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Diana T Fritz  10/01/2006 11:20:01 AM  From  DB/Inbox:  Diana T Fritz

Cable 
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UNCLAS        ABU DHABI 03820

SIPDIS
CXABU:
    ACTION: ECON
    INFO:   FCS P/M AMB DCM POL

DISSEMINATION: ECON
CHARGE: PROG

APPROVED: DCM: MQUINN
DRAFTED: ECON: HALGHAZOU
CLEARED: ECON: OJOHN, ECON: BD, FCS: CR, CGD:PS

VZCZCADI374
RR RUEHC RUEHDE RUCPDOC
DE RUEHAD #3820/01 2740543
ZNR UUUUU ZZH
R 010543Z OCT 06
FM AMEMBASSY ABU DHABI
TO RUEHC/SECSTATE WASHDC 7147
INFO RUEHDE/AMCONSUL DUBAI 6479
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 ABU DHABI 003820 
 
SIPDIS 
 
STATE FOR EB/TPP/ABT, THOMAS LERSTEN 
STATE PLEASE PASS TO USTR FOR AHEYLIGER 
COMMERCE FOR ITA/OTEXA MARIA D'ANDREA 
 
E.O. 12958: DECL N/A 
TAGS: KTEX ECON ETRD AE
SUBJECT: UAE TEXTILES AND APPAREL SECTOR: SLOWDOWN DUE TO INCREASED 
INTERNATIONAL COMPETITION 
 
REF: A) State 138090 
 
     B) Abu Dhabi 2563 
 
¶1. (SBU) Summary: The UAE textile industry continues to decline due 
to increased international competition brought on by the elimination 
of the worldwide textile quotas. Two textile factories in the Jebel 
Ali Free Zone (Emirates Textiles LTD. and Carolina Fabrics LTD.) and 
one garment factory in Abu Dhabi (Abu Dhabi Garment Factory) are 
anxious about current and future prospects of the UAE textile 
industry. There are no direct measures by the UAEG to increase 
competition, although the Emirates of Dubai and Sharjah encourage 
textile sector growth through exhibitions and new projects. The UAEG 
has not implemented safeguards to reduce imports of Chinese 
textiles, and the U.S. safeguards to restrict the growth of Chinese 
import growth have no notable effect on the UAE textile and apparel 
export prospects. The industry is counting on benefits from an 
anticipated FTA between the U.S. and the UAE to maintain the 
industry as an important part of the UAE's manufacturing sector. End 
Summary. 
 
--------------------------------------- 
Updated Textile and Apparel Statistics 
--------------------------------------- 
 
¶2. (U) Official data for 2005 regarding the UAE's total textile and 
apparel production is not available. However, based on analysis of 
Central Bank information, the textile and apparel sector comprised 
an estimated 5.73 billion USD, which makes up 6 percent of the UAE 
non-oil economy.  In 2005, the total industrial production in the 
UAE was 75.6 billion USD. The total manufacturing industrial 
production was 16.6 billion USD, which comprised 21.96 percent of 
the total industrial sector, according to the Ministry of Economy's 
statistics. In 2005, textiles and apparel comprised 5.6 percent of 
the UAE's imports, 5 percent of its non-oil exports, and 7.3 percent 
of the country's re-exports, based on estimated data by the UAE 
Central Bank. In 2005, the UAE exports in textile and apparel to the 
U.S. comprised 67.86 million USD, according to the Dubai Chamber of 
Commerce's economic bulletin published in May 2006. 
 
¶3. (U) Analysis based on time series data for 2001 onward shows 
textile and apparel trade's share of total trade declining over the 
last five years. 
 
¶4. (U) According to statistics from Ministry of Finance and 
Industry, in 2005 there were 245,707 individuals employed in the 
manufacturing sector, which comprised 9.45 percent of total 
employees. Thirteen percent of these were employed in textiles and 
apparel (32,069 individuals). 
 
------------------------------------------- 
Anxiety Regarding International Competition 
------------------------------------------- 
 
¶5. (U) Textile and apparel manufacturers have expressed their 
concern about international competition as a result of the 
elimination in January 2005 of the worldwide textile quota. The main 
competitor countries for the UAE textile and apparel sector are 
China, India, Egypt, Bangladesh, Jordan and Kenya. Two textile 
factories reported that they had lowered the price of their products 
to maintain the previous year's orders. 
 
¶6. (U) Due to international competition, many factories in the UAE 
have closed. According to a report by Emirates Industrial Bank, 
there were 200 garment establishments in the UAE at the industry's 
peak in 1997, 151 factories in 2004 and around 100 establishments in 
¶2006. The report said several companies have relocated their 
factories to other countries with lower costs, while maintaining 
offices in the UAE.   The report also noted that many factories were 
relocated to countries receiving preferential treatment from the US. 
 The Emirates Industrial Bank's report cites "the choice of 
relocation destinations are Jordan and sub-Saharan Africa, areas 
which are receiving preferential treatment from the US in form of 
duty-free access to the US market."  Business people from the 
textile industry mentioned Jordan and Bahrain as locations, due to 
their FTA's with the U.S. 
 
¶7. (SBU) Officials from textile factories noted that they are 
pessimistic about the future of the textile industry in the UAE. 
They said the UAE textile industry is unable to compete with China, 
India and Bangladesh because of a higher cost of inputs in the UAE 
in comparison with these countries, particularly the cost of labor, 
electricity, water and oil. 
 
------------------------------------------- 
Measures to Face International Competition 
------------------------------------------- 
 
¶8. (U) There are no direct measures by the UAE government or private 
industry to increase competitiveness in international markets. 
However, Ministry of Economy officials stated that 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 advantages of 
preferential access to these markets. 
 
¶9. (U) The Dubai and Sharjah governments are assisting this sector 
by sponsoring exhibitions, which attract many international textile 
and apparel manufacturers. The 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. Over 250 exhibitors from 
30 countries attended the event. Another four-day textile exhibition 
"Texpo", will be held at the Expo Center in Sharjah this month. The 
exhibition will feature new equipment to improve the textile and 
apparel industry in the UAE. The exhibition will attract over 80 
exhibitors from many countries.  Additionally, Dubai Textile City 
was launched in 2004. The first phase of the project had already 
been rented out to more than 90 investors. 
----------------------------------------- 
Safeguards to restrict imports from China 
----------------------------------------- 
 
¶10. (SBU) Ministry of Economy officials stated that the UAE 
Government has not implemented safeguards or measures to reduce the 
growth of imports of Chinese textile products into the UAE, although 
one official from Emirates Textile Limited Factory said the UAE 
government is proposing to impose taxes on textiles and apparel from 
China. 
 
¶11. (U) Officials from the private sector said that the U.S. 
safeguards to restrict the growth of Chinese imports and the 
European Agreement with China to limit import growth of certain 
textile and apparel products have had no notable effect on the UAE 
textile and apparel export prospects. 
 
--------------- 
Impact on Labor 
--------------- 
 
¶12. (U) The majority of laborers in the textile sector are 
expatriates from India, Pakistan and Bangladesh, and the closure of 
textile and apparel factories and businesses requires these workers 
to leave the country for a minimum of six months before they can be 
re-employed by a new company. Officials from textile factories 
stated that there was no reduction in salaries or benefits of their 
workers. Officials from Abu Dhabi Garment factory noted that their 
U.S. clients conduct regular visits to the factory to ensure that 
workers are provided a safe working environment. 
 
------------------------------------- 
Expected Benefits from a U.S./UAE FTA 
------------------------------------- 
 
¶13. (U) Textile and apparel producers believe that an FTA between 
the US and UAE will enhance textile exports to U.S. markets by 
providing a preferential advantage and lowering tariffs on UAE 
textile exports to the U.S. In addition, it will allow cheaper 
import of some inputs from the US, such as rolls of yarn. 
Manufacturers believe that the anticipated FTA would enhance the UAE 
textile and apparel sector by lowering tariffs on the UAE textile 
and apparel export to the US. 
 
¶14. (U) Officials from the Abu Dhabi Garment Factory stated that 
they are worried that the anticipated US/UAE FTA would restrict 
their imports of raw materials of textile and apparel. 
 
------- 
Comment 
------- 
 
¶15. (U) The Textile industry in UAE is still declining due to 
international competition and is pinning its hopes of revival on the 
conclusion of a US-UAE FTA. 
 
SISON