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. -------------- Turning Rags To Riches -------------- ¶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. -------------- Preparing For The Worst -------------- ¶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