Identifier
Created
Classification
Origin
03AMMAN781
2003-02-05 08:31:00
CONFIDENTIAL
Embassy Amman
Cable title:  

EGYPTIAN QIZ'S IN JORDANIAN PERSPECTIVE

Tags:  ETRD JO EG IS 
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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 02 AMMAN 000781 

SIPDIS

DEPT PASS USTR FOR NED SAUMS
DEPT ALSO FOR EAP/BCLTV - LAWLESS

E.O. 12958: DECL: 02/02/2013
TAGS: ETRD JO EG IS
SUBJECT: EGYPTIAN QIZ'S IN JORDANIAN PERSPECTIVE

REF: CAIRO 846

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

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 000781

SIPDIS

DEPT PASS USTR FOR NED SAUMS
DEPT ALSO FOR EAP/BCLTV - LAWLESS

E.O. 12958: DECL: 02/02/2013
TAGS: ETRD JO EG IS
SUBJECT: EGYPTIAN QIZ'S IN JORDANIAN PERSPECTIVE

REF: CAIRO 846

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


1. (c) SUMMARY: Activating the QIZ initiative in Egypt
through parallel protocols would have profound effects on the
long-term viability of QIZ's in Jordan. More seriously, such
a deal would cause deep concern within the GOJ about
equitable treatment for the politically tough decisions
Jordan has made with regard to normalizing relations with
Israel. Especially at this sensitive time, we believe
activation of Egyptian participation in the QIZ initiative
should not be done in such a way as to expose the GOJ to
strong domestic criticism for giving up more than it had to
politically vis-a-vis Israel. End summary.

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ECONOMIC IMPACT PREDICTABLY BAD
--------------


2. (c) We expect senior levels of the GOJ to react with
dismay when news that Egypt is activating its QIZ option gets
out. Economically, this is predictable, as full Egyptian
participation in the QIZ initiative would severely curtail
QIZ sales and new investment in Jordan. For example, the
Vice President for Sourcing of Target, in a recent visit to
Amman, told us that preferential access to the U.S. market
along the lines of the QIZ initiative would make Egypt's
vertically integrated textile industry a far more
advantageous place to source from than Jordan, which lacks
both the high-quality local cotton and the vertical
integration.


3. (c) In addition to the impact on the nascent
western-oriented business sector, diversion of QIZ business
to Egypt would have severe repercussions on Jordan's balance
of payments and the King's efforts to diversify the economy
away from dependence on foreign aid, remittances, and exports
to Iraq. The QIZ's were responsible for over $400 million in
gross hard currency inflows in 2002 (5% of GDP and 20% of
total exports). Exports of $600-800 million are possible
this year, more than combined U.S. military and economic
assistance. According to a recent study by the EU assistance
mission, QIZ exports have the potential to reach $2.6 billion
annually as soon as 2007 -- under current conditions.

--------------
POLITICAL COSTS EVEN MORE DAMAGING
--------------


4. (c) More disturbing, though, is the major political
embarrassment that Egypt's participation in the QIZ
initiative on "easier" political terms could cause the GOJ.
Should Egypt activate its QIZ participation in the same
manner as the GOJ did, i.e. with an agreement between the GOE
and the GOI, Jordan would have no real political exposure.
If, however, the Egyptians use a parallel protocols mechanism
(reftel),we expect the GOJ to register deep concern. The
GOJ took brave political risks to initiate the QIZ's,
invoking the ire of anti-normalization groups and provoking
death threats against some of the early investors. Since
then, the success of the initiative has quieted
anti-normalization voices. In addition, in providing jobs to
over 20,000 (primarily rural, conservative) Jordanians, the
QIZ's have played an important role in changing public
attitudes about working with Israel.


5. (c) All of these gains would be put at risk if Egypt was
seen by the GOJ as getting an "easier deal" than Jordan
received. The GOJ will perceive this as favoritism toward
Egypt, obliging Jordan to make public and direct
government-to-government ties to Israel, while Egypt is not
asked to take similar risks. This analysis, irrespective of
the economic impact of competition for QIZ sales and
investment, would light a hitherto smoldering fire under the
anti-normalizers. Worse, it would dissuade forward-leaning
Jordanians from taking on new political risks vis-a-vis
Israel, on the assumption that, if they wait long enough,
they can get "Egyptian terms." It will also dissuade liberal
Jordanian businessmen from reaching out to do business with
Israel out of fear they could be undercut later on by more
"favorable" treatment third countries receive. Finally, it
will disappoint Jordanian workers (those that remain after
the economic effects reveal themselves),who will perceive
Egyptian workers as getting the benefits of the QIZ's without
having to work with Israel. Whether or not this is true
would be irrelevant - the perception would be the same.

--------------
COMMENT
--------------


6. (c) While Egypt's long-overdue participation in the QIZ
initiative will cause serious economic disruption to Jordan's
nascent garment sector, this is a normal facet of the
cut-throat global textile industry. Jordan has always known
it would need to deal with competition from abroad, and
should be expected to find ways to compensate for the
disruption (re-training, diversification, etc). In any
event, there will still be a niche for Jordanian garment
exports: The inclusion of Egypt might even create new
partnership opportunities among QIZ exporters, and Jordan
will still be a good sourcing option for synthetic
fabric-based garments, where Egyptian advantages in cotton
and vertical integration are not as much in play. The GOJ's
track record on QIZ investor support and on relations with
Israeli counterparts could also be a distinct advantage.


7. (c) That said, bringing Egypt into the QIZ fold needs to
be managed in such a way that it does not overturn the
political sacrifices Jordan made. Preserving the momentum
the QIZ's have generated in beating back the
anti-normalization lobby means making sure that hard-won
benefits are not given to other countries that have not been
asked to make the same difficult decisions.
GNEHM