MOROCCAN APPAREL EXPERTS SPIN YARNS ABOUT TRADE WITH U.S.

UNCLAS CASABLANCA 000050

SIPDIS

SENSITIVE
SIPDIS

STATE FOR NEA/MAG AND EB/TPP/ABT
USDOC FOR ITA/OTEXA - M. D'ANDREA
STATE PLEASE PASS TO USTR P. BURKHEAD AND C. MILLER

E.O. 12958: N/A
TAGS: ECON ETRD KTEX MO
SUBJECT: MOROCCAN APPAREL EXPERTS SPIN YARNS ABOUT TRADE WITH U.S.

REF: 07 RABAT 1490


1. (SBU) Summary: Experts in the Moroccan apparel sector say they
have limited contact with U.S. clients as a result of stiff
competition from Asian markets, American retailers' quest for higher
profit margins, and the weak dollar. They question the benefits the
FTA offers, but believe that making better connections with U.S.
companies, focusing on high-end niche markets, and reducing transit
times could facilitate trade opportunities between Morocco and the
U.S. in textiles and apparel. End Summary.

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LIMITED CONTACT WITH U.S. CLIENTS
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2. (SBU) On February 27, 2008, econoff and visiting deputy textile
negotiator Caroyl Miller of the Office of the U.S. Trade
Representative met with apparel manufacturers about their business
prospects with the U.S. Ghanem Auf, CEO of knitwear company Iboma,
and Seloua Alouaoui, Commercial Manager for Pantco, shared similar
views in separate meetings on the challenges of producing apparel for
the U.S. market.


3. (SBU) According to Moroccan apparel makers, stiff competition from
Asian countries makes trade with the U.S. nearly impossible. Mr. Auf
noted that he used to do business with The Gap until it moved its
operations to Vietnam and China. Personally affected by Asia's
"ridiculously low prices," he expressed dismay at the current
situation, saying he cannot explain how some countries produce so
cheaply without stealing fabric. He went so far as to allege that
"something fishy is going on in China," perhaps with subsidies from
the government (which Morocco does not provide its textile industry).
Pantco's Alouaoui echoed Auf's sentiments, commenting that today's
over-dependence on China is "dangerous for the world" and implying
that the U.S. should do something about it. Manufacturers agree that
tariff relief offered by the Morocco-U.S. Free Trade Agreement (FTA)
is not enough to offset the large differences in price between
Moroccan producers and their counterparts in locales such as China,
India, and Bangladesh.


4. (SBU) As a result of Asia's low prices, American clothing
retailers are "spoiled." Auf says that while U.S. buyers like the
garments his company has shown them, they hear the higher price and
pass. He believes retailers could still make money on his clothes,
but he has yet to find an American client who is not driven primarily
by the quest for ever higher profit margins. In his mind, European
retailers are more reasonable. Alouaoui put it slightly differently,
saying that the U.S. market is rigid while the European market is
more flexible.


5. (SBU) The weak dollar does not help the situation. When The Gap
produced garments in Morocco, the exchange rate was 11 dirham to the
dollar versus today's rate of 7.5 to one - a factor that raises
prices for U.S. buyers. Alouaoui claims that textile and apparel
producers are aware of the need to diversify their markets beyond
Europe, but for now they prefer to be paid in euros. For Moroccan
exporters who purchase their inputs in euros, selling their finished
product to U.S. buyers becomes even more untenable. And while the
depressed dollar makes U.S. inputs cheaper, they are still viewed as
expensive with a longer transit time.

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FTA NOT FREE
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6. (SBU) Given the factors above, many apparel makers in Morocco
perceive the FTA as offering few advantages. Auf contends that it is
too restrictive and questions what will happen 10 years hence when
certain benefits expire. For example, yarn will have to be produced
in either Morocco or the U.S. for garments to receive preferential
treatment. However, the number of U.S. yarn producers is dwindling
and those that remain are expensive. Spinning yarn is also costly in
Morocco; the cheapest option is to buy from India. "Where does that
put me?," Auf wonders. "Already I'm suffering, so I don't see any
advantage," he says. Furthermore, he worries that such restrictions
will induce suppliers to flout the law by altering bills of lading so
that Indian yarn appears to be of U.S. origin. In light of these
issues, Auf said, "it's an agreement, but it's not free."

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ENCOURAGING BUSINESS
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7. (SBU) Despite skepticism regarding the FTA's value to the textile
and apparel sectors, a few suggestions did emerge on how to improve
business prospects between Morocco and the U.S. First, finding ways
to connect producers with suppliers was deemed important. Auf felt
that one-on-one meetings with potential buyers were far more fruitful
than group trips organized by the Moroccan Association of the Textile
and Clothing Industries (AMITH). Alouaoui talked about hiring an
agent well-versed in the American market to help find clients. (Her
own efforts to do this, however, fell short when the prospective
agent asked for a large retainer.) Second, Moroccan producers
realize that they are better suited to supply high-end niche markets
than cheap, high-volume ones. A specialist with the U.S. Commercial
Service in Casablanca cited plus-size lingerie as a good example of a
niche market that Moroccan companies might target. Specialized
synthetic fabrics, which have fewer restrictions than cotton, may
also offer opportunities. Finally, reduced transit times could
improve trade prospects. A recent article in the weekly La Vie Eco
suggested a cargo line from Casablanca to Istanbul to facilitate
regular sourcing at competitive prices. Similarly, Alouaoui felt
that if the transit time between New York and Casablanca went down to
one week, companies such as Pantco could more easily source from the
U.S.


8. (SBU) Comment: The take away message from the Iboma and Pantco
executives was that they do not benefit much from the FTA, and they
have sufficient work from European clients to prevent them from
vigorously pursuing opportunities with the U.S. Nonetheless, both
companies have had experience with the U.S. market and are open to
exploring future possibilities. As Alouaoui put it, "There is
potential and we will understand each other eventually." End
Comment.

GREENE