VZCZCXYZ0017
RR RUEHWEB

DE RUEHCL #0050/01 0711451
ZNR UUUUU ZZH
R 111451Z MAR 08
FM AMCONSUL CASABLANCA
TO RUEHC/SECSTATE WASHDC 8001
INFO RUEHRB/AMEMBASSY RABAT 8251
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHBJ/AMEMBASSY BEIJING 0049
RUEHLO/AMEMBASSY LONDON 0361
RUEHNK/AMEMBASSY NOUAKCHOTT 2336
RUEHFR/AMEMBASSY PARIS 0643
RUEHEE/ARAB LEAGUE COLLECTIVE

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