QIZ'S HAVE ANOTHER BANNER YEAR

UNCLAS AMMAN 000686

SIPDIS

SENSITIVE

STATE FOR NEA/ARN
PASS TO USTR - E. SAUMS
USDOC 4520/ITA/MAC/OME/NWIEGLER

E.O. 12958: N/A
TAGS: ETRD KTEX PREL IS JO
SUBJECT: QIZ'S HAVE ANOTHER BANNER YEAR

REF: AMMAN 7292

SENSITIVE BUT UNCLASSIFIED


1. (SBU) Exports to the United States from Jordan's
Qualifying Industrial Zones (QIZ's) jumped up the charts to
USD 586.6 million in 2003, a 54 percent increase over 2002.
Garments represented about 95 percent of the exports,
according to the confirmed statistics from the Ministry of
Industry and Trade. With the United States being the
destination for about a third of Jordan's overall export
totals, the U.S. has replaced Iraq as Jordan's number one
trade partner. Non-QIZ exports are expected to be over USD
100 million. Jordan should surpass total exports of USD 700
million to the U.S. in 2003. (The GOJ Department of
Statistics, which tracks trade figures outside the QIZs, has
not released year-end figures.)


2. (SBU) Jordanian officials are claiming that the QIZs now
employ over 30,000 workers, a figure accurate at least in the
peak garment manufacturing seasons. If sales by QIZ
factories continue at the current pace, the year-long average
employment of about 25,000 will certainly increase in the
coming year.

Growth Despite Persistent Problems
--------------


3. (SBU) Over the course of the year, there were slowdowns
in the overall strong growth rate that reflected three major
problems faced by Jordan-based QIZ's this past year: the
Iraq war, the Aqaba port congestion that followed the war's
end, and the Israeli port and labor problems that persisted
in the fall. Even in these weak growth periods, sales
increased by 20 percent compared to the same period in the
previous year.


4. (SBU) According to QIZ factory managers, Aqaba port
congestion remains -- with delays of an additional 7-10 days
in receiving raw inputs the norm. Shipping out of Haifa port
to U.S. destinations also remains a problem, according to
factories that have long used that shipping route, including
ship congestion and unpredictable loading of containers.


5. (SBU) Recruiting of labor is also a recurrent problem.
The government program to train 4,000 workers this year does
not appear to meet the demand. Factories are scaling up
their wage and bonus packages to attract and retain garment
workers. QIZ companies are also mounting their own training
programs, but lack raw recruits.

Moving to the FTA?
--------------


6. (SBU) A big question mark for QIZ factories is what the
specified Israeli content will be if/when Jordan and Israel
renegotiate the 8 percent required rate of Israeli content
which reverts to 11.7 percent in February. If they cannot
count on the specified Israeli content of QIZ products
remaining at 8 percent, some QIZ factories are looking at
apparel groups that have tariffs reduced to zero under the
Jordan-U.S. FTA. For example, a factory in the Tajamouat QIZ
is seriously looking at producing cotton ladies' skirts and
exporting them under the Jordan-U.S. FTA because the U.S.
tariff went down to zero from 2.1 percent this year.
HALE