Identifier
Created
Classification
Origin
06CAIRO7219
2006-12-21 14:21:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Cairo
Cable title:  

EGYPTIAN QIZ EXPORTS CONTINUE TO RISE, LABOR

Tags:  ETRD ECON ELAB EG 
pdf how-to read a cable
VZCZCXYZ0000
PP RUEHWEB

DE RUEHEGA #7219 3551421
ZNR UUUUU ZZH ZUI RUEWMCF3199 3551408
P 211421Z DEC 06
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC0000
INFO ARAB ISRAELI COLLECTIVE
RUEHAK/AMEMBASSY ANKARA
RUEHIT/AMCONSUL ISTANBUL
UNCLAS CAIRO 007219 

SIPDIS

SENSITIVE
SIPDIS

NEA FOR ELA
USTR FOR SAUMS

E.O. 12958: N/A
TAGS: ETRD ECON ELAB EG
SUBJECT: EGYPTIAN QIZ EXPORTS CONTINUE TO RISE, LABOR
MARKET TIGHTENS

REF: A. CAIRO 6894

B. AMMAN 8341

C. 2005 CAIRO 1013

D. CAIRO 6347

UNCLAS CAIRO 007219

SIPDIS

SENSITIVE
SIPDIS

NEA FOR ELA
USTR FOR SAUMS

E.O. 12958: N/A
TAGS: ETRD ECON ELAB EG
SUBJECT: EGYPTIAN QIZ EXPORTS CONTINUE TO RISE, LABOR
MARKET TIGHTENS

REF: A. CAIRO 6894

B. AMMAN 8341

C. 2005 CAIRO 1013

D. CAIRO 6347


1. (SBU) SUMMARY: TWO YEARS AFTER THE SIGNING OF THE
QUALIFIED INDUSTRIAL ZONE (QIZ) AGREEMENT BY EGYPT, ISRAEL
AND THE UNITED STATES, EGYPTIAN QIZ EXPORTS ARE CONTINUING TO
RISE SHARPLY. FACTORY OWNERS ARE SCRAMBLING TO FIND ENOUGH
WORKERS TO STAFF THEIR NEW PRODUCTION LINES, EVEN AS THEY
MOVE AHEAD WITH PLANS FOR FURTHER EXPANSION AND WORK WITH
BUYERS TO AVOID THE KINDS OF LABOR PROBLEMS HINDERING
JORDANIAN QIZ PRODUCTION. EGYPTIAN QIZ OFFICIALS FACE OTHER
PROBLEMS, INCLUDING CONTINUED MURMURS OF RESISTANCE TO TRADE
WITH ISRAEL AND THEIR FAILURE TO NEGOTIATE A LOWER ISRAELI
CONTENT REQUIREMENT, BUT EVEN SO THE AGREEMENT IS ENTERING
ITS THIRD YEAR ON SOLID FOOTING. END SUMMARY.


2. (U) EGYPTIAN QIZ FACTORIES EXPORTED $178 MILLION IN GOODS
TO THE UNITED STATES IN THE THIRD QUARTER OF 2006, A
51-PERCENT INCREASE OVER THE THIRD QUARTER OF 2005. THE
NUMBER OF EXPORTING COMPANIES ROSE TO 139, EMPLOYING WELL
OVER 100,000 EGYPTIANS. DURING THE LAST FOUR QUARTERS,
EGYPTIAN QIZ EXPORTS TOTALED $571 MILLION, OR 22 PERCENT OF
EGYPT'S $2.6 BILLION IN EXPORTS TO THE UNITED STATES DURING
THAT PERIOD. (NATURAL GAS CONTINUES TO BE EGYPT'S LEADING
EXPORT, REF A). NEARLY ALL OF THE QIZ EXPORTS WERE IN
TEXTILES, PREDOMINANTLY PANTS USING ISRAELI CHEMICALS,
ZIPPERS, PACKAGING MATERIALS, AND OTHER INPUTS. UNDER THE
TERMS OF THE AGREEMENT, EGYPTIAN EXPORTS FROM QUALIFIED
FACTORIES MUST INCLUDE 11.7-PERCENT ISRAELI CONTENT TO BE
EXEMPT FROM U.S. CUSTOMS DUTIES.

--------------
COMPETITION FOR WORKERS
--------------


3. (SBU) QIZ FACTORY OWNERS REPORT THAT THEY HAVE TO COMPETE
FIERCELY FOR WORKERS, OFFERING HIGHER PAY, FREE LUNCHES, FREE
TRANSPORTATION, TRAINING AND OTHER INCENTIVES, OFTEN LURING
WORKERS AWAY FROM THEIR COMPETITORS. EGYPTIAN QIZ LABOR
COSTS RUN ABOUT $100 USD PER MONTH PER WORKER, WHICH IS
COMPETITIVE INTERNATIONALLY, ALTHOUGH FACTORY OWNERS WORRY
THAT IF LABOR COSTS CONTINUE TO RISE, SUB-SAHARAN AFRICAN
COUNTRIES WITH DRAMATICALLY LOWER LABOR COSTS COULD UNDERCUT
THEM ON PRICE AND NEGATE THE BENEFITS OF THE QIZ.


4. (SBU) LOW WORKER PRODUCTIVITY, FUELED IN PART BY HIGH

TURNOVER AND ABSENTEEISM, IS ALSO A PROBLEM, SAID MAN MOHAN,
OWNER OF VELOCITY APPARELZ IN ISMAILIA. MOHAN APPLIED TO THE
MINISTRY OF LABOR FOR WORK PERMITS FOR 350 SRI LANKANS, WHO
ARE ON AVERAGE TWICE AS PRODUCTIVE AS EGYPTIAN WORKERS, HE
SAID. THE MINISTRY DENIED THE PERMITS IN KEEPING WITH GOE
STRATEGY TO GENERATE EMPLOYMENT FOR EGYPTIANS.


5. (SBU) U.S. IMPORTERS ARE WORRIED THAT PRESSURE ON THE
EGYPTIAN LABOR MARKET COULD RESULT IN AN INCREASE IN FOREIGN
WORKERS, A PHENOMENON THAT RESULTED IN POOR LABOR PRACTICES
IN JORDAN (REF B),SAID KESAVA MURALI, A COMPLIANCE OFFICER
FOR THE BUYER JONES INTERNATIONAL. JONES AND LEVI STRAUSS
HOSTED A MEETING OF FACTORY REPRESENTATIVES IN CAIRO ON DEC.
19 TO DISCUSS FAIR LABOR PRACTICES AND DEVISE STRATEGIES FOR
PREVENTING ANY FUTURE LABOR VIOLATIONS. (NOTE: POST
PARTICIPATED IN THE MEETING AS AN OBSERVER AND WILL CONTINUE
TO EXPLORE WAYS TO SUPPORT THIS EFFORT. END NOTE.)

--------------
AND AN EXPANSION BOOM
--------------


6. (SBU) JAMAL SALAM, OWNER OF SUNSHINE READY-MADE GARMENTS,
LED ECONOFFS ON A TOUR OF THE CONSTRUCTION SITE OF HIS NEXT
PLANNED EXPANSION IN ISMAILIA, EXPECTED TO OPEN NEXT YEAR.
THE 16,000 SQUARE-FOOT FACILITY WILL SIT ADJACENT TO HIS
MOST-RECENT EXPANSION, A 26,000 SQUARE-FOOT FACILITY THAT
OPENED THIS YEAR. HE RECEIVED GOE APPROVAL FOR THE EXPANSION
IN MARCH, BROKE GROUND IN APRIL, AND WAS EXPORTING BY
NOVEMBER, PICKING UP ORDERS FOR LEVIS FROM IDLE JORDANIAN
FACTORIES. (NOTE: WHILE NEW QIZ FACTORIES REQUIRE USTR
APPROVAL, ALI AWNI, HEAD OF THE MINISTRY OF TRADE AND
INDUSTRY'S QIZ UNIT, SAID THAT ALL EXPANSION TO DATE HAS BEEN
OF EXISTING FACTORIES, ARGUING THAT DOES NOT REQUIRE USG
APPROVAL. POST INTENDS TO FOLLOW UP ON THIS ISSUE IN
COOPERATION WITH USTR TO ENSURE THAT QIZ EXPANSION IS IN
ACCORDANCE WITH THE AGREEMENT. END NOTE.)


7. (SBU) SALAM RECENTLY RETURNED FROM A TRIP TO TURKEY,
WHERE HE WAS NEGOTIATING A PARTNERSHIP WITH TURKISH TEXTILE
MANUFACTURERS ANXIOUS TO TAKE ADVANTAGE OF THE QIZ AGREEMENT
AND EGYPT'S LOW OVERHEAD TO PROVIDE UPSTREAM SERVICES TO
EXISTING QIZ EXPORTERS. NATURAL GAS IN EGYPT COSTS A QUARTER
OF THE RATE IN TURKEY, AND WATER IS NEARLY HALF AS CHEAP, HE
SAID. LABOR COSTS IN EGYPT ARE ALSO A FRACTION OF THE COST
IN TURKEY. SEPARATELY, THREE TURKISH FACTORY REPRESENTATIVES
DISCUSSED PLANS FOR INVESTMENTS OF 300 MILLION EGYPTIAN
POUNDS (USD 52 MILLION) WITH MINISTER OF TRADE AND INDUSTRY
RACHID RACHID EARLIER IN DECEMBER, ACCORDING TO PRESS REPORTS.


8. (SBU) ANOTHER EXAMPLE OF THE RAPID QIZ EXPANSION IS LOTUS
GARMENTS, A PORT SAID FACTORY PRODUCING JEANS FOR LEVIS AND
CALVIN KLIEN, WHICH HAS DOUBLED ITS CAPACITY FROM 18 TO 36
PRODUCTION LINES SINCE THE START OF THE QIZ AGREEMENT.
EXPORTS TO THE UNITED STATES ARE RISING FROM $18 MILLION IN
2004 TO $38 MILLION IN 2006 TO A PROJECTED $50 MILLION IN
2007, SAID FACTORY OWNER HOSSAM GABR.

--------------
ISRAELI-EGYPTIAN MEETING AMICABLE
--------------


9. (SBU) IN THE QUARTERLY MEETING BETWEEN EGYPTIAN AND
ISRAELI QIZ OFFICIALS DEC. 11 IN CAIRO, THE TWO SIDES
AMICABLY RESOLVED TECHNICAL QUESTIONS REGARDING CERTIFICATION
OF QIZ FACTORIES AND ISRAELI SUPPLIERS. HOWEVER, THEY MADE
NO HEADWAY ON THE EGYPTIAN PROPOSAL TO LOWER THE ISRAELI
CONTENT REQUIREMENT TO 8 PERCENT TO BRING IT IN LINE WITH THE
JORDANIAN QIZ AGREEMENT. EGYPTIAN QIZ FACTORY OWNERS IN
ISMAILIA AND PORT SAID RAISED THIS ISSUE REPEATEDLY WITH
ECONOFF DURING FACTORY VISITS, COMPLAINING THAT THE ISRAELIS
DO NOT OFFER ENOUGH REASONABLY PRICED INPUTS TO MEET THE
REQUIREMENT. BUT GABBY BAR, HEAD OF THE ISRAELI DELEGATION,
SAID ON THE SIDELINES OF THE MEETING THAT THE ISRAELIS WERE
NOT CONVINCED, NOTING THAT EGYPTIAN PRODUCERS WOULD NOT BE
EXPANDING THEIR OPERATIONS IF THE CURRENT RULES WERE NOT
LUCRATIVE.

--------------
SLIGHT, BUT STEADY, DOMESTIC OPPOSITION
--------------


10. (SBU) THE ONLY PUBLIC PROTESTS AGAINST THE QIZ WERE
STAGED BY WORKERS AND FACTORY OWNERS AT THE INCEPTION OF THE
AGREEMENT CONCERNED THAT THEY WOULD BE LEFT OUT OF IT (REF
C). OPPOSITION POLITICIANS AND MEDIA ANALYSTS HAVE SNIPED AT
THE AGREEMENT PERIODICALLY SINCE THEN, HOWEVER. ISRAEL AND
EGYPT ADOPTED A LOW PROFILE IN SUMMER 2006 DURING THE
VIOLENCE IN GAZA, ISRAEL AND LEBANON, POSTPONING A QUARTERLY
TECHNICAL MEETING (REF D). AT THE TIME, AWNI REMOVED THE QIZ
UNITS SIGN FROM THE ENTRANCE TO THE MINISTRY OF TRADE IN
ORDER TO AVOID A PROVOCATION, BUT THE SIGN IS NOW BACK UP AND
THE ATMOSPHERE IS CALMER, HE SAID.


11. (SBU) EVEN SO, CRITICISM CONTINUES TO SURFACE. EARLIER
THIS MONTH, AL-AZHAR BANNED PUBLICATION OF A BOOK "QIZ FROM A
LEGAL (RELIGIOUS) AND ECONOMIC PERSPECTIVE," WHICH ARGUED
THAT THE QIZ AGREEMENT IS ILLEGITIMATE UNDER ISLAMIC LAW
BECAUSE THE AGREEMENT INVOLVES DEALINGS WITH JEWS. AZHAR
CONTACTS WOULD NOT COMMENT ON THE REASON FOR THE BAN,
ALTHOUGH AZHAR GENERALLY JUSTIFIES SUCH DECISIONS ON THE
GROUNDS THAT THE WORK PROMOTES FAULTY VIEWS OF ISLAM. ON
DEC. 20, A FRONT-PAGE ARTICLE IN THE INDEPENDENT DAILY
NEWSPAPER EGYPT TODAY DETAILED A PARLIAMENTARY GRILLING OF
MINISTER OF TRADE AND INDUSTRY RACHID RACHID OVER A RISE IN
ISRAELI EXPORTS TO EGYPT. RACHID EXPLAINED THE INCREASE AS A
CONSEQUENCE OF THE QIZ AGREEMENT, NOTING THAT EGYPT
RE-EXPORTS THE PRODUCTS PRODUCED WITH ISRAELI INPUTS.


12. (SBU) COMMENT: IN ITS FIRST TWO YEARS, THE QIZ AGREEMENT
HAS CONTRIBUTED SIGNIFICANTLY TO USG EFFORTS TO PROMOTE PEACE
AND PROSPERITY IN THE REGION, CREATING NEW JOBS,
STRENGTHENING ECONOMIC TIES BETWEEN ISRAEL AND EGYPT DURING
PERIODS OF POLITICAL TURMOIL, AND DEMONSTRATING THE TANGIBLE
BENEFITS OF A STRONG PARTNERSHIP WITH THE UNITED STATES.
AMERICAN CONSUMERS ALSO BENEFITED FROM THE LOWER-COST APPAREL
PRODUCED BY THE QIZ FACTORIES. WHILE IT IS DIFFICULT FOR US
TO JUDGE THE COST OF THE QIZ IN TERMS OF TRADE-DIVERSIONARY
EFFECTS, WE BELIEVE THAT EGYPT'S INCREASE IN EXPORTS HAS COME
AT THE EXPENSE OF EXPORTS FROM ELSEWHERE, MOST LIKELY FROM
JORDAN BECAUSE OF ITS LABOR TROUBLES. WE WILL CONTINUE TO
WORK CLOSELY WITH THE GOE, FACTORIES, INDUSTRY
REPRESENTATIVES, AND OUR COLLEAGUES IN THE REGION TO ENSURE
THE CONTINUED SUCCESS OF THIS INITIATIVE.

JONES