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

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SUMMARY
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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.

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STATISTICAL SNAPSHOT
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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.

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FTA TO THE RESCUE?
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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