UAE PREPARES FOR TERMINATION OF TEXTILE QUOTAS

UNCLAS ABU DHABI 002205

SIPDIS

SENSITIVE

DEPT FOR NEA, NEA/ARP, EB/TPP/ABT FOR HEARTNEY

E.O. 12958: DECL 07/04/04
TAGS: ETRD KTEX TC
SUBJECT: UAE PREPARES FOR TERMINATION OF TEXTILE QUOTAS

REF: STATE 142338


1. (SBU) Summary and comment: Reftel letter was delivered
July 4 to UAE Ministry of Economy Undersecretary Mohammed
Jassim Al-Mizzaki, whose staff has queried Post numerous
times about the elimination in 2005 of the UAE's textile
quota to the United States. Textiles are the UAE's single
largest export to the United States and largest non-oil
contributor to the federation's GDP. Furthermore, 70
percent of the UAE's textile production is exported to the
United States. UAE officials have expressed their concern
about the UAE's trade deficit with the United States, and
the expected decreased in 2005 of UAE textile exports to
the United States due to increased competition from other
low-cost textile producing countries (India, China and
others) probably will raise the profile of this bilateral
issue. End summary and comment.

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Turning Rags To Riches
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2. (U) Textiles and apparel have become big business in
the UAE due to a confluence of factors, notably the U.S.
quota system and the creation of manufacturing free zones
in the UAE. According to official UAE statistics, textile
manufacturing represented approximately 10 percent of the
UAE's GDP in 2003, thanks to the 180 garment factories here
(including four weaving and spinning factories, and about
33 factories engaged in the production of textile furniture
accessories, bed sheets, pillows, etc.) Ministry of
Economy officials tell us that the textile sector is key to
the UAE's efforts to diversify its oil-dependent economy.


3. (U) The number of textile manufacturers in the UAE has
tripled since the mid-1990s, mostly due to the creation of
the free zones in Dubai and the northern emirates. Indian,
Chinese and other traditional textile manufacturers moved
to the free zones to take advantage of the UAE's existing
textile quota with the United States, although wages here
are relatively higher than the subcontinent and elsewhere
in Asia. We expect that some of these manufacturers will
return to their homelands once the quota system is
eliminated because of the other countries' lower production
costs. Indeed, the Ministry of Economy reports that some
UAE textile manufacturers already have moved to Jordan
because of the zero tariffs on textiles embodied in the
U.S.-Jordan free trade agreement (FTA). UAEG officials are
optimistic, however, that these manufacturers will return
when the UAE completes its own FTA with Washington.

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Preparing For The Worst
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4. (U) For more than a year, the UAEG has sought to
restructure its textile and apparel industry in
anticipation of elimination of the quota system in 2005.
At the January meeting of the Gulf Cooperation Council
(GCC) Customs officials in January, the UAE called for the
elimination of customs tariffs on textiles traded among the
GCC countries. In its statement to the GCC Secretariat,
the UAEG stated that its textile sector would face many
challenges in the coming year and it sought to remove any
existing barriers to textile trading within the GCC as soon
as possible. The GCC members currently impose a 4 percent
tariff on textile imports.


5. (U) In 2003, the Dubai Government announced the
development of a $60 million textile free zone, called
Dubai Textile City. Once completed (expected October
2005),Dubai Textile City will house nearly 200 textile
manufacturers from all over the world. Dubai officials
hope that the textile free zone will confirm the emirate as
the preeminent textile hub between Asia, Europe and the
United States.


6. (U) This cable was coordinated with ConGen Dubai.

Albright