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Cablegate: Jordan Qiz Update May 2003

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 AMMAN 003056

SIPDIS

SENSITIVE

STATE PASS USTR FOR NED SAUMS
DOC FOR 4520/ITA/MAC/ONE/PTHANOS

E.O. 12958: N/A
TAGS: ETRD EINV ELAB IS JO
SUBJECT: JORDAN QIZ UPDATE MAY 2003

Sensitive but unclassified; please protect accordingly.

1. (u) This message has been cleared by Embassy Tel Aviv.

2. (sbu) Summary: Putting war worries to rest, Jordan's
QIZ exporters maintained solid growth throughout the first
four months of the year and are bullish on prospects for the
balance of 2003. Both the government and private sector are
exploring new programs to bring more trained local laborers
into the QIZ labor pool, but exporters continue to complain
of a severe shortage of skilled workers. The SARS epidemic
has had an uneven effect on QIZ exporters, restricting access
to skilled Asian labor while simultaneously enjoying a shift
of some orders out of SARS-affected areas and into Jordan.
Exporters were badly hurt over the short term by widespread
labor strikes in Israel, and are eager to see a plan
developed that will mitigate the effects of any future
Israeli labor unrest on the QIZ initiative. We should
encourage both the GOI and GOJ to come to such an agreement,
using the upcoming U.S.-Israel Joint Economic Committee
meeting as a venue to encourage this with the Israelis. End
summary.

PRODUCTION BOOMING DESPITE WAR JITTERS

3. (u) Before hostilities began in March, many local QIZ
exporters and GOJ officials fretted openly and constantly
about the potential effects of war in Iraq on QIZ exports,
due to a prediction of limited access to shipping and
potential order cancellations. In the event, however, QIZ
exports continued their impressive growth despite the war.
Exports from the Al Hassan QIZ in Irbid in Q1 2003 rose 45%
compared to Q1 of the previous year, and exporters in Dulayl
and Tajammouat reported similar strong Q1 sales. April's
numbers, while more modest, still showed solid growth,
including a 15% increase over April 2002 for Irbid and
similar growth in Dulayl (numbers for Tajammouat
unavailable). Dulayl's park manager told us QIZ exports
average $5 million per month now (about 3/4 of all exports
for the Zarqa governorate), and should top $10 million per
month by year end, when he expects a number of new companies
and expansions to come on-line. QIZ exporters expressed
confidence that 2003 would be another solid year, noting that
summer bookings are full and prospects for fall are good.

GOVT, QIZ PARKS FILLING LABOR POOL

4. (u) The GOJ announced in April that it would begin a
targeted training effort to bring more skilled local workers
into the QIZ labor market. The project, which will be
tendered to a private-sector training company and funded by
the GOJ, aims to train 5,000 Jordanians to replace current
expatriate workers in QIZ factories. The program will also
has a "train the trainer" component that will qualify nearly
100 Jordanians to continue the program following the end of
the contract. (Note: given current growth projections,
these new positions should be easily absorbed by exporters
without displacing current expat workers. End note.)

5. (u) Also in April, the Tajammouat QIZ announced the
expansion of its successful "village workers" program, which
has brought in workers from the south of the country to live
and work in QIZ parks, with dormitory housing provided by the
park management and funded by exporting companies. The pilot
program, which brought several hundred workers from the
impoverished Tafileh region to work in Amman, was widely
praised by exporters and the GOJ, and welcomed by the new
workers themselves. The program expansion will bring another
100 workers into the zone.

6. (u) As new workers enter the labor market, the SARS
epidemic has begun to cause problems for some QIZ exporters,
particularly start-up companies that hoped to rely on Chinese
labor in their start-up phase. In an effort to keep SARS out
of Jordan, the GOJ currently bars entry into the country by
any resident/citizen of WHO-recognized high-risk areas who
does not carry a "SARS-free" certificate issued by a local
Jordanian embassy. Effectively, this has meant new Chinese
workers have been unable to enter, and a small number of
Chinese workers who traveled to China for vacation just prior
to or during the SARS outbreak have been barred from
returning. Established exporters are taking the problem in
stride, but a few start-ups have noted the development will
set back their production schedules significantly.
Meanwhile, the SARS outbreak has had a mild windfall effect
on Jordanian exporters, as some buyers have begun to shift
orders out of SARS-affected areas and into "safe" sourcing
countries, including Jordan.

EXPORTER CONCERNS - ISRAEL IS ISSUE #1

7. (sbu) QIZ exporters have been complaining increasingly
bitterly about the negative impact of labor strikes in Israel
on their production. As a direct result of the strikes,
exporters reported over the past weeks a growing stack of
unapproved QPR's (qualifying product registration - the
document that allows them to ship under the QIZ program, and
which must be approved by the Jordanian and Israeli trade
ministries prior to import into the U.S.) and a total
inability to contact Israeli authorities to shake them loose.
Israeli trade ministry officials confirmed to Embassy Tel
Aviv that Israel's QIZ committee had not met during the
strikes, but said they were now scheduling additional QIZ
committee meetings to clear the backlog and should be caught
up by the end of the week (May 23).

8. (sbu) In addition to QPR delays, exporters complained
that the strikes caused serious disruptions in their
logistics chains - limiting access both to needed Israeli
inputs and to border and port facilities to facilitate
exports of finished goods. At least one Jordanian exporter
who works with an Israeli buyer said she had to close her
production floor entirely for several days when fabric inputs
from Haifa were unable to leave the docks as a result of
strikes.

9. (sbu) Exporters say that they have been unable to
impress upon Israeli authorities the significance of the
damage to this time-sensitive industry such delays cause, and
have asked us to find creative ways to mitigate the impact on
the QIZ's of future labor problems in Israel. They have
proposed getting the Israeli Embassy in Amman to be
authorized to approve QPR's. They have also asked the USG to
grant QIZ exporters a 30 day "grace period" to submit
supporting import documentation to claim QIZ status at U.S.
entry points during times of Israeli labor unrest, in order
to overcome delays on the Israeli side.

10. (sbu) Finally, exporters continue to ask for our
support in encouraging the Israeli and Jordanian governments
to begin formal discussions to improve the current
requirements for Israeli inputs. Notably, exporters have
stopped asking for a straight reduction from 8% value-added,
and are instead urging the two sides to begin talks on a
"sliding scale" of assessment for Israeli inputs, whereby
lower-value goods require a higher percentage of Israeli
inputs, and higher-value goods require a correspondingly
lower percentage of Israeli inputs. In any case, exporters
are eager to see the two sides come to some sort of agreement
before February, 2004, when the current "temporary" agreement
to lower Israeli input percentages from 11.7% to 8% expires.
Israeli trade ministry officials told Embassy Tel Aviv that
formal talks were delayed by the government shake-up, but
that formal meetings could take place in 2-3 weeks when
Israel's and Jordan's trade ministers are scheduled to meet.
Embassy Amman continues to encourage Jordanian MoIT to attend
such a meeting, and has tracked the GOJ's "sliding scale"
proposal first forwarded to the GOI through the Jordanian
Embassy in Tel Aviv in spring 2002.

11. (sbu) Comment: The twin problems of lack of skilled
labor and disruptions from internal issues in Israel are
exporters' key concerns. While we can try to be helpful in
making the process more efficient (including perhaps finding
a helpful role for the Israeli embassy here), it will
ultimately be up to Israeli and Jordanian officials to work
out arrangements to ensure the sustainability of the QIZ
initiative even during times of labor unrest or other
domestic problems in Israel. Because of the political
importance of the program to all sides, and the centrality of
QIZ's in Jordan's future economic growth plans, we should
impress upon both sides the usefulness of making such
arrangements. Embassies Amman and Tel Aviv note that the
upcoming U.S.-Israel Joint Economic Committee meetings could
be a useful venue for making that point, and will provide
suggested points for concerned Washington agencies to raise
during the meetings separately. Concerning the input
negotiations, Embassies Tel Aviv and Amman will continue to
encourage both sides to begin formal talks as soon as
possible.
GNEHM

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