VZCZCXYZ0000
PP RUEHWEB

DE RUEHEG #1225/01 1811145
ZNR UUUUU ZZH
P 301145Z JUN 09
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC PRIORITY 3051
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS CAIRO 001225 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR NEA/ELA 
DEPT PLEASE PASS TO USTR/SONIA FRANCESKI 
TREASURY FOR BRYAN BALIN AND FRANCISCO PARODI 
 
E.O. 12958: N/A 
TAGS: ECON ELAB EINV PGOV ETRD EG
SUBJECT: JONES APPAREL: EGYPT'S QIZS ARE GOOD FOR BUSINESS 
 
¶1. (SBU) KEY POINTS 
 
-- Compliance Officers from Jones Apparel Group told us that 
labor conditions in the factories of their Egyptian suppliers 
are generally good. 
 
-- Jones Apparel has not seen evidence of worker mistreatment 
in QIZ factories. 
 
-- As a result of the QIZ and proximity to U.S. markets, 
Egypt continues to gain market share over its Southeast Asian 
rivals. 
 
-- There are some signs of a slow recovery in apparel demand. 
 
 
¶2. (SBU) As part of Post's program of monitoring labor 
conditions in Egypt's Qualifying Industrial Zones (QIZ), we 
met with the Kesavi Murali, the Senior Compliance Specialist 
in the Middle East for Jones Apparel Group and Mohamed 
Husseiny, the company's representative in Egypt.  Murali told 
us that his company remains very focused on compliance issues 
and labor conditions in the wake of a 2006 labor abuse 
scandal in the QIZs in Jordan.  He was clear that there were 
no signs that Egyptian QIZs had any major labor issues. 
 
¶3. (SBU) Jones Apparel has 16 factories in Egypt, most of 
which are located in the Port Said free zone. These factories 
produce women's clothes under the Jones New York, 9 West, and 
Anne Klein labels.  Murali told us that Jones Apparel 
produces 60% of its denim products in the Middle East, half 
in Jordan and half in Egypt.  All of Jones Apparel's 
production in Egypt takes place in the QIZs, and Murali told 
us he expected that Jones would buy between $90-$100 million 
in product from Egyptian factories this year. He added that 
the company had added two new supply factories in Egypt in 
¶2009. 
 
¶4. (SBU) Over the past year, Jones has increased its presence 
in Egypt and now has a full time production team based in 
Egypt.  According to Murali, they visit each of the factories 
they work with once per month.  Their strategy, Murali told 
us, was to ensure that they were the largest customer of each 
of the factories they work with in order to guarantee what 
they felt was a proper level of attention to their issues. 
 
¶5. (SBU) Murali told us that the apparel industry in general 
had experienced a slowdown earlier this year, but that he saw 
orders picking up.  In addition to favorable customs 
treatment under the QIZ, he said production in Egypt provides 
cost advantages and efficiencies in production lead time 
since Egypt is located closer to the U.S. than most other 
suppliers.  While other producers such as Bangladesh, 
Madagascar and Sri Lanka have lost market share, Egypt has 
gained market share.  He told us Egypt was a better producer 
than countries who use migrant labor, though Egypt does 
suffer from high worker turnover which damages operational 
efficiency.  He said that from his standpoint, there were no 
labor issues with local labor. He said that the main issues 
in Egyptian factories are qualitative management issues and a 
lack of health and safety awareness. 
 
¶6. (SBU) When asked about migrant workers, Murali told us 
that a few factories that employed Bangladeshi workers, but 
that the number of workers was not substantial, and always 
within legal limits.  He also said that he had heard that the 
GOE was imposing an "unofficial ban" on new work permits for 
Bangladeshi migrant workers.  Murali told us that contrary to 
some media reports he had seen no evidence and any factories 
relocating from Jordan to Egypt. 
 
¶7. (SBU) Comment: Jones Apparel Group has been very active in 
monitoring conditions in QIZs and we feel that the evaluation 
of their factories they work with is reliable and tracks with 
what we have seen in our own factory visits.  We have not 
been able to independently verify Murali's claim with respect 
to the GOE unofficially tightening up on foreign workers, 
though it makes sense that the GOE would be disinclined to 
import foreign workers when the country has high levels of 
domestic unemployment.  As with many we've spoken to, Murali 
was unaware of the new QIZ designations in Upper Egypt since 
the GOE has yet to publicize the expansion.  Of note also is 
the somewhat upbeat analysis of market conditions, which is 
the first sign of optimism that we've seen. This may be 
evidence of a coming recovery in the apparel sector or simply 
an indication of the lower elasticity of demand for women's 
apparel than for men's. 
SCOBEY