UPDATE ON SYRIA'S TEXTILE AND APPAREL INDUSTRY

UNCLAS DAMASCUS 001016

SIPDIS

SIPDIS

STATE FOR EEB/TPP/ABT GARY A. CLEMENTS; STATE PLEASE PASS
TO USTR CAROYL MILLER; COMMERCE FOR ITA/OTEXA MARIA D'ANDREA

E.O. 12958: N/A
TAGS: EIND ETRD KTEX SY
SUBJECT: UPDATE ON SYRIA'S TEXTILE AND APPAREL INDUSTRY

REF: STATE 114799


1. (U) Summary. As Syria's oil exports decline, its
textile/apparel industry is assuming a larger share of total
Syrian exports at 17 percent. Relatively, however, Syria's
textile/apparel industry remains a small player in the
international arena. Combining subsidized raw materials and
production costs with inexpensive labor, the Syrian
textile/apparel industry offers acceptable-quality goods at
relatively low prices to both domestic and regional markets.
However, insufficient technology and stifling government
bureaucracy continue to constrain the industry from reaching
its potential. This year, Syrian textile exporters have
benefited from high oil prices and the declining value of the
US dollar against the Chinese Yuan. The higher oil prices
have resulted in a reported threefold increase in the cost of
shipping a container from China to Europe and the Gulf.
Additionally, Syria's geographic proximity to Europe and
membership in GAFTA ensure that Syrian textile/apparel
exporters will retain a niche in their primary markets. End
summary.


2. (U) The following statistical data for 2006 was provided
by the Central Bureau of Statistics.

-- Total Syrian industrial production (excluding petroleum):
USD 2.6 billion
-- Total textile/apparel production value: USD 1.84 billion
-- Textile/apparel share of host country imports and exports:
4.1 percent of imports, 17 percent of exports (50 percent of
all non-petroleum exports)
-- Value of textile/apparel exports to the US: USD 19.1
million
-- Total labor force: 5.29 million people
-- Total manufacturing employment: 740,600 people
-- Total textile/apparel employment: Officially reported at
139,000; (Note: unofficial estimates put the number closer to
500,000 due to large numbers of unregistered workers employed
at some 25,000 "micro" factories around Syria. End note.)


3. (U) The following answers are based on available public
data and consultations with private sector industry
representatives. The answers are in corresponding order to
the questions as asked in the reftel.


4. (U) Syrian apparel/textile producers complain about
heightened international competition, from both fellow Arab
textile-producing states, like Egypt, Tunisia and Morocco, as
well as China, India and Bangladesh. However, Syrian textile
producers have traditionally be able to accept relatively
lower prices due to government subsidization in the supply
chain and inexpensive labor. So despite complaints about
competition, textile/apparel prices today are no lower than
last year and in some cases are actually higher.
Manufacturers of apparel, knitwear, blankets and bed linens
have increased production to meet rising demand from Europe
and regional neighbors. Foreign investors in Syria must
negotiate significant bureaucratic obstacles and strict
government controls. Consequently, foreign investment in
Syrian textiles is extremely small, amounting to no more than
ten projects. None of these projects are known to have
closed over the past year.


5. (U) Most Syrian manufacturers believe that a threefold
increase in shipping costs from China to Dubai, resulting
from soaring oil prices, is the primary factor in improving
their competitiveness vis-a-vis China. Capitalizing on their
geographic proximity to Europe, Syrian producers also compete
with the Chinese by offering European importers quicker
response time in filling short-notice orders.


6. (U) In general, Syria has dramatically relaxed its ban on
most imports over the past two years as part of its shift
towards a "social market economy." That said, the SARG
established a 50 percent customs duty on allowable imports,
including textiles and apparel, although these tariffs do not
specifically target Chinese goods.


7. (U) The SARG does not, to our knowledge, have programs in
place to support textile workers dislocated due to
international competition. The public sector textile
manufacturer, the General Organization for Textile Industries
(GOTI),has operated at a net loss for several years and
employs roughly 30,000 people. Wages for these employees are
set by the SARG, and are at or below subsistence levels for
Syria. Syrian unions are organized to serve as instruments
of the state and do little to affect wage changes. The
private textile/apparel sector employs between 110,000 and
500,000 workers. Some large private manufacturers have
recently instituted modern human resource management
practices to develop employee loyalty in an effort to both
increase productivity and prevent trained employees from
seeking work elsewhere.


8. (U) For now, the SARG seems willing to accept GOTI's
financial losses, which it asserts amounted to eight million
USD in 2006. In contrast, private sector manufacturers are
actively seeking ways to improve their competitiveness. From
hiring foreign consultants to installing automated
production lines and investing in human resources, Syrian
manufacturers are trying to reduce costs and add value to
their products. Private producers believe that, by focusing
on their comparative advantages of quality raw materials, low
overhead and central location, they can successfully compete
in niche markets in Europe, the Persian Gulf and the
Mediterranean basin.


9. (U) Syrian textile exports to Arab states, particularly in
the Gulf, increased after Syria joined the Greater Arab Free
Trade Agreement (GAFTA). However, weak customs regimes in
GAFTA countries also enabled Chinese and other non-Arab
textiles to be smuggled into many GAFTA countries under
forged certificates of origin and fraudulent labeling, such
as "Made in Lebanon" or "Made in the UAE." Consequently, the
SARG Customs Directorate has sent several delegations to the
Emerati port of Jebel Ali to verify the origin of incoming
textiles and apparel.
HOLMSTROM