Search

 

Cablegate: Jordan Sees Slight Increase in Trade Deficit And

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.

Visit Amman's Classified Website at
http://www.state.gov/sgov/p/nea/amman/
Hale

© Scoop Media

 
 
 
World Headlines

 

Ramzy Baroud: Year in Review Will 2018 Usher in a New Palestinian Strategy

2017 will be remembered as the year that the so-called ‘peace process’, at least in its American formulation, has ended. And with its demise, a political framework that has served as the foundation for US foreign policy in the Middle East has also collapsed. More>>

ALSO:


North Korea: NZ Denounces Missile Test

Foreign Affairs Minister Winston Peters has denounced North Korea’s latest ballistic missile test. The test, which took place this morning, is North Korea’s third test flight of an inter-continental ballistic missile. More>>

ALSO:

Campbell On: the US demonising of Iran

Satan may not exist, but the Evil One has always been a handy tool for priests and politicians alike.

Currently, Iran is the latest bogey conjured up by Washington to (a) justify its foreign policy interventions and (b) distract attention from its foreign policy failures.

Once upon a time, the Soviet Union was the nightmare threat for the entire Cold War era – and since then the US has cast the Taliban, al Qaeda, and Islamic State in the same demonic role. Iran is now the latest example…More


Catalan Independence:
Pro-independence parties appear to have a narrow majority. More>>