments of food and other necessities in containers, which needed to be unpacked in the port. The GOJ established a fast-lane at Aqaba for WFP shipments to Iraq as a humanitarian gesture. This innovation was successful, but led to additional inefficiencies. ¶4. (SBU) The government has since invested USD 24 million in an ongoing major port upgrade at Aqaba, adding two gantry cranes and several new straddle carriers. By mid- to late-November, GOJ authorities state, operations will be back to normal. Knowledgeable private shippers are more conservative, saying operations on the old timetable will be back by the end of the year. But the inefficiencies will remain, say some critics, until the entire system is upgraded and computerized and even more modern equipment and infrastructure to match is put in place. ¶5. (SBU) QIZ factory managers had been playing "where's the container?" at Aqaba since summer. Although few in number, they are high-value containers with enough cloth to produce millions of dollars worth of clothing on short lead times to be delivered to ports on the East Coast. Tracking containers in the Aqaba pile-up was nearly impossible; finding those returned to Jeddah was worse. By September garment factories were shutting down production lines. Operations at Aqaba are better now, say the QIZ factory managers and owners. Although delivery times are longer than they were in early 2003, they are at least predictable. The GOJ announced in early October that QIZ companies could use other ports to deliver raw materials -- a temporary waiver of a regulation that gives Aqaba port a monopoly on container traffic. Many have turned to using trucks from the Jabal Ali port near Dubai. HAIFA PORT STRIKES, BORDER CLEARANCE PROBLEMS -------------- ¶6. (SBU) The early-October strike at the Port of Haifa and more recent slow-downs by Israeli customs at Haifa and at the Sheikh Hussein bridge between Jordan and Israel also have left QIZs scrambling. One factory owner whose container was stuck in the Haifa port reported that he had just called the U.S. buyer and said the goods would arrive late, putting himself at the mercy of the buyer's contractual right to cancel. QIZ managers on November 3 reported a continuing customs slow-down at the bridge, which has never been an easy access point due to what the managers say are Israeli security concerns. One Amman-based factory recently sent a truck south through Jordan's Aqaba border crossing with Eilat, Israel. From there, the truck went north through the length of Israel to Haifa. Another firm in Irbid is not only taking its raw inputs from Dubai but plans to ship finished garments to the U.S. from there. A few have tried shipping out of Aqaba -- losing about 7-10 days of shipping time to cover the extra distance -- but report that the containers can leave the Aqaba port up to an additional ten days later than scheduled. ¶7. (SBU) A factory manager with long experience in the QIZs points to the Israeli-side problems as fundamentally affecting the eight percent Israeli content, especially if sewing or other labor is done in Israel. Shipping to the U.S. may not be predictable, he said, but if the Israeli content cannot get back and forth, he will lose his QIZ garment qualification. The manager is buying up Israeli accessories -- pins and ribbons -- as fast as he can get them. If the border situation does not improve, he will finish the sewing in Jordan and accessorize the Israeli content. STILL THE QIZS KEEP GROWING...AND GROWING -------------- ¶8. (SBU) Despite all of the problems, the Ministry of Industry and Trade reports QIZ exports of USD 426.6 million through the end of September, representing a 60 percent increase over the same period last year. The same factory managers that reported slower production in September and October are predicting that they will fill their production lines by mid-November. One Amman factory in the Tajamouat Industrial Estate reports strong interest from U.S. clothing buyers. One manager in an Ad Dulayl factory stated they will be at full capacity through next February. Bookings and/or buyer interest in garments from Jordan remain strong, according to selected industry representatives. However, a few firms are closing: Dawhyma Jeans in Tajamouat transferred its lease to a new firm and let go its workforce of about 400. These workers were paid, but complained that not all of their labor rights were honored. Their case is being reviewed by the Ministry of Labor. A second firm in Tajamouat run by young and inexperienced Jordanians from a wealthy family is also reportedly seeking a buy-out. ¶9. (SBU) At the same time new factories continue to open, including Turkish investors, a QIZ first, as well as more GCC companies. Tajamouat's estate manager reports two new Turkish firms joining. Jack Khayyat at Ad-Dulayl Industrial Park reports that two Turkish apparel companies and one Indian company will start operations there by February. Other industrial estates also have noted continued interest from Turkish and Gulf state firms. In the Aqaba Industrial Estate, run by Parsons Brinkerhoff International, Dubai-based Atraco company has signed a letter of intent to open a garment factory employing 1200 workers. PBI CEO Sheldon Fink reports that the firm should close the deal in the next few weeks and begin full production by July 2004. CHINA WORRIES A GOJ INTENT ON QIZ-FRIENDLY POLICIES -------------- -------------- ¶10. (SBU) The GOJ has established a national committee to advance the gains made in the five-year old QIZ garment industry and devise a strategy to deal with the changes expected with the end of the Multifiber Agreement in 2005. USAID's AMIR program is developing an investment promotion strategy for the garment sector on behalf of the Jordan Investment Board. Embassy ECON section will contribute an updated QIZ Q&A to that effort. The GOJ strategy report is expected by the end of the year. Jordan is also seeking an EU-Israel-Jordan QIZ arrangement that would bolster the rising garment sector with a closer market in which Jordan could be more competitive. This deal would likely complement the USG's QIZ arrangement. ¶11. (SBU) What will happen with China and other highly competitive garment-producing countries that have cheaper labor and inputs and better, quicker transportation routes to the U.S. is a major question. As one leading QIZ estate manager said to Econoff (representing a sentiment expressed to the Ambassador numerous times),the U.S. should squarely address the problem of China. Although Jordanians were pleased to hear about the testimony of DAUSTR Charles Freeman on September 24 before the Congressional-Executive Commission on China, which outlined two China-specific safeguard mechanisms, they are eager to hear more. Even with Jordan's no-tariff advantage, many see 2005 as a serious challenge to an infant industry that U.S. policies begot. (COMMENT: Elaborating U.S. government policies to support Jordan's growing industrial base built on free trade and an open-market economy would be a natural extension of USG efforts to date. END COMMENT.) QIZ LABOR SITUATION -------------- ¶12. (SBU) The QIZs employ anywhere between 26,000 and 32,000 workers depending on the source. The government's low-end figure cites 57 percent as Jordanian nationals. The remaining 43 percent of the garment workers are largely from South Asia (Pakistan, Sri Lanka, Bangladesh),the Philippines and China. In recent government meetings and tours of QIZ garment factories with Nike compliance officers, we found that the Jordanian labor code applies equally to foreign workers, including the right to join a labor union. However, virtually all foreign workers choose the protections afforded by their contracts, according to the Ministry of Labor, while benefiting from the minimal worksite measures gained by unions. ¶13. (SBU) In Jordan, most garment workers have a 48-hour week and can clock up to 12 hours of overtime, which provides 1.25 times regular pay. Most foreign workers contract to work 60-hour weeks. Anecdotal information indicates a number of foreign workers are putting in more than 60-hour weeks, especially in the high-demand seasons. Many managers report that Jordanians prefer not to work overtime. At the same time, foreign workers are reportedly pulling in USD 200 to 300 dollars on average a month, well above the minimum wage of 85 JD (120 USD). With bonuses, the best workers are reportedly making USD 350 to 400. (COMMENT: As one QIZ estate manager said, the foreign workers are a model for the largely rural-agrarian Jordanians who are unfamiliar with the modern industrial work ethic. END COMMENT.) ¶14. (SBU) Foreign workers usually live in dorms either on or near QIZ estates and many receive meals as part of their contracts. Tajamouat Estate built its dorms according to JC Penney standards and hired chefs from Sri Lanka and China to cook for the workers; the factories pay Tajamouat as part of its one-stop shopping service. The source country embassies are regularly visiting those QIZs with heavy foreign worker concentrations, according to workers and managers. Contacts from source country embassies say that foreign workers in the QIZs are the least of their worries because conditions there are so much better than in other sectors. An issue that the concerned ministries are just beginning to address in a systematic way is the behavior of home-country labor recruiting agencies, to ensure they are acting in accordance with international standards. The GOJ requires the licensing of bonded labor agencies within Jordan. In all of the meetings between Nike and government officials, it was clear the GOJ is concerned about labor standards compliance and sees an advantage to highlighting good labor practices to potential investors. ¶15. (SBU) QIZ workers can be generally confident the labor market favors them for the present. Judging from the complaints of factory managers who say their workers are not loyal, job-jumping to secure a better wage is a common practice. One American manager who recently took over in a QIZ firm said that he would enhance the bonus system to keep good workers. This same firm reportedly hired away an effective floor manager from a competitor by offering a substantially higher wage. The GOJ contracted with the Jordanian firm Textile Technology Centers to train 4,000 more Jordanian garment workers by next July to meet the increasing labor demand at QIZs. Already 1,000 have been trained in paid five-week courses led by Tunisians experienced in modern garment factory production techniques. The same firm will train up to 120 Jordanian trainers, though the training company's expectation is that it will take far longer than a year to produce the effective trainers they now have. The development of an effective industrial labor force will be a major challenge for the GOJ. ¶16. (SBU) An innovative program to recruit and train Jordanian labor is the "Village Program" at Tajamouat Industrial City, which has continued to grow to about 800 mainly women from the south of Jordan, where jobs are scarce and unemployment is high. These workers live in dorms and contract to work 60 hour weeks. Dormitories have inside supervisors, who act as chaperons. Every two weeks the company buses the workers back to their villages to see their families for two days. A Ministry of Labor senior officer and two Social Welfare workers are assigned in an office at Tajamouat to pay special attention to the village group and to visit and coordinate with their families. The MOL also sponsors special events for them. Other MOL officers at Tajamouat monitor the condition of the industrial park, as at the other QIZs. Tajamouat management, which sees the village program as a way to provide factories with dedicated workers, has a cost-sharing program with the MOL for the first year. After that, the factories absorb all dorm and food costs. Women in the villages reportedly claim they want more such jobs for their relatives. ¶17. (SBU) COMMENT: The QIZs grow, yet the mix of investors has not changed dramatically. As one experienced Sri Lankan QIZ manager asked, what can the GOJ or the USG do to assure companies that the competitive advantage of Jordan remains? Among the potential focuses of concern are: -- more policy work and research into QIZ-FTA linkages; -- more logistics and transportation improvements, to offset the toll exacted by Iraq-bound cargo (for example, TDA and private U.S. companies have expressed interest in Aqaba port issues); and, -- more engagement from the U.S. to encourage active Jordanian and Israeli measures to overcome transportation, customs, and security impediments at the Sheikh Hussein Bridge and at Aqaba. GNEHM