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Cablegate: Tunisian Textile Sector Adapts to Post-Quota

VZCZCXRO4985
PP RUEHTRO
DE RUEHTU #2464/01 2721457
ZNR UUUUU ZZH
P 291457Z SEP 06
FM AMEMBASSY TUNIS
TO RUEHC/SECSTATE WASHDC PRIORITY 1941
INFO RUEHAD/AMEMBASSY ABU DHABI PRIORITY 0798
RUEHAS/AMEMBASSY ALGIERS PRIORITY 7301
RUEHLO/AMEMBASSY LONDON PRIORITY 1185
RUEHNK/AMEMBASSY NOUAKCHOTT PRIORITY 0786
RUEHFR/AMEMBASSY PARIS PRIORITY 1638
RUEHRB/AMEMBASSY RABAT PRIORITY 8227
RUEHTRO/AMEMBASSY TRIPOLI PRIORITY 0399
RUEHCL/AMCONSUL CASABLANCA PRIORITY 3998
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUCPDOC/USDOC WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 TUNIS 002464

SIPDIS

SENSITIVE
SIPDIS

STATE FOR NEA/MAG (HARRIS) AND EB/TPP/ABT (LERSTON)
STATE PASS USTR (BELL AND HEYLIGER), USPTO (ADLIN AND
ADAMS), USAID (MCCLOUD)
USDOC FOR ITA/MAC/ONE (ROTH), ITA/OTEXA (DANDREA), ADVOCACY
CTR (JAMES), AND CLDP (TEJTEL)
CASABLANCA FOR FCS (ORTIZ)
LONDON AND PARIS FOR NEA WATCHER

E.O. 12958: N/A
TAGS: ECON ELAB ETRD BEXP KTEX TS
SUBJECT: TUNISIAN TEXTILE SECTOR ADAPTS TO POST-QUOTA
REALITY

REF: A. STATE 138090

B. TUNIS 2418

1. (U) Summary: This is the first of a two-part series on the
Tunisian textile sector. Part one addresses the impact of
the end of the Multifiber Agreement on production and
exports, as well as the sector's strategy for future
competitiveness. After the end of the quota regime that
existed under the Multifiber Agreement, the Tunisian textile
sector has seen its export share erode in its traditional
European markets. In spite of this, major textile
organizations and enterprises assert that 2005 figures are
much better than they feared. Faced with increased
competition from cheaper Asian textiles, the GOT and Tunisian
textile manufacturers have been seeking to move away from
mass produced textiles to value-added textile products. End
Summary.

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2. (U) Per Ref A request, Post has gathered the following
statistics for the Tunisian textile sector for 2005:

-- Total industrial production is estimated at 4.6 billion
USD.
-- Total textile production (including leather goods) was 3.7
billion USD.
-- Textile/apparel share of total imports is 16.51 percent.
-- Textile/apparel share of total exports is 31.82 percent.
-- Exports of textiles/apparel to US is 21.18 million USD.
-- Imports of textiles/apparel from the US is 10.73 million
USD.
-- Manufacturing employment is 543,400 jobs.
-- Total textile employment is 194,000 jobs.

3. (U) The textile sector occupies a crucial place in the
Tunisian economy, accounting for nearly 32 percent of
Tunisia's total exports. According to the GOT-founded
Technical Center for Textiles (CETTEX), approximately 80
percent of Tunisian textiles are produced for export. Europe
has long been, and continues to be, the main destination for
Tunisian textile exports, with over 96 percent of Tunisian
textile exports bound for Europe. Nearly 83 percent of
textile exports are to just four European countries --
France, Italy, Germany, and Belgium. The textile sector has
also been an important source of foreign direct investment,
with nearly 1,000 of the sector's 2,100 manufacturers
partially or fully owned by foreign groups, usually from
Europe. According to CETTEX, there are only 12 textile
manufacturers with any U.S. investment.

4. (U) According to CETTEX Director General Nejib Karafi,
2005 results were "not as bad" as many industry experts had
feared and the sector performed relatively well. Karafi
admitted that there had been factory closures and that
several companies had left Tunisia, but reasoned that these
companies were non-competitive. Despite the relatively
optimistic outlook presented by both CETTEX and the National
Federation for Textile Employers (FENATEX), textile
production in 2005 was 3.7 billion USD, down from 3.84
billion in 2004. The textile share in total exports has also
decreased from 36.3 percent in 2004 to 31.82 in 2005. In
2005, Tunisia lost its position as the fourth largest
clothing supplier to the EU, falling to sixth place behind
Bangladesh (number 4) and India (number 5).

5. (U) So far, 2006 results do not look any better, with a
moderate drop in both the volume and value of exports.
According to CETTEX, exports of textiles during the first
eight months of 2006 have totaled 2.97 billion dinars
(roughly 2.24 billion USD), down from 3.06 billion dinars
(2.30 billion USD) for the same period in 2005.

6. (U) Both the GOT and the major textile organizations have
urged textile producers to abandon mass-produced basic

TUNIS 00002464 002 OF 002


products, for which the Chinese and other Asian producers
have a comparative advantage due to lower labor costs, and
move towards higher quality, value-added goods. Karafi
stressed that Tunisia must try to profit from its comparative
advantages -- proximity to Europe and the production of
finished goods. Karafi expressed a desire to see Tunisians
move into fashionable garments and to begin designing their
own fashion lines. FENATEX Secretary General Ali Nakai also
saw this as a natural progression noting that Tunisian
textile manufacturers need to move from sub-contracting, the
current status quo, to co-production. Both Karafi and Nakai
emphasized the importance of expanding into new markets, such
as Algeria, Libya, and other non-traditional European
countries. Although Karafi viewed the United States as a
potential, and currently underexploited, market for Tunisian
textile products, Nakai largely dismissed the U.S. market.
Nakai cautioned that Tunisian manufacturers currently do not
possess the production capacity to meet the needs of the U.S.
market.

7. (U) Given the importance of the textile sector to the
Tunisian economy, the GOT has been active in trying to
promote the sector and increase its competitivity. CETTEX
was created by the GOT to help textile companies adapt to
this new situation by providing research, consulting
services, and training. In addition to their consulting and
training services, CETTEX also has laboratory facilities to
conduct the testing necessary to certify that textile
products conform to certain quality standards. In order to
promote continued investment and job creation in textiles,
the GOT has granted favorable tax and customs concessions to
foreign investors such as Bennetton (ref B). The GOT has
also created several special zones designated for textile
production, such as the El Fejja finishing zone located 25
kilometers outside of Tunis, and the textile technology park
in Monastir for textile production and research. Companies
in these zones benefit from favorable tax concessions as well
as GOT infrastructure development.

8. (SBU) Comment: Although the end of the Multifiber
Agreement has had negative impact on Tunisia's textile
industry, the sector has adopted a sound strategy for
maintaining future competitiveness. However, in the short
term, the textile sector will continue to suffer losses as
manufacturers abandon mass-produced, basic products and
re-orient towards higher-quality garments. End Comment.
BALLARD

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