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Cablegate: Egyptian Textile Production Increasing Despite

VZCZCXYZ0009
PP RUEHWEB

DE RUEHEG #2903/01 2691205
ZNR UUUUU ZZH
P 261205Z SEP 07
FM AMEMBASSY CAIRO
TO RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 7026
INFO RUEHAK/AMEMBASSY ANKARA PRIORITY 0626
RUEHBJ/AMEMBASSY BEIJING PRIORITY 0186
RUEHRB/AMEMBASSY RABAT PRIORITY 0586
RUEHTV/AMEMBASSY TEL AVIV PRIORITY 1561
RUEHTU/AMEMBASSY TUNIS PRIORITY 0639

UNCLAS CAIRO 002903

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EBB/TPP/ABT CLEMENTS
COMMERCE FOR ITA/OTEXA D'ANDREA
USTR FOR MILLER

E.O. 12958: N/A
TAGS: ECON ETRD KTEX EG
SUBJECT: EGYPTIAN TEXTILE PRODUCTION INCREASING DESPITE
CHINESE COMPETITION

REF: A. STATE 114799
B. CAIRO 2887

1. (U) SUMMARY: Despite increasing competition from China,
the Egyptian textile and apparel industry is growing robustly
thanks to Egypt's preferential trade agreements with Europe,
the United States, and Turkey, as well as rising costs among
its regional competitors. This message responds to Ref A
questions on the state of the textile and apparel industry in
the face of increasing international competition. END
SUMMARY.

2. (U) Total Egyptian industrial production in FY2005-06 was
valued at $16.9 billion, according to a study by the American
Chamber of Commerce in Egypt. Egyptian textile and apparel
production accounted for $1.7 billion, a little more than 10
percent of total industrial production.

3. (U) Textiles and apparel represented 5.5 percent of
Egyptian exports and 2.6 percent of Egyptian imports during
that period, compared with 5.2 percent of exports and 2.9
percent of imports during the first half of FY2006-07.
Excluding oil and natural gas, textiles and apparel accounted
for 12.4 percent of exports and 3.2 percent of imports in
FY2005-06, compared with compared with 9.7 percent of exports
and 3.3 percent of imports during the first half of FY2006-07.

4. (U) While the sector's share of Egyptian exports has not
changed significantly, textile and apparel exports are
increasing along with other Egyptian exports, said Mohammand
Kassem of the Egyptian Chamber of Textile Industries.
Egyptian textile and apparel exports increased 21 percent in
2006 and another 14 percent in 2007, compared to the same
period in 2006, he said.

5. (U) About one million Egyptians work in the textile and
garment industry, including relatively well-paid workers in
export-oriented factories as well as idle employees of
inefficient state owned-enterprises. Up to 24,000 workers at
one of Egypt's largest public textile factories have been on
strike since September 23 demanding unpaid bonuses, pay
increases, and changes in company and factory union
leadership (ref B).

6. (U) Egyptian textile and apparel exports to the United
States were valued at $819 million in 2006, according to the
US Census Bureau. In the first half of 2007, Egyptian
textile and apparel exports to the United States had already
reached $539 million. The increase is due largely to
increasing exports under the Qualified Industrial Zone (QIZ)
agreement granting duty-free status to Egyptian exports that
include 11.7 percent Israeli content. QIZ exports, which are
almost exclusively in ready-made garments, were valued at
$627 million in 2006 and $349 million in the first half of
2007.

7. (U) According to Kassem, Chinese competition has forced
Egypt out of export markets for exporting apparel categories
in which China does not face export quotas and Egypt does not
enjoy trade preferences. "No one has a chance to survive in
these categories." But in categories in which China still
faces quotas in the United States and Europe, such as knit
tops and bottoms, Egypt remains competitive.

8. (U) Kassem reports that smuggling of Chinese textiles
into Egypt is a significant problem. Earlier this year the
GOE reduced tariffs on textiles from 30 percent to 5 percent,
and on fabrics from 45 percent to 12 percent, as part of
efforts to reform trade policy and reduce the incentive for
smuggling. However, sales taxes, fees, and the remaining
tariffs still add nearly 40 percent to the price of legally
imported textiles, leaving a significant incentive for
smuggling.

9. (U) Despite the challenges, Egypt is attracting foreign
investment in the garment and textile industry. As regional
competitor Turkey faces rising labor costs, Turkish garment
manufacturers are moving operations to Egypt to take
advantage of preferential trading arrangements with Europe,
Africa, and the United States. Egypt is also better equipped
than garment factories in Tunisia and Morocco to meet buyers'

increasing preference for certain types of packaging.
JONES

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