VZCZCXRO4046
PP RUEHBC RUEHDE RUEHKUK RUEHROV
DE RUEHAM #3472/01 2311317
ZNR UUUUU ZZH
P 191317Z AUG 07
FM AMEMBASSY AMMAN
TO RUEHC/SECSTATE WASHDC PRIORITY 9958
INFO RUEHEE/ARAB LEAGUE COLLECTIVE PRIORITY
RUEHTA/AMEMBASSY ALMATY PRIORITY 0031
RUEHAK/AMEMBASSY ANKARA PRIORITY 0544
RUEHBJ/AMEMBASSY BEIJING PRIORITY 0131
RUEHRL/AMEMBASSY BERLIN PRIORITY 0313
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 0250
RUEHOT/AMEMBASSY OTTAWA PRIORITY 0213
RUEHPF/AMEMBASSY PHNOM PENH PRIORITY 0040
RUEHTV/AMEMBASSY TEL AVIV PRIORITY 0731
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEHC/DEPT OF LABOR WASHDC PRIORITY

UNCLAS SECTION 01 OF 04 AMMAN 003472 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA/ELA (G. RANA), EEB/TPP/ABT (G. CLEMENTS) 
COMMERCE FOR ITA/OTEXA (M. D'ANDREA) 
STATE PASS TO USTR (N. SAUMS, A. ROSENBERG, C. MILLER) 
 
E.O. 12958: N/A 
TAGS: ETRD EINV ELAB EAID IS IZ JO
SUBJECT: JORDAN SEES SLIGHT INCREASE IN TRADE DEFICIT AND 
DECREASE IN QIZ EXPORTS TO U.S. DURING FIRST HALF 2007 
 
REF: A. AMMAN 2211 
     ¶B. AMMAN 434 
 
¶1. (SBU) Summary: Jordan saw its trade deficit widen slightly 
to USD 3.4 billion during the first half of 2007, due to 
imports that more than doubled rising exports.  Despite an 
overall increase in total national exports, the Ministry of 
Industry and Trade (MOIT) reported that apparel exports to 
the United States from Jordan's Qualifying Industrial Zones 
(QIZs) decreased 6 percent to USD 520 million from January to 
June 2007, compared to the same period last year.  Some blame 
the drop on a cutback in orders from buyers due to Jordan's 
labor issues and lack of competitiveness.  Others have argued 
that the work is there, but workers are not, citing lack of 
labor as a major impediment to growth of the garment sector 
in Jordan.  The decline may also reflect a period of 
adjustment as apparel factories adapt to new labor compliance 
procedures and attempt to move to higher-end products. 
Another emerging and desirable trend is a natural shift to 
exporting under the U.S.-Jordan Free Trade Agreement (FTA). 
End Summary. 
 
Widening Trade Deficit in 2007 
------------------------------ 
 
¶2.  (U) Jordan's Department of Statistics (DOS) reported 
August 13 the following key trade figures for January to June 
2007, and growth rates over the same period in 2006: 
 
-- Total Exports:  JD 1.976 billion ($2.79 billion), 
representing a 19.1 percent increase.  This figure includes 
JD 400.9 million ($566 million) in re-exports and JD 1.575 
billion ($2.235 billion) in total national exports. 
 
-- Total Imports:  JD 4.359 billion ($6.157 billion), 
representing a 8.1 percent increase. 
 
-- Trade Deficit:  JD 2.383 billion ($3.366 billion), 
representing a 0.3 percent increase. 
 
¶3.  (U) The United States has remained the main importer of 
Jordanian products, accounting for approximately 25.8 percent 
($575 million) of Jordan's total national exports during the 
first half of 2007.  Garments made up 90.2 percent of U.S. 
imports from Jordan.  Iraq ranked second, importing 10.7 
percent of total national exports, mainly vegetables, 
cigarettes, liqueurs, beverages, vinegar, aluminum, and 
plastic.  Saudi Arabia placed third, importing primarily 
pharmaceuticals, machinery, appliances, non-organic chemical 
products, iron, and paper.  India came next as an importer of 
Jordan's phosphates, fertilizers, potash and phosphoric acid. 
 
¶4.  (U) Jordan's top import was crude oil, mainly from Saudi 
Arabia.  Other principal exporters to Jordan during this 
period included China (cloth, clothing and accessories), 
Germany (automobiles and their parts), and Egypt (natural 
gas, benzene, electrical energy, rice and ceramics). 
According to DOS, Jordanian imports from the U.S. for the 
first half of 2007 totaled USD 282.5 million, representing an 
8.3 percent increase over the same period in 2006. 
 
¶5. (U) To improve the trade balance, Jordan has been pursuing 
free trade agreements with several countries, including 
Turkey, Canada, and Kazakhstan.  Minister of Industry and 
Trade Salem Khaza'aleh has stated that the agreements aim to 
accelerate Jordan's free trade drive and expand trade 
partnerships with various regions through preferential access 
of goods and services, accumulation of rules of origin and 
removal of non-tariff barriers.  The Cabinet also recently 
approved the continued implementation of the World Trade 
Organization's subsidies program, under which export revenues 
will be exempted from income tax until 2015. 
 
QIZ Exports on a Downward Slope 
------------------------------- 
 
 
AMMAN 00003472  002 OF 004 
 
 
¶6.  (U) Despite an overall increase in total national 
exports, the Ministry of Industry and Trade (MOIT) reported a 
6.1 percent drop in Jordanian exports from the QIZs to USD 
520 million during the period January to June 2007 from USD 
540 million during the same period in 2006.  These figures 
include USD 354.9 million in exports to the United States 
under the QIZ agreement, USD 141.9 million in exports to the 
United States under the FTA agreement, USD 14.3 million in 
exports to Israel, USD 1.7 million in exports to other Arab 
countries, and USD 7.6 million in exports to other countries. 
 Hassan Al-Nsour, head of the MOIT QIZ unit, cautioned that 
it is too early to tell whether the drop in QIZ exports is an 
overall trend given a 12 percent monthly growth rate in April 
2007 compared to April 2006, indicating that seasonal factors 
in the garment industry may skew results in the first half of 
the year. 
 
QIZ to FTA 
---------- 
 
¶7.  (U) Although MOIT figures vary slightly from U.S. 
International Trade Commission (USITC) figures, primarily due 
to lags in shipping times, USITC figures confirm the overall 
trend of a decrease in apparel exports, specifically a 6.6 
percent drop to USD 537 million for the period January to 
June 2007.  USITC data for that period also indicates, 
however, that apparel exports under the FTA grew 13.5 percent 
to USD 115 million compared to the first half of 2006. 
Meanwhile apparel exports under the QIZ agreement decreased 
10.5 percent to USD 418 million.  Apparel exports under no 
claimed program dropped 33 percent to USD 4.8 million.  These 
figures tell another story that garment manufacturers are 
gradually shifting towards exporting under the FTA, a natural 
and desirable development of this sector.  NOTE: The 2001 FTA 
addresses bilateral trade in both goods and services, and 
applies to the entire country.  The QIZ initiative applies to 
manufacturing only.  Despite the shift to trade under the 
FTA, some producers will still continue to favor QIZ which 
requires a lower level of Jordanian inputs.  END NOTE. 
 
Moving to Higher End Products 
----------------------------- 
 
¶8.  (SBU) Another emerging trend is downsizing or closure of 
factories that have had labor problems or that cannot 
compete, particularly in low-end garments manufacture. 
Factories specializing in high-end garments are expanding. 
According to Sergio Gonzalez, a former buyer for Haggar's and 
garment manufacturing consultant, this could explain why the 
volume of Jordanian exports from January-May 2007 decreased 
18.1 percent while the value only dropped 7.3 percent -- 
whatever was lost was low-value or reflected a move to 
higher-value products. 
 
¶9.  (SBU) For example, the American-owned company Century 
Standard has found a new niche in work uniforms for Cintas 
that is allowing it to nearly double its 90 percent Jordanian 
workforce to 700 employees.  As a result, Century Standard's 
exports jumped from USD 4.5 million in the first half of 2006 
to USD 5.1 million in the first half of 2007.  EAM Maliban 
Textile also saw a 42 percent increase in its exports to USD 
15.7 million, which its CEO Edirisinghe Athulla attributed to 
a switch to higher value products for an existing customer, 
Dillard's, and the addition of a new high-end buyer, Land's 
End. 
 
Biggest Obstacles: Lack of Labor and Inefficiency 
--------------------------------------------- ---- 
 
¶10. (SBU) Some are attributing the drop in QIZ apparel 
exports to a cutback in orders from buyers abroad, who have 
decided to shift purchases to more competitive countries, 
such as Egypt or China.  Athulla told Econoff August 7, 
however, that buyers have continued to show interest in 
Jordan, particularly as other foreign currencies have grown 
stronger.  In his view, the real obstacle is the lack of 
 
AMMAN 00003472  003 OF 004 
 
 
unskilled local labor, noting that about 200-300 of his 
foreign workers' contracts will end in 2007 and unless he can 
get replacements, his production would go down about 20 
percent.  Royal Court Advisor Maher Matalka also confirmed to 
Econoffs August 2 that the lack of labor is a primary 
impediment for garment factories to expand their businesses. 
NOTE: The Ministry of Labor reported that as of June 30, 
2007, 99 factories in the QIZs employed a total of 52,058 
individuals, of which 15,175 were Jordanian and 36,883 were 
foreign.  Women, including 9,230 Jordanians, comprised 57 
percent the QIZ labor force.  END NOTE. 
 
¶11.  (SBU) Gonzalez, who has been visiting QIZ factories for 
a USAID-funded SABEQ competitiveness study on the garment 
sector (septel), told Econoff and USAID August 8 that most 
factories seem well-equipped and contained adequate space, 
but do not yet have the people to grow.  He said that the 
factories can get the contracts, but are having a more 
difficult time filling orders, especially with new labor 
policies limiting overtime and the closure of subcontractors 
due to labor violations.  He noted that more emphasis needs 
to be placed on developing innovative and aggressive local 
recruitment programs, particularly in rural communities, and 
implementing more robust training programs.  Additionally, he 
noticed that the majority of factories he visited were 
operating at about 30-40 percent efficiency.  Like Jones NY 
Social Compliance Auditor Kesava Murali, Gonzalez believes 
that factories can employ better management practices, 
incentive pay systems, and standards to enhance employee 
productivity (Ref A). 
 
¶12.  (SBU) Furthermore, although factories have developed 
well-established relationships with clients, Gonzalez argues 
that they need to do a better job of selling themselves to 
new buyers to develop a stronger and more diverse customer 
base.  On the positive side, these relationships and the 
amount of investment that have already been made in Jordan 
will help ensure that companies do not "pack up and leave 
tomorrow."  Even if some discontent about labor and the cost 
of production still exist, Gonzalez does not think the 
industry will disappear -- it will just be a question of to 
what degree it remains. 
 
Comment 
------- 
 
¶13.  (SBU) After years of overall growth in QIZ exports, many 
viewed the results of the first half of 2007 as alarming. 
Although the decline in apparel exports is by no means 
desirable, it could also reflect a natural period of 
adjustment to new labor compliance procedures and a move to 
high-end products.  With regards to labor, the garment sector 
continues to see itself in a Catch 22, whereby the GOJ has 
been implementing stricter policies on issuing work permits 
for guest workers, in part to encourage hiring of local 
labor, and yet trained and efficient local labor is not yet 
available (Ref B).  Many companies seem to want the GOJ to 
provide them with the local operators, instead of taking on 
the responsibility themselves of developing more effective 
local recruitment and training programs and enhancing the 
productivity of their existing labor force.  The SABEQ study 
on the garment sector and subsequent technical assistance 
should help identify concrete and practical ways to address 
some of these problems and increase the global 
competitiveness of apparel companies in Jordan.  Likewise, 
the World Bank Skills Development Program, the National 
Training and Employment Project, and the Rehabilitation of 
Employment Services aim to increase local employment 
opportunities in the industry. 
 
¶14.  (SBU) The drop in apparel exports also highlights the 
risk of having all of Jordan's export eggs in one garment 
basket.  In collaboration with public and private 
stakeholders, the USAID-funded SABEQ program is currently 
helping Jordan to develop a new National Trade Strategy that 
will address enterprise development and trade enhancement, 
 
AMMAN 00003472  004 OF 004 
 
 
particularly through diversification. 
 
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