TRACKING CHANGES IN TEXTILES AND APPAREL EMPLOYMENT

UNCLAS SECTION 01 OF 03 CAIRO 007147

SIPDIS

STATE FOR NEA/ELA, NEA/RA
STATE FOR EB/TPP/ABT HEARTNEY
USTR FOR HEYLIGER
COMMERCE FOR ITA/OTEXA/ANDREA
USAID FOR ANE/MEA MCCLOUD

E.O. 12958: N/A
TAGS: KTEX ECON ETRD EINV EG USTR
SUBJECT: TRACKING CHANGES IN TEXTILES AND APPAREL EMPLOYMENT
AND PRODUCTION AFTER QUOTA ELIMINATION

REFS: A)STATE 146213 B) 04 CAIRO 07291


1. The following data responds to ref A request for
specific data and information on textiles and apparel
production, trade and employment.

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Total Industrial production
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Figures are for Egyptian fiscal year (July-June);
conversion based on a LE5.8/USD exchange rate.

2003/2004 2004/2005
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$47.50 billion $49.26 billion

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Total textiles and apparel production
--------------

Updated data for 2004-2005 is not available. Figures are
for Egyptian fiscal year (July-June) and by quantity, not
USD value. Textiles production data includes cotton yarn,
wool yarn, silk yarn and artificial fibers.

2002/2003 2003/2004
-------------- --------------
Textiles (thous. tons) 409.2 402.8
Blankets (mill. pieces) 15.0 15.5
Apparel (mill. pieces) 277.0 286.4


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Textiles and apparel's share of Egypt's imports and exports
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Total represents the share of textiles and apparel trade in
Egypt's imports and exports. Figures are for calendar year.
2005 figures cover period first quarter (January-March).

IMPORTS EXPORTS
2004 2005 2004 2005
-------------- -------------- -------------- --------------
Textiles 0.50% 0.58% 4.06% 5.29%
Apparel 0.58% 0.29% 2.29% 2.20%
Total 1.08% 0.87% 6.34% 7.49%

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Total manufacturing employment
--------------

Updated data is not available. Available figures are for
workers in industry and mining in fiscal years. According
to a broader definition of commodity sectors -- which
includes industry and mining, petroleum and products,
electricity and water and construction -- the figures reach
as high as 4.2 million workers in 2001/01 and in 2001/02 and
4.3 million workers in 2002/03.

2000/2001 2001/2002
-------------- --------------
2.1 million 2.2 million

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Total textiles employment and total apparel employment
-------------- --------------

According to an August 2004 study conducted by the American
Chamber of Commerce in Egypt (AMCHAM) and anecdotal
information from contacts in the sector, the total number of
workers in the textiles/apparel sector (formal/informal and
public/private sectors) is about one million. Official
detailed data on the number of workers in the textiles and
apparel sectors is not available.


2. Are host country producers receiving lower prices due to
heightened international competition? Have the
manufacturers received more, less, or the same number of
orders as in years past? Have foreign investors, including
Asian investors, closed factories or otherwise pulled out of
local production?

-- Official information regarding prices and orders received
by producers following the elimination of textiles quotas is
not available. There have been no reports of factories
closing down and pulling out of local production because of
increased international competition.


3. Have the U.S. safeguards or the EU deal affected the
export prospects for your host country manufacturers? Has
your host government implemented, or is it considering
implementing safeguards or other measures to reduce the
growth of imports of Chinese textiles and apparel products
into the host country?
-- The U.S. safeguards and EU deal have not immediately
affected export prospects for Egyptian manufacturers due to
the preferential treatment the latter receive under the QIZ
and European-Egyptian Association agreements. The Egyptian
Ministry of Foreign Trade and Industry (MOFTI) is allowing
U.S. and European manufacturers to register their overseas
factories producing goods under U.S. labels and to export
those goods into Egypt. Imports of brands not
internationally known face stricter registration
requirements. Importers must demonstrate through a
certification process that the foreign factories comply with
international labor and environmental standards and follow
customary rules of origin procedures. These effect of this
certification process appears aimed at limiting low quality
goods from Asian countries, especially China.


4. Has increased global competition affected local labor
conditions by causing employers to reduce wages, seek
flexibility from government-required minimum wages, or
adversely affected union organizing?

-- Wages, local labor conditions and union organizing in
Egypt are regulated by labor law 12 of 2003. There have no
reports of employers seeking reductions in compensation for
workers due to the increased global competition in textiles
and garments production.


5. Has the government or private industry taken action to
increase the host country's competitiveness, such as
improving infrastructure, reducing bureaucratic
requirements, developing the textiles (fabric production)
industry, moving to higher value-added goods, or identifying
niche markets. Does post think that the host government or
private industry's strategy will be successful? If host
government is the partner in a free trade agreement or a
beneficiary of a preference program such as AGOA, CBTPA, or
ATPDEA, will this be sufficient for the country to remain
competitive? Overall, if not already addressed, does post
think that the host country can be competitive in textiles
and apparel exports with the end of global textiles and
apparel quotas?

-- A research paper by the Institute for International
Economics titled "Egypt after the Multi-Fiber Arrangement:
Global Apparel and Textile Supply Chains as a Route for
Industrial Upgrading" analyzes the competitiveness of
Egypt's textile and apparel sector and its future prospects
(http://www.iie.com/publications/wp/wp05-8.pd f). According
to the paper "it has been suggested that in the post-MFA
era, relative proximity to the European market could be a
source of competitive advantage to Egyptian producers.
Application of a formal supply chain model finds that could
indeed have an impact on competitiveness, but the effect is
not tremendous, amounting to a 0.3 to 0.9 increase in
profits for every week improvement in lead times. The
business environment in Egypt continues to lag a number of
competitor countries, though recent reforms are addressing a
number of these constraints on competitiveness."

-- The MOFTI has taken steps since the appointment of the
new Minister in July 2004 to improve the investment climate
and reduce bureaucratic processes impeding manufacturers,
especially in the textiles and garments sector. Several
initiatives have been implemented through the Industry
Modernization Program co-funded by the European Union to
improve the textiles industry and increase its
competitiveness. Egypt has also signed the QIZ agreement in
December 2004, which allows duty free entry of goods to the
U.S. for goods with qualifying Israeli and Egyptian content
ratios. The Egyptian garments industry has been the main
beneficiary of this agreement, as it allows manufacturers to
compete with low-cost Chinese products.

-- The Egyptian textiles and ready made garment industry has
the potential to increase its competitiveness and exports to
foreign markets. It will require Egyptian manufacturers to
increase their productivity and efficiency and take
advantage of Egypt's proximity to major markets in Europe
and the U.S. and the beneficial treatment accorded Egypt in
agreements with these trading partners. The existing
preferential trade agreements with the U.S., including the
GSP and the QIZ, are not solely sufficient for Egypt to
remain competitive, but do create the opportunity for Egypt
to reform its industry, investment climate and export-import
processes to increase its competitiveness and take an active
role in increasing its share in the textiles and garments
international trade. Major garment producers are well aware
of these issues and are undertaking steps to improve
productivity and quality.

RICCIARDONE