OMAN PINS TEXTILE HOPES ON FTA

UNCLAS MUSCAT 001463 SIPDIS SENSITIVE STATE FOR EB/TPP/ABT EHEARTNEY AND NEA/ARPI USDOC FOR ITA/OTEXA MDANDREA STATE PASS USTR FOR AHEYLIGER, JBUNTIN E.O. 12958: N/A TAGS: KTEX ECON ETRD MU SUBJECT: OMAN PINS TEXTILE HOPES ON FTA REF: A. STATE 146213 B. 04 MUSCAT 2112 C. 04 MUSCAT 1748 -------------- SUMMARY -------------- ¶1. (SBU) Government statistics point to a continuing decline in Omani textile production in terms of value and employment. Manufacturers are pinning their hopes on the pending U.S.-Oman Free Trade Agreement to at least slow this trend. End Summary. -------------- STATISTICAL SNAPSHOT -------------- ¶2. (U) Responding to reftel A, the Ministry of Commerce and Industry has provided the following statistical information regarding Oman's textile and apparel industry for 2004 (unless otherwise indicated): Gross industrial production (including oil products): $4.94 billion Total Production capacity of textiles and apparel factories: 74 million pieces Export of textiles and apparels: $137.12 million Ratio of textiles and apparels to total exports (excluding oil exports): 3.31% Ratio of textiles and apparels to total imports: 2.21% Manufacturing employment (2003): 34,891 Employment in the textile and apparel industry (2003): 3,915 ¶3. (U) These statistics confirm the continuing decline in Oman's textile industry, as reported reftels B and C. In 2004, textile and apparel exports shrank approximately 30.5% from the $196.8 million reported in 2003. Employment in the textile and apparel industry likewise continued its steady decline. In 2001, we reported that 4,625 were employed by the textile industry, comprising 13.5% of the manufacturing workforce. For 2003, that number declined to 3,915, which now constitutes only 11% of the manufacturing workforce. -------------- FTA TO THE RESCUE? -------------- ¶4. (SBU) Omani textile manufacturers are counting on the upcoming U.S.-Oman Free Trade Agreement for a reversal of their fortunes. Several of these manufacturers have reported that buyers are paying very low prices for products ordered as a result of the lifting of quota restrictions. They remain in business, however, on the anticipation that the FTA's duty exemption on textiles and apparel would assist in their price competitiveness. Without the FTA, manufacturers feel that they would not be able to maintain operations in Oman. ¶5. (SBU) Once in force, the FTA will provide for duty-free treatment for textiles and apparels, promoting new opportunities for US and Omani fiber, yarn, fabric, and apparel manufacturing. Textile and apparel products must contain US or Omani yarn to qualify for duty-free treatment; however, the Agreement will allow for duty-free treatment of limited quantities of textile and apparel products not meeting this requirement for the first ten years of the FTA. Oman and USTR reached agreement to allow duty-free an annual total quantity of 50,000,000 square meters equivalent of goods assembled in Oman from fabric or yarn produced outside of Oman. This was a significant reduction from Oman's previous proposal of 57,000,000 square meters equivalent. ¶6. (U) Dr. Said Amer Sultan al-Riyami, Economic Advisor for the Ministry of Commerce and Industry, expressed optimism that this temporary exemption would help sustain Oman's hurting textile industry. He noted that the quota system had been important in nurturing the industry in the first place. Without quotas, al-Riyami lamented that price competition from Chinese manufacturers proved to be too intense for some Omani producers, with many Omanis losing their jobs in the sector. With FTA, al-Riyami believes that Omani manufacturers would remain competitive, at least until the exemption expires. BALTIMORE