This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 ABU DHABI 002563 
 
SIPDIS 
 
STATE FOR EB/TPP/ABT EDWARD HEARNEY, COMMERCE FOR ITA/OTEXA MARIA 
D'ANDREA, USTR FOR ABIOLA HEYLIGER 
 
E.O. 12958: DECL N/A 
TAGS: KTEX ECON ETRD TC
SUBJECT: TEXTILES INDUSTRY: PESSIMISTIC DESPITE RISING TRADE 
 
¶1. SUMMARY: Officials from the UAE Ministry of Economy, two textile 
factories in the UAE's Jebel Ali Free Zone (ATRACO Industrial and 
Carolina Fabric LTD) and one garment factory in Abu Dhabi (Abu Dhabi 
Garment Factory (ADGF) are pessimistic about current and future 
prospects of the UAE textile and apparel sector despite significant 
growth in textile and apparel exports and re-exports in 2005. 
Officials from the UAE government and the textile and apparel 
industry say the industry is slowing down, adding that elimination 
of international quotas has severely affected UAE textile and 
apparel sector. END SUMMARY. 
 
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Textile and Apparel Statistics 
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¶2. Official data for 2005 indicates that Dubai's textile and apparel 
trade has increased by 15% from 2004 to 5.85 billion USD, according 
to the Dubai Ports, Customs and Free Zones Corporation.  Exports, 
the smallest component of Dubai textile and apparel trade, grew 
substantially by 43 percent, from 169.8 million USD in 2004 to 
243.26 million USD in 2005. Dubai's textile and apparel imports 
increased by 10.6 percent, from 3.29 to 3.65 billion USD. Re-exports 
increased by 22.7 percent, from 1.58 to 1.93 billion USD during the 
period. 
 
¶3. Imports made up the major component of textile and apparel trade 
in 2005, comprising 62 percent, followed by re-export (33 percent), 
with exports as the lowest (4 percent).  About 65 percent of the 
imported textile and apparel is from China, India, South Korea, 
Indonesia and Thailand. 
 
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Anxiety Regarding International Competition 
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¶4. Officials from the UAE government and textile and apparel 
industry believe the UAE's domestic textile and apparel industry is 
hurting.  According to one official from the Ministry of Economy, 
the UAE textile and apparel sector is not improving. He said the 
higher growth rate in the textile and apparel exports in 2005 might 
be because some factories in Dubai and Sharjah still export under 
old contracts with their clients, contracts that were signed before 
the quotas were eliminated.  Officials from two leading textile 
factories in the UAE's Jebel Ali Free Zone (ATRACO Industrial and 
Carolina Fabric LTD), told Emboffs that their business had not 
improved. One said his factory has reduced prices in order to 
increase its competitiveness in international markets.  Another said 
local textile factories are "dying out". 
 
 
¶5. In an effort to promote and develop the UAE's textile and apparel 
industry, two emirates have launched exhibitions to draw in trade. 
Middle East Fashion Textile, Leather and Accessories Exhibition 
(MOTEXHA 2006), the Middle East region's largest trade show for 
garments, textiles, leather and fashion accessories was inaugurated 
in April 2006. The exhibition gathered over 250 exhibitors from 30 
countries. Another four-day textile exhibition, "Texpo," was held at 
the Expo Center in Sharjah in September 2005.  Dubai Textile City 
was launched in 2004. The first phase of the project had already 
been rented out to more than 90 investors. 
However, only one official from those we talked or met with thinks 
the annual textile and apparel exhibitions in Dubai and Sharjah and 
the newly established Dubai Textile City will enhance the industry. 
 
 
¶6. Other officials argue that the 15 percent growth rate in textile 
and apparel trade does not imply that the sector is strong. 
According to them, exports, an indicator for local textile and 
apparel industry, are still a very small portion of the total 
textile and apparel trade despite strong growth in 2005.  Officials 
from Abu Dhabi Garment Factory and Carolina Fabric LTD said 
re-exports also have no real value added in UAE, and are just 
transit trade through Dubai given the importance of Dubai as a main 
trade hub in the region. 
 
 
¶7. Officials from garment factories in Abu Dhabi also note that the 
textile and apparel sector is shrinking. They said they face more 
competition from China and some other Asian countries, and that the 
cost of inputs in the UAE has increased. Out of five main garment 
factories in Abu Dhabi, two of them closed following the elimination 
of international quotas. The existing three factories in Abu Dhabi 
handle ready-made garments only, sewing clothes. Officials from the 
Abu Dhabi Garment Factory said that their garment exports have 
decreased since the elimination of quotas. 
 
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An Attempt for Partial Solution 
------------------------------- 
 
¶8. Ministry of Economy officials stated that after elimination of 
quotas, the Ministry has encouraged the UAE textile and apparel 
factories to export more to the member countries of The Arab Free 
Trade Zone and Gulf Cooperation Council (GCC) in order to take 
preferential advantages in these markets. 
 
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Comment 
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¶9. Despite some reports that touted the 2005 growth in the UAE's 
textile and apparel sector as a sign that business is improving in a 
sector, the increases should not be looked at in a vacuum. The year 
2005 was exceptional for the entire UAE economy, and all UAE 
economic sectors experienced significant growth due to sharp 
increase in oil prices. Further, the impact of elimination of quotas 
on the UAE textile and apparel might be more visible in the coming 
years than in 2005, because some UAE textile and apparel factories 
are still able to export under old contracts with their clients. 
Given the trade deficit in the textile and apparel industry, it is 
logical that factories in the UAE feel the sector is hurting. 
 
 
SISON