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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

`