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. -------------- LIMITED CONTACT WITH U.S. CLIENTS -------------- ¶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. -------------- FTA NOT FREE -------------- ¶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." -------------- ENCOURAGING BUSINESS -------------- ¶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