Identifier
Created
Classification
Origin
06AMMAN629
2006-01-26 13:35:00
CONFIDENTIAL
Embassy Amman
Cable title:  

JORDAN LEADERS START THEIR ENGINES IN WORLD

Tags:  ETRD BTIO KTIA ELAB KTEX ECON ELTN PGOV JO 
pdf how-to read a cable
VZCZCXYZ0014
PP RUEHWEB

DE RUEHAM #0629/01 0261335
ZNY CCCCC ZZH
P 261335Z JAN 06
FM AMEMBASSY AMMAN
TO RUEHC/SECSTATE WASHDC PRIORITY 7738
INFO RUEHXK/ARAB ISRAELI COLLECTIVE PRIORITY
RUEHEG/AMEMBASSY CAIRO PRIORITY 2100
RUEHTV/AMEMBASSY TEL AVIV PRIORITY 3983
RUEHJM/AMCONSUL JERUSALEM PRIORITY 3690
RUEHGV/USMISSION GENEVA PRIORITY 0462
RHEHNSC/NSC WASHDC PRIORITY 0244
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
C O N F I D E N T I A L AMMAN 000629 

SIPDIS

SIPDIS

STATE PASS TO USTR

E.O. 12958: DECL: 01/25/2016
TAGS: ETRD BTIO KTIA ELAB KTEX ECON ELTN PGOV JO
SUBJECT: JORDAN LEADERS START THEIR ENGINES IN WORLD
GARMENT RACE AS QIZ'S CREATE MORE JOBS

REF: A. 05 AMMAN 8228


B. 05 AMMAN 7495

C. 05 AMMAN 5130

D. 05 AMMAN 1147

E. 05 AMMAN 0013

Classified By: AMBASSADOR DAVID HALE FOR REASONS 1.4 (B) AND (D)

C O N F I D E N T I A L AMMAN 000629

SIPDIS

SIPDIS

STATE PASS TO USTR

E.O. 12958: DECL: 01/25/2016
TAGS: ETRD BTIO KTIA ELAB KTEX ECON ELTN PGOV JO
SUBJECT: JORDAN LEADERS START THEIR ENGINES IN WORLD
GARMENT RACE AS QIZ'S CREATE MORE JOBS

REF: A. 05 AMMAN 8228


B. 05 AMMAN 7495

C. 05 AMMAN 5130

D. 05 AMMAN 1147

E. 05 AMMAN 0013

Classified By: AMBASSADOR DAVID HALE FOR REASONS 1.4 (B) AND (D)


1. (C) SUMMARY: King Abdullah's address to leading U.S.
garment industry CEOs February 3 in Washington marks a
turning point in Jordan's rapid entry into this sector in the
global market. With apparel exports topping $1 billion in
2005, Jordan has arrived on the world garments scene and will
work hard to maintain its position, even in the face of U.S.
quotas on Chinese garments disappearing in 2009. The
two-pronged strategy to (1) leverage unique U.S. preferential
trade agreements, and (2) combine proximity to and trade
arrangements with the EU, give Jordan unparalleled access to
these critical markets and allow room to develop a
sustainable, modern (if small) garments industry. Job
creation is a critical benefit in a country with 13.4%
unemployment -- the QIZs account for at least 50,000 workers.
With the King's full support, Minister of Industry and Trade
Sharif Zu'bi has fashioned a package of far-reaching
initiatives, begun in Spring 2005, to cement the strong
export gains made in the garment sector by Qualifying
Industrial Zone (QIZ) factories and to position the "Made in
Jordan" label in the U.S. and EU. However, hard-charging
Minister Zu'bi's policy overhaul to make QIZ's into
fine-tuned racing machines in the post-MFA world ran into
policy engine trouble at the end of 2005 due to an
unsympathetic cabinet and bureaucratic delays. Zu'bi is more
hopeful that the new cabinet backs his aggressive moves,
insiders report.


2. (C) SUMMARY (CONT.): QIZ factory owners are taking more
independent initiatives, and their manufacturers' association

is building an advocacy machine to cut through red tape and
official inertia. King Abdullah will bring Zu'bi and the
garment manufacturers association head with him to the
Washington event with U.S. apparel company CEO's (including
six from Fortune 500 companies the likes of JC Penney and The
Gap). This will be a prelude to Jordan's national pavilion
showing in the garment sector's "Magic Show" in Las Vegas
Feb. 21-24. While the momentum is building for the garment
industry, the major government and business players have no
illusions about the need for even more major fundamental
changes in the way the Jordanian government does business,
and see themselves as pioneers in forcing change to increase
competitiveness. END SUMMARY.

QIZs: Jobs For Jordanians
--------------


3. (U) Qualifying Industrial Zone (QIZ) factories are
exporting duty free to the U.S. garments with 8 percent
Israeli content (NOTE: in 1998-2004, QIZ exports were also
quota-free, attracting major buyers and stimulating dozens of
factory start-ups). More than 95 percent of QIZ factory
output is in apparel, which constituted more than $920
million in QIZ exports to the U.S. alone in 2004 and is
estimated to exceed $1 billion in 2005. QIZ apparel is
shipped directly to buyers such as Macy's, Lee, Levi's, JC
Penney, Walmart, Liz Claiborne, Nordstrom's, and The Gap.


4. (SBU) QIZ factories now account for more than 95 percent
of all apparel workers in Jordan, which by government
estimates number more than 50,000. About half of these are
foreign laborers under contract. To phase out the reliance
on foreign laborers and to tackle Jordan's 13.4 percent
unemployment rate, the Ministry of Labor (MOL) recently
reached an innovative agreement with six QIZ garment
factories to support more training for about 1,000 Jordanian
laborers annually. This is only one of a package of proposed
far-reaching initiatives overseen by the Minister of Industry
and Trade, who has been pushing behind the scenes to turn
Jordan's many "plans" into action. The MOL will fund the
training of these 1,000 Jordanian for periods of 3-6 months,
including free transportation, meals, and medical care. In
return, the companies agree to hire the employees for a year
during which a special MOL bonus scheme will apply.
Commentators who criticized the last vocational training
scheme -- run exclusively by the MOL and producing "tailors

not production workers," they said -- praise the plan for its
realistic goal-setting, including a provision that the MOL
does not pay unless a trainee actually ends up working. The
employers are incentivized to offer incentives themselves.

MOL Overcomes "No Good Deed Goes Unpunished" Syndrome
-------------- --------------


5. (SBU) The MOL scheme agreed to in early December ran into
trouble when the bureaucracy initially ruled that the trainee
payments were not legal. MOL lawyers finally solved the
payment problem the week of January 21 and factories are
proceeding with high-visibility employment ads in daily
newspapers, including testimonials from their best Jordanian
workers. The industry group, Jordan Garments, Accessories &
Textiles Association (JGATE),will ramp up its campaign to
recruit Jordanian workers by going out to visit thought
leaders in the communities, especially where unemployment is
high, said JGATE CEO Rashed Darwazeh. JGATE's goal is to
have 1,000 new Jordanian workers this year. Minister of
Labor Bassem Salem told Econoff his goal is 3,000 Jordanian
garment workers trained and working within the next three
years. JGATE's Darwazeh said the long-term goal is to have
Jordanians comprise 70 percent of the apparels workforce,
which some trade ministry planners say could continue to grow
to as high as 100,000 if all of Jordan's potential markets
(read: EU) become fully accessible.

Reforms Speed Delivery, Bring Down Cost Structure...
-------------- --------------


6. (C) Darwazeh's JGATE is working closely with Minister
Zu'bi to address Jordan's systemic problems in four critical
areas: logistics, water supply, wastewater treatment, and
electricity. The details of extra fees and charges are so
complex that JGATE has a powerpoint presentation to make
sense out of it. To give one example, the government
electricity generating agencies charge ten times the normal
rate to industries during peak evening hours -- for QIZ
garment producers on tight delivery deadlines those are
crucial production hours when thousands of sewing machines
will be in operation. An industrial rate is needed, said
Darwazeh. In short, Darwazeh claims that the GOJ can bring
Jordan's cost structure to within 20 percent of the current
Egyptian QIZ cost structure if the government makes all of
the right adjustments (excluding labor costs).

...With Some Slow Going...
--------------


7. (C) Darwazeh told Econoff that he is seeing "movement on
every front" of the reform package, but that it was "very
slow" at the end of last year. JGATE has a full-time
advocate to push policy changes forward (NOTE: a rare
occurrence in Jordan; such persons operating professionally
and transparently were non-existent until recently),who can
cite chapter and verse the government roadblocks. According
to Darwazeh, when Minister Zu'bi is briefed on the
difficulties, he steps in to cut through red tape (when he
can). But some bureaucracies are resistant, noted Darwazeh.
After the cabinet decided to exempt from customs duties newly
imported buses that QIZ factories were using to transport
their workers to and from work, the Finance Ministry revenue
department told the Customs Department to instruct its agents
that the only companies to qualify must have registered
capital of JD 5 million (about $7 million). This is well
over any garment factory's base and it just so happens that
this is the base for transportation companies.

...But Brighter Days Ahead
--------------


8. (C) Similar horror stories exist regarding excessive
taxation of benefits (which include those bus rides for
employees that the Finance Ministry insists must be
monetized),and social security withholding, to name just
two. The JGATE board is meeting January 28 to sort through
the next group of anti-growth policies to reverse or amend,
said Darwazeh, who added that Minister Zu'bi is now excited
by the new cabinet, which Zu'bi sees supporting initiatives
to enhance competitiveness. Darwazeh added that Zu'bi did
not so uniformly praise the last cabinet, which he believed
was not supporting his pro-manufacturer reforms. (NOTE:

Darwazeh added that, in the last cabinet, it did not help
when Finance Minister Al Kodah formed a unified resistance
with fellow relative Eyad Al Kodah, head of the revenue
department.) An indication of the Trade Minister's level of
support: the GOJ is footing most of the $250,000 cost for
Jordan's garment trade missions this year.

First New York, then on to the "Magic Show"
--------------


9. (SBU) JGATE will launch two garment trade missions to the
U.S. in February in collaboration with minister Zu'bi. In
New York they will call on some of the big garment labels
headquartered there, including Liz Claiborne. On Feb. 21-24,
JGATE will have a 950 square-meter Jordan pavilion at the Las
Vegas Convention Center's "Magic Show" to include five
factory exhibitors along with Jordan Embassy and JGATE
booths. Zu'bi and Darwazeh will be joined by some industry
leaders to speak about high quality production in Jordan
under the QIZ and FTA.


10. (C) COMMENT: As Minister Zu'bi's efforts indicate,
Jordanian economic planners have no illusions about the
difficulties the garment industry will undergo in the next
few years. However, the level of sophistication being
brought to bear on the GOJ's garments trade policy and the
emphasis on competitiveness are becoming more widely evident.
As more and more QIZ factories turn to sewing lines with
FTA-only products (requiring no Israeli content, which is
expensive),the "Made in Jordan" label can be expected to be
even more competitive in the U.S. market.
Hale