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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 01:00 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