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Viewing cable 03AMMAN7292, JORDAN QIZ UPDATE - BUFFETED BUT UNBOWED, THE
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| Reference ID | Created | Released | Classification | Origin |
|---|---|---|---|---|
| 03AMMAN7292 | 2003-11-06 15:57 | 2011-08-24 16:30 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Amman |
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 05 AMMAN 007292
SIPDIS
SENSITIVE
STATE PASS USTR FOR NED SAUMS
STATE PASS TRANSCOM FOR C. DOBIAS AND D. HUGHES
USDOC FOR 4520/ITA/MAC/ONE/PTHANOS
TREASURY/OASIA FOR A. DEMOPULOS
DOL FOR ILAB
E.O. 12958: N/A
TAGS: ETRD EINV ELAB EAID IS IZ JO
SUBJECT: JORDAN QIZ UPDATE - BUFFETED BUT UNBOWED, THE
DOUGHTY QIZS KEEP ON GROWING
REF: A. AMMAN 6220
¶B. AMMAN 4735
¶C. AMMAN 4503
¶D. AMMAN 3056
SENSITIVE BUT UNCLASSIFIED. PROTECT ACCORDINGLY.
¶1. (SBU) SUMMARY: Hit hard by unpredictable delays in
delivery of fabric inputs through congested Aqaba port and
even less-predictable Israeli port and customs bottlenecks,
Jordan's Qualifying Industrial Zones (QIZs) nonetheless
continue to outperform last year's record export volumes.
Government of Jordan (GOJ) export figures show that the QIZs
had shipped garments worth USD 426.6 million to the U.S. by
the end of September, easily on track for another
record-breaking year at over USD 500 million. Unprepared for
post-Iraq-conflict effects on shipping and transportation
operations, a number of QIZs saw flat months in September and
October, but many report strong early bookings for the spring
season and expect dramatic upswings in operations, if they
can find skilled labor. Managers plan multiple routes for
inbound raw products and outbound finished goods, and prepare
contingency plans in the face of potential Israeli customs
strikes.
¶2. (SBU) SUMMARY CONTINUED: The GOJ is trying hard to fix
the Aqaba port problem, with mixed results. Consequently, a
few of the low-end garment factories with less experienced,
less flexible management may go under. The GOJ is developing
a strategy to support the garment industry as the 2005 end to
quotas approaches. A government committee is working on a
national strategy with private sector partners. USAID's AMIR
program is offering policy support, but some old QIZ hands
request that the USG be more forthright with policies or
pronouncements on the end of the Multifiber Agreement. In
the meantime, Turkish and Gulf state investors are setting up
shop in some QIZs. Labor appears to be doing well: 4,000
Jordanians are being trained under a GOJ program with
Tunisian trainers and salary increases are generally
available in a labor-friendly job market. Judging from a
recent visit by Nike compliance officers, the situation of
foreign laborers is tolerable. A model Village Program that
hires mainly women from the south is expanding. END SUMMARY.
AQABA PORT REACHES ITS "NATURAL" LIMITS
---------------------------------------
¶3. (SBU) With Iraq-bound goods flooding into Aqaba in the
April-September period, the Port of Aqaba Authority followed
its standard operating procedure of increasing manpower and
using all available equipment around the clock. Container
volume (TEU) rose 60 percent from April to September, but
most significantly the number of vehicles destined for Iraq
(many of them used cars) shot up by 600 percent from May to
June. Old systems broke down as the port was overwhelmed.
Traders said they would pay "hunters" to go track a vehicle;
three days later, after roaming through miles of makeshift
vehicle yards, the car's location would be reported.
Unloading of ships took longer, and full ships began to fill
the harbor. A manual card-system for handling containers,
and an inefficient ship-to-yard-to-customer system
overwhelmed the straddle carriers that were making too many
"false moves" to physically locate and remove a container out
of the port. To move ships quickly out of the port, empty
containers were left behind, filling up needed storage space.
Overused port equipment broke down and the problems mounted.
In the end, by September, big container ships went back to
Jeddah and unloaded there. Since that time, only smaller
feeder ships have been going to Aqaba, requiring an
inefficient transfer in Jeddah first. Compounding the
problem in the post-conflict period, suppliers for the World
Food Program started sending many more shipments of food and
other necessities in containers, which needed to be unpacked
in the port. The GOJ established a fast-lane at Aqaba for
WFP shipments to Iraq as a humanitarian gesture. This
innovation was successful, but led to additional
inefficiencies.
¶4. (SBU) The government has since invested USD 24 million
in an ongoing major port upgrade at Aqaba, adding two gantry
cranes and several new straddle carriers. By mid- to
late-November, GOJ authorities state, operations will be back
to normal. Knowledgeable private shippers are more
conservative, saying operations on the old timetable will be
back by the end of the year. But the inefficiencies will
remain, say some critics, until the entire system is upgraded
and computerized and even more modern equipment and
infrastructure to match is put in place.
¶5. (SBU) QIZ factory managers had been playing "where's the
container?" at Aqaba since summer. Although few in number,
they are high-value containers with enough cloth to produce
millions of dollars worth of clothing on short lead times to
be delivered to ports on the East Coast. Tracking containers
in the Aqaba pile-up was nearly impossible; finding those
returned to Jeddah was worse. By September garment factories
were shutting down production lines. Operations at Aqaba are
better now, say the QIZ factory managers and owners.
Although delivery times are longer than they were in early
2003, they are at least predictable. The GOJ announced in
early October that QIZ companies could use other ports to
deliver raw materials -- a temporary waiver of a regulation
that gives Aqaba port a monopoly on container traffic. Many
have turned to using trucks from the Jabal Ali port near
Dubai.
HAIFA PORT STRIKES, BORDER CLEARANCE PROBLEMS
---------------------------------------------
¶6. (SBU) The early-October strike at the Port of Haifa and
more recent slow-downs by Israeli customs at Haifa and at the
Sheikh Hussein bridge between Jordan and Israel also have
left QIZs scrambling. One factory owner whose container was
stuck in the Haifa port reported that he had just called the
U.S. buyer and said the goods would arrive late, putting
himself at the mercy of the buyer's contractual right to
cancel. QIZ managers on November 3 reported a continuing
customs slow-down at the bridge, which has never been an easy
access point due to what the managers say are Israeli
security concerns. One Amman-based factory recently sent a
truck south through Jordan's Aqaba border crossing with
Eilat, Israel. From there, the truck went north through the
length of Israel to Haifa. Another firm in Irbid is not only
taking its raw inputs from Dubai but plans to ship finished
garments to the U.S. from there. A few have tried shipping
out of Aqaba -- losing about 7-10 days of shipping time to
cover the extra distance -- but report that the containers
can leave the Aqaba port up to an additional ten days later
than scheduled.
¶7. (SBU) A factory manager with long experience in the QIZs
points to the Israeli-side problems as fundamentally
affecting the eight percent Israeli content, especially if
sewing or other labor is done in Israel. Shipping to the
U.S. may not be predictable, he said, but if the Israeli
content cannot get back and forth, he will lose his QIZ
garment qualification. The manager is buying up Israeli
accessories -- pins and ribbons -- as fast as he can get
them. If the border situation does not improve, he will
finish the sewing in Jordan and accessorize the Israeli
content.
STILL THE QIZS KEEP GROWING...AND GROWING
-----------------------------------------
¶8. (SBU) Despite all of the problems, the Ministry of
Industry and Trade reports QIZ exports of USD 426.6 million
through the end of September, representing a 60 percent
increase over the same period last year. The same factory
managers that reported slower production in September and
October are predicting that they will fill their production
lines by mid-November. One Amman factory in the Tajamouat
Industrial Estate reports strong interest from U.S. clothing
buyers. One manager in an Ad Dulayl factory stated they will
be at full capacity through next February. Bookings and/or
buyer interest in garments from Jordan remain strong,
according to selected industry representatives. However, a
few firms are closing: Dawhyma Jeans in Tajamouat
transferred its lease to a new firm and let go its workforce
of about 400. These workers were paid, but complained that
not all of their labor rights were honored. Their case is
being reviewed by the Ministry of Labor. A second firm in
Tajamouat run by young and inexperienced Jordanians from a
wealthy family is also reportedly seeking a buy-out.
¶9. (SBU) At the same time new factories continue to open,
including Turkish investors, a QIZ first, as well as more GCC
companies. Tajamouat's estate manager reports two new
Turkish firms joining. Jack Khayyat at Ad-Dulayl Industrial
Park reports that two Turkish apparel companies and one
Indian company will start operations there by February.
Other industrial estates also have noted continued interest
from Turkish and Gulf state firms. In the Aqaba Industrial
Estate, run by Parsons Brinkerhoff International, Dubai-based
Atraco company has signed a letter of intent to open a
garment factory employing 1200 workers. PBI CEO Sheldon Fink
reports that the firm should close the deal in the next few
weeks and begin full production by July 2004.
CHINA WORRIES A GOJ INTENT ON QIZ-FRIENDLY POLICIES
--------------------------------------------- ------
¶10. (SBU) The GOJ has established a national committee to
advance the gains made in the five-year old QIZ garment
industry and devise a strategy to deal with the changes
expected with the end of the Multifiber Agreement in 2005.
USAID's AMIR program is developing an investment promotion
strategy for the garment sector on behalf of the Jordan
Investment Board. Embassy ECON section will contribute an
updated QIZ Q&A to that effort. The GOJ strategy report is
expected by the end of the year. Jordan is also seeking an
EU-Israel-Jordan QIZ arrangement that would bolster the
rising garment sector with a closer market in which Jordan
could be more competitive. This deal would likely complement
the USG's QIZ arrangement.
¶11. (SBU) What will happen with China and other highly
competitive garment-producing countries that have cheaper
labor and inputs and better, quicker transportation routes to
the U.S. is a major question. As one leading QIZ estate
manager said to Econoff (representing a sentiment expressed
to the Ambassador numerous times), the U.S. should squarely
address the problem of China. Although Jordanians were
pleased to hear about the testimony of DAUSTR Charles Freeman
on September 24 before the Congressional-Executive Commission
on China, which outlined two China-specific safeguard
mechanisms, they are eager to hear more. Even with Jordan's
no-tariff advantage, many see 2005 as a serious challenge to
an infant industry that U.S. policies begot. (COMMENT:
Elaborating U.S. government policies to support Jordan's
growing industrial base built on free trade and an
open-market economy would be a natural extension of USG
efforts to date. END COMMENT.)
QIZ LABOR SITUATION
-------------------
¶12. (SBU) The QIZs employ anywhere between 26,000 and
32,000 workers depending on the source. The government's
low-end figure cites 57 percent as Jordanian nationals. The
remaining 43 percent of the garment workers are largely from
South Asia (Pakistan, Sri Lanka, Bangladesh), the Philippines
and China. In recent government meetings and tours of QIZ
garment factories with Nike compliance officers, we found
that the Jordanian labor code applies equally to foreign
workers, including the right to join a labor union. However,
virtually all foreign workers choose the protections afforded
by their contracts, according to the Ministry of Labor, while
benefiting from the minimal worksite measures gained by
unions.
¶13. (SBU) In Jordan, most garment workers have a 48-hour
week and can clock up to 12 hours of overtime, which provides
1.25 times regular pay. Most foreign workers contract to
work 60-hour weeks. Anecdotal information indicates a number
of foreign workers are putting in more than 60-hour weeks,
especially in the high-demand seasons. Many managers report
that Jordanians prefer not to work overtime. At the same
time, foreign workers are reportedly pulling in USD 200 to
300 dollars on average a month, well above the minimum wage
of 85 JD (120 USD). With bonuses, the best workers are
reportedly making USD 350 to 400. (COMMENT: As one QIZ
estate manager said, the foreign workers are a model for the
largely rural-agrarian Jordanians who are unfamiliar with the
modern industrial work ethic. END COMMENT.)
¶14. (SBU) Foreign workers usually live in dorms either on
or near QIZ estates and many receive meals as part of their
contracts. Tajamouat Estate built its dorms according to JC
Penney standards and hired chefs from Sri Lanka and China to
cook for the workers; the factories pay Tajamouat as part of
its one-stop shopping service. The source country embassies
are regularly visiting those QIZs with heavy foreign worker
concentrations, according to workers and managers. Contacts
from source country embassies say that foreign workers in the
QIZs are the least of their worries because conditions there
are so much better than in other sectors. An issue that the
concerned ministries are just beginning to address in a
systematic way is the behavior of home-country labor
recruiting agencies, to ensure they are acting in accordance
with international standards. The GOJ requires the licensing
of bonded labor agencies within Jordan. In all of the
meetings between Nike and government officials, it was clear
the GOJ is concerned about labor standards compliance and
sees an advantage to highlighting good labor practices to
potential investors.
¶15. (SBU) QIZ workers can be generally confident the labor
market favors them for the present. Judging from the
complaints of factory managers who say their workers are not
loyal, job-jumping to secure a better wage is a common
practice. One American manager who recently took over in a
QIZ firm said that he would enhance the bonus system to keep
good workers. This same firm reportedly hired away an
effective floor manager from a competitor by offering a
substantially higher wage. The GOJ contracted with the
Jordanian firm Textile Technology Centers to train 4,000 more
Jordanian garment workers by next July to meet the increasing
labor demand at QIZs. Already 1,000 have been trained in
paid five-week courses led by Tunisians experienced in modern
garment factory production techniques. The same firm will
train up to 120 Jordanian trainers, though the training
company's expectation is that it will take far longer than a
year to produce the effective trainers they now have. The
development of an effective industrial labor force will be a
major challenge for the GOJ.
¶16. (SBU) An innovative program to recruit and train
Jordanian labor is the "Village Program" at Tajamouat
Industrial City, which has continued to grow to about 800
mainly women from the south of Jordan, where jobs are scarce
and unemployment is high. These workers live in dorms and
contract to work 60 hour weeks. Dormitories have inside
supervisors, who act as chaperons. Every two weeks the
company buses the workers back to their villages to see their
families for two days. A Ministry of Labor senior officer
and two Social Welfare workers are assigned in an office at
Tajamouat to pay special attention to the village group and
to visit and coordinate with their families. The MOL also
sponsors special events for them. Other MOL officers at
Tajamouat monitor the condition of the industrial park, as at
the other QIZs. Tajamouat management, which sees the village
program as a way to provide factories with dedicated workers,
has a cost-sharing program with the MOL for the first year.
After that, the factories absorb all dorm and food costs.
Women in the villages reportedly claim they want more such
jobs for their relatives.
¶17. (SBU) COMMENT: The QIZs grow, yet the mix of investors
has not changed dramatically. As one experienced Sri Lankan
QIZ manager asked, what can the GOJ or the USG do to assure
companies that the competitive advantage of Jordan remains?
Among the potential focuses of concern are:
-- more policy work and research into QIZ-FTA linkages;
-- more logistics and transportation improvements, to
offset the toll exacted by Iraq-bound cargo (for example, TDA
and private U.S. companies have expressed interest in Aqaba
port issues); and,
-- more engagement from the U.S. to encourage active
Jordanian and Israeli measures to overcome transportation,
customs, and security impediments at the Sheikh Hussein
Bridge and at Aqaba.
GNEHM