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