VZCZCXYZ0000
RR RUEHWEB

DE RUEHAM #1177/01 1411137
ZNR UUUUU ZZH
R 211137Z MAY 09
FM AMEMBASSY AMMAN
TO RUEHC/SECSTATE WASHDC 5154
INFO RUEHBJ/AMEMBASSY BEIJING 0189
RUEHEG/AMEMBASSY CAIRO 4025
RUEHKA/AMEMBASSY DHAKA 0193
RUEHTV/AMEMBASSY TEL AVIV 1735
RUEHJM/AMCONSUL JERUSALEM 5533
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAHLC/DEPT OF HOMELAND SECURITY WASHDC

UNCLAS AMMAN 001177 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EEB/TPP/ABT, NEA/ELA, NEA/RA 
STATE PASS TO USTR (SFRANCESKI) 
STATE PASS TO USAID 
COMMERCE FOR ITA/OTEXA MARIA D'ANDREA 
DHS FOR CBP 
 
E.O. 12958: N/A 
TAGS: ETRD ECON KTEX EAID JO
SUBJECT:  Jordan's QIZ Garment Factories Continue to Close or 
Downsize Due to Financial Hardships 
 
REFS: A) AMMAN 226 
      B) 08 AMMAN 1736 
 
SENSITIVE BUT UNCLASSIFIED 
 
¶1.  (U) Summary: Jordan's apparel sector has been hard hit by the 
recession in the U.S., where most of its exports are destined, and 
competition with Egypt (ref A).  The Ministry of Industry and Trade 
has reported that Jordanian garment exports produced in the 
Qualifying Industrial Zones (QIZs) peaked in 2006 at $1.18 billion 
and have since steadily declined.  From January to March 2009, QIZ 
apparel exports decreased 15.4% to $191.8 million, compared to 
$226.8 million during the first quarter 2008.  Suffering from 
reduced orders, 29 garment factories in the QIZs have closed since 
2007, including five in 2009.  Another is under liquidation, and 
seven others have downsized.  At least four garment companies have 
relocated or expanded operations in Egypt.  Public and private 
sector interlocutors have claimed that in addition to lower 
production costs, the Egyptian government provides exporters a cash 
subsidy of 10 cents for every dollar exported.  Jordan's factory 
lay-offs and lack of new investments in the apparel sector since 
2007 have caused a reduction in the QIZ workforce by almost a third 
to 36,724 employees as of April 30.  Despite these negative 
indications for Jordan's garment business, the satellite factory 
initiative has continued to move forward with the recent opening of 
Sterling Apparel Manufacturing's satellite operation in Madaba which 
employs a 100% Jordanian workforce (ref B).  End Summary. 
 
Garment Exports to the U.S. Continue to Decline 
--------------------------------------------- -- 
 
¶2.  (U) According to the Ministry of Industry and Trade (MOIT), 
Jordanian garment exports produced in the QIZs peaked in 2006 at 
$1.18 billion; fell 3.5% in 2007 to $1.14 billion; and decreased 
18.9% to $923 million in 2008.  This trend continued during the 
first quarter of 2009 with a 15.4% decrease in total QIZ garment 
exports to $191.8 million, compared to $226.8 million for the same 
period in 2008.  Of those exports, MOIT reported that $139.3 million 
was shipped to the U.S. under the QIZ agreement; $43.8 million was 
shipped to the U.S. under the Free Trade Agreement; $4.9 million was 
shipped to Israel; $36,301 was shipped to other Arab countries; and 
$3.7 million was shipped elsewhere in the world. 
 
¶3.  (SBU) All Jordanian interlocutors point to the recession in the 
U.S. as playing a significant role in reducing apparel orders for 
Jordan.  The manager of one QIZ garment factory said that a U.S. 
buyer asked him to spread out the delivery of an order originally 
due in November 2008 over six months until May 2009.  QIZ investors 
have felt increasing pressure from international buyers to reduce 
prices.  They are finding it difficult to maintain competitiveness 
and profit margins in light of high production and labor costs in 
Jordan, especially compared to countries such as Egypt where water 
and energy are subsidized.  The Jordan Garments, Accessories, and 
Textiles Exporters' Association (JGATE) reported that at least four 
companies employing over 6,900 workers in Jordan's QIZs have 
expanded their investments or completely relocated to Egypt.  The 
Minister of Industry and Trade Amer Hadidi also told Econoffs on 
April 29 that the Egyptian government provides a cash subsidy to 
exporters of 10 cents for every dollar exported.  His staff was 
looking into whether this was allowed under the World Trade 
Organization (WTO). 
 
29 Factories Shut Down, Most Recently Century Tailoring 
--------------------------------------------- ---------- 
 
¶4.  (SBU) Mostly as a result of decreased business, 29 garment 
factories in the QIZs have closed down since 2007, leaving 46 
factories still operating in the QIZs, according to statistics 
maintained by JGATE and MOIT.  NOTE: This does not include four 
factories which were having financial difficulties and were taken 
over by other companies or changed names.  END NOTE.  Of the 29 
factories, five - DK Garments, Golden Fingers, Ocean Star, Shamila, 
and Century Tailoring - shut down in 2009.  Another company, 
Mediterranean Resources Apparel Industry (MRAI), is currently under 
liquidation after downsizing earlier this year.  Seven other garment 
companies have downsized their operations in Jordan since 2007.  As 
a result, employee lay-offs have reduced the QIZ workforce to 36,724 
(including 27,865 foreign workers and 8,859 Jordanians) as of April 
 
30, 2009, compared to 52,058 total workers (including 36,883 foreign 
workers and 15,175 Jordanian workers) as of June 30, 2007. 
 
¶5.  (SBU) Century Tailoring's former plant manager Adnan Ismail told 
Econoff on May 3 that Century Tailoring, a joint venture between the 
Jordanian Century Investment Group and the Israeli company Bagir, 
also owned a factory named Medco in one of Egypt's QIZs.  Since 
there were not enough orders to keep both factories running, Ismail 
said Century Tailoring closed down in Jordan in April 2009 because 
it was cheaper to produce in Egypt.  He estimated that between 60-80 
foreign workers returned home with paid salaries and benefits, while 
the rest were transferred to other factories with the help of the 
Ministry of Labor (MOL).  About 350 local workers stopped working 
and agreed with MOL, the textile union, and factory management that 
their April salaries would be paid on May 20 and their final 
financial settlement packages would be paid on June 20, according to 
JGATE. 
 
Satellite Factories Still Employing Local Workers 
--------------------------------------------- ---- 
 
¶6.  (SBU) Despite these negative signs for the garment industry, Rob 
Rothbaum, the U.S. owner of Sterling Apparel Manufacturing in 
Jordan, told the Ambassador during a May 17 visit to Sterling's 
satellite factory in Madaba that Jordan still has a competitive 
edge.  In addition to the duty-free access provided by the 
U.S.-Jordan Free Trade Agreement (FTA) and the QIZ agreement, he 
believes Jordan offers superior infrastructure over Egypt, ensuring 
deliveries arrive on time.  When Sterling faced a 50% reduction in 
orders due to the recession, the company decided to change its 
strategy and move into more high-value garments, which resulted in 
more orders as of July.  The key, Rothbaum said, is for companies to 
have a Jordan-specific strategy with customers and programs that can 
support longer lead times and adapt to changing conditions.  He 
added that compliance with international labor standards is also a 
top priority for U.S. buyers when deciding where to do business. 
 
¶7.  (SBU) Rothbaum eventually hopes to migrate most of Sterling's 
production to the satellite factory which opened on February 14. 
The factory currently employs 170 Jordanian workers, with the 
capacity to hire 450 locals and expand even further.  He commended 
the Jordanian government for its support of the satellite initiative 
by contributing to workers' salaries and social security benefits, 
subsidizing transport and food costs, and providing the company with 
the building rent-free for five years.  Such a project has enabled 
his company to fulfill its initial intention of hiring a 100% 
Jordanian workforce, Rothbaum noted. 
 
Are the QIZs Dead? 
------------------ 
 
¶8.  (SBU) Comment:  It is not uncommon to hear in Jordan that "the 
QIZs are dead."  People see the relatively nascent garment sector, 
which makes up most of the businesses in the QIZs, struggling to 
survive during the global recession.  On top of that, many argue 
that the benefits of the QIZ agreement will dissipate when the FTA 
comes into full effect in January 2010.  Indeed, many garment 
companies will likely make the financial decision to shift to 
exporting under the FTA because unlike the QIZ, the FTA does not 
have the 8% Israeli content requirement which often entails higher 
costs.  Other manufacturers, however, have indicated that the QIZ 
agreement has led them to develop strong relationships with Israeli 
suppliers whom they plan to continue using even after the FTA comes 
into full effect.  The key message should be that as our bilateral 
trade relationship evolves, so do the options for Jordanian 
exporters to maintain competitiveness and conduct business with the 
U.S.  Post continues to monitor the labor situation in the QIZs, 
including the Jordanian government's ongoing efforts to ensure 
workers receive entitled salaries and benefits if factories face 
financial troubles. 
 
Visit Amman's Classified Website at: 
http://www.state.sgov.gov/p/nea/amman 
 
Beecroft