Identifier
Created
Classification
Origin
07AMMAN4038
2007-09-30 13:47:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Amman
Cable title:  

Jordan's Textiles and Apparel Production: Still Competitive

Tags:  ECON ETRD KTEX JO 
pdf how-to read a cable
VZCZCXRO3872
OO RUEHROV
DE RUEHAM #4038/01 2731347
ZNR UUUUU ZZH
O 301347Z SEP 07
FM AMEMBASSY AMMAN
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0462
INFO RUEHXK/ARAB ISRAELI COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
UNCLAS SECTION 01 OF 04 AMMAN 004038 

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EEB/TPP/ABT - GARY A. CLEMENTS
STATE ALSO FOR NEA/ELA AND NEA/RA
STATE PLEASE PASS TO USTR CAROYL MILLER
COMMERCE FOR ITA/OTEXA MARIA D'ANDREA

E.O. 12958: N/A
TAGS: ECON ETRD KTEX JO
SUBJECT: Jordan's Textiles and Apparel Production: Still Competitive
in High-End Areas Despite Ongoing Challenges

REFS: A) AMMAN 3992
B) AMMAN 3579
C) AMMAN 3472
D) STATE 114799
E) 06 AMMAN 7759

AMMAN 00004038 001.2 OF 004


SENSITIVE BUT UNCLASSIFIED. NOT FOR DISTRIBUTION OUTSIDE USG.

UNCLAS SECTION 01 OF 04 AMMAN 004038

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EEB/TPP/ABT - GARY A. CLEMENTS
STATE ALSO FOR NEA/ELA AND NEA/RA
STATE PLEASE PASS TO USTR CAROYL MILLER
COMMERCE FOR ITA/OTEXA MARIA D'ANDREA

E.O. 12958: N/A
TAGS: ECON ETRD KTEX JO
SUBJECT: Jordan's Textiles and Apparel Production: Still Competitive
in High-End Areas Despite Ongoing Challenges

REFS: A) AMMAN 3992
B) AMMAN 3579
C) AMMAN 3472
D) STATE 114799
E) 06 AMMAN 7759

AMMAN 00004038 001.2 OF 004


SENSITIVE BUT UNCLASSIFIED. NOT FOR DISTRIBUTION OUTSIDE USG.


1. (SBU) Summary: In response to Ref D, Post provides below updated
statistics and information on the textile and apparel industry in
Jordan. Jordan's exports of textile and apparel slightly decreased
during the first half of 2007 to USD 568 million, with over 90%
going to the U.S. market. The sector continues to be largely
dependent on guest workers, who comprise approximately 70 percent of
the labor force in the Qualifying Industrial Zones (QIZ),where the
majority of Jordan's garment factories are located. Challenges for
local manufacturers include labor shortages, rising production
costs, and heightened international competition, particularly from
Egypt. If Jordan is to remain competitive, manufacturers will need
to increase efficiency in production and supply, and develop the
capacity to deliver higher value-added products to a broader base of
customers. Better training and recruitment of local labor will also
be critical to improve workforce skills, employee satisfaction, and
retention. End summary.

Competitive Pressures on Jordan's Apparel Exporters
-------------- --------------


2. (U) Jordan has the competitive advantage of offering textile and
apparel manufacturers preferential duty access to the United States
under the QIZ agreement and the U.S.-Jordan Free Trade Agreement
(FTA). Such trade regimes have contributed to overall growth in the
sector since 1998. When looking at growth rates for individual
companies during recent years, however, some businesses have
continued to expand, while others have recorded flat or negative
growth since 2005.


3. (SBU) Some factory owners who have experienced drops in orders
from American buyers blame the May 2006 National Labor Committee
(NLC) report on alleged labor violations. Others argue that
American buyers have stood by manufacturers in Jordan as labor

problems continue to be addressed, and that any decrease in orders
is purely a business decision based on heightened international
competition and cost of production. In particular, Embassy contacts
among the exporter community and in the Government of Jordan (GOJ)
cite the main challenges to local manufacturers as the insufficient
availability of qualified labor pools locally, tightened GOJ entry
restrictions for guest workers, competition from Egypt, rising fuel
and labor costs, and heightened global pressure following the end of
the multi-fiber arrangement on January 1, 2005 (Refs A, B, C, and
E).


4. (U) These challenges have caused some manufacturers to let
production lines sit idle, refuse additional orders, and decrease
export levels. In contrast, other factories have determined that
they may no longer be as competitive in low-end garments, and thus,
have shifted production into higher custom duty items (i.e., less
cotton and more polyester/polyester blends),and higher value
products yielding better profit margins and more orders from U.S.
buyers (Ref C). For example, some factories have begun
manufacturing work uniforms, and the Jordan Garment and Textile
Exporters' Association (JGATE) reports that one company recently
made a deal to produce bullet-proof vests. In examining requests
for product approval, Jordan's Ministry of Industry and Trade (MOIT)
has noticed an overall increase in FOB (Freight on Board) prices
compared to previous years.


5. (U) MOIT knows of at least one case in which an Asia-based
direct foreign investor in Jordan, "Golden Wear" denim producers,
closed down its factory and relocated to Bangladesh. During a
survey of 52 factories by a USAID-funded garment manufacturing
consultant, many of the visited factory owners hinted that they are
considering expansion or relocation plans away from Jordan into
Egypt and Southeast Asia. Additionally, since the May 2006 NLC
report, the Ministry of Labor has closed down at least eight small
factories, mostly involved in sub-contracting, due to labor
violations.

No Safeguards Against China
--------------


6. (U) As reported last year, the GOJ has not implemented, nor sees
any need to implement safeguards against imports from China (Ref E).



AMMAN 00004038 002.2 OF 004


Labor Challenges
--------------


7. (SBU) Post has reported over the course of the year on the GOJ's
actions in response to various alleged violations of local labor
laws and international labor standards (Refs A, B). Draft
amendments to the national labor law will be submitted to the new
parliament for approval after the upcoming November parliamentary
elections, according to the Minister of Labor. An increased minimum
wage from 95 JD ($134) to JD 110 ($155) per month went into effect
on January 1, 2007. The GOJ has facilitated the repatriation or
transfer to other factories of displaced foreign workers from
factories that have closed down. Efforts persist to regularize the
permit status of foreign workers. Apparel manufacturers continue to
lobby the GOJ to ease regulations on hiring foreign laborers and to
improve training programs for local labor. USAID plans to
contribute over $2.7 million to the International Labour
Organization's Better Work Jordan program to strengthen the
inspection regime and enhance public-private dialogue.

Efforts to Increase Competitiveness
--------------


8. (U) The private sector continues to request a more comprehensive
GOJ strategy for the garment sector that demonstrates continued
support for the industry, particularly since some view the
restrictions on foreign labor as an "anti-garment" policy that hurts
business. As part of a new trade and enterprise development
strategy, USAID's $69 million Sustainable Achievement of Business
Expansion and Quality (SABEQ) program is helping the GOJ develop a
new strategy to enhance the garment sector. The GOJ has also
established programs to provide technical and financial assistance
for industries, and established sectoral units to prepare strategies
to enhance the competitiveness of industrial sectors in Jordan,
specifically export consortia for the textile sector.


9. (U) The GOJ has also signed national and international
agreements to assist local industries in penetrating international
markets. Pursuant to an amendment of the QIZ agreement, Jordan and
Israel also started allowing in July 2007 quarterly approvals for
the Israeli content contribution to products, cutting down on the
bureaucracy and time previously needed to gain approval from the
Israeli side.

Impact of the U.S.-Jordan Free Trade Agreement
-------------- -


10. (U) The U.S.-Jordan FTA has provided more exporting options for
manufacturers outside the QIZs. As tariff rates continue to drop
according to schedule, Jordan has been seeing a switch from
exporting to the U.S. under the QIZ agreement to the FTA agreement,
a trend that will likely continue (Ref C).

The Future of Apparel Manufacturing in Jordan
-------------- -


11. (SBU) Comment: Jordan's big and established manufacturers are
unlikely to leave, particularly those that rely on local labor for
production. Despite increased international competition, many
factories in Jordan have the advantage of already-established
relations with American buyers and a strong track record in
providing reliable service and high quality goods. If Jordan is to
remain competitive, the sector will need to adjust to changing
global and local pressures with increased efficiency in production,
transportation, and supply. Manufacturers will need to develop
their capacity to deliver higher value-added products and services
to a broadened base of retail customers. Better training and
recruitment of local labor will also be critical to improving
workforce skills, employee satisfaction, and retention. In
coordination with the GOJ, USAID-funded SABEQ plans to provide
additional technical assistance to address some of these areas and
improve competitiveness of the sector. End Comment.

Statistics
--------------


12. (U) As requested in para 4 of Ref D, provided below are updated
statistics that date back to 2005 due to some revisions of earlier
numbers provided in last year's report (Ref E).

-- NOTES:

A. Source: Jordan's Department of Statistics (DOS),unless
otherwise indicated.

B. Exchange rate used: 1 USD = .708 Jordanian Dinar

C. H1 = First Half of Year (January - June)

AMMAN 00004038 003 OF 004



Production
--------------

At current (nominal) prices

GDP (USD Billion)
2005 12.63
2006 14.12
H1 2006 6.68
H1 2007 7.42

Industrial Production* (USD Billion)
2005 2.72
2006 3.08
H1 2006 1.42
H1 2007 1.58
*Includes Mining and Quarrying, Manufacturing, and Electricity and
Water

Manufacturing (USD Billion)
2005 2.05
2006 2.40
H1 2006 1.08
H1 2007 1.22

Manufacturing of textiles, apparel and leather products*
USD Billion
2005 1.19
2006 1.71
H1 2006 0.65
H1 2007 0.67
*This is the first time that DOS has provided up-to-date statistics
that more closely reflect expected production levels in this
category.

Jordan's Imports and Domestic Exports
--------------

Imports
USD Billion
2005 10.51
2006 11.56
H1 2006 5.70
H1 2007 6.16

Imports of Textile and Apparel
USD Billion Share of Imports
2005 0.867 8.3%
2006 1.01 8.7%
H1 2006 0.484 8.5%
H1 2007 0.481 7.8%

Imports from the U.S.
USD Million Share of imports
2005 588.97 5.6%
2006 555.50 4.8%
H1 2006 260.99 4.6%
H1 2007 282.53 4.6%

Imports of Textile & Apparel from the U.S.
USD Shares of imports from/of
Million U.S.A Text&Apparel All Imports
2005 9.62 1.6% 1.1% 0.09%
2006 11.16 2.0% 1.1% 0.10%
H1 2006 5.64 2.2% 1.2% 0.10%
H1 2007 5.52 2.0% 1.1% 0.09%

Domestic Exports
USD Billion
2005 3.63
2006 4.14
H1 2006 1.98
H1 2007 2.23

Domestic Exports of Textiles and Apparels
USD Billion Share of Domestic Exports
2005 1.080 29.7%
2006 1.270 30.7%
H1 2006* 0.576 29.1%
H1 2007* 0.568 25.5%
*These DOS figures represent domestic exports of textiles and
apparel from all areas of Jordan. MOIT reported USD 520 million in
apparel exports from only the QIZs in the first half of 2007,
compared to USD 554 million in the first half of 2006.

AMMAN 00004038 004.2 OF 004



Domestic Exports to the U.S.
USD Billion Share of domestic exports
2005 1.12 30.7%
2006 1.28 31.0%
H1 2006 0.57 28.8%
H1 2007 0.57 25.6%

Domestic Exports of Textile & Apparel to the U.S.
USD Shares of exports to/of
Billion U.S.A Text&Apparel Dom Exports
2005 0.98 87.9% 91.2% 27.0%
2006 1.17 90.9% 91.7% 28.2%
H1 2006* 0.53 93.0% 94.1% 26.8%
H1 2007* 0.52 91.2% 93.5% 23.3%
*These DOS figures represent domestic exports of textiles and
apparel to the U.S. from all areas of Jordan. MOIT reported USD 497
million in apparel exports to the U.S. from only the QIZs during the
first half of 2007, compared to USD 529 million during the first
half of 2006.

Population and Employment Figures
--------------

Estimated population, Year End 2006 5,600,000
of which, 15 years old and over 62.7% 3,511,200
of which, economically active 37.7% 1,323,722
of which, employed 86.0% 1,138,401
of which, employed in manufacturing 11.2% 127,500
*Based on DOS's Employment and Unemployment Survey - 2006 Annual
Report. The number of employed workers does not include guest
workers.

Employment in Qualifying Industrial Zones (as of July 31, 2007,
Source: Ministry of Labor)
Total 51,349
of which, Jordanians 15,183
of which, guest workers 36,166

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