US embassy cable - 04ABUDHABI2205

UNCLAS ABU DHABI 002205 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR NEA, NEA/ARP, EB/TPP/ABT FOR HEARTNEY 
 
E.O. 12958: DECL 07/04/04 
TAGS: ETRD, KTEX, TC 
SUBJECT:  UAE PREPARES FOR TERMINATION OF TEXTILE QUOTAS 
 
REF: STATE 142338 
 
1.  (SBU) Summary and comment: Reftel letter was delivered 
July 4 to UAE Ministry of Economy Undersecretary Mohammed 
Jassim Al-Mizzaki, whose staff has queried Post numerous 
times about the elimination in 2005 of the UAE's textile 
quota to the United States.  Textiles are the UAE's single 
largest export to the United States and largest non-oil 
contributor to the federation's GDP.  Furthermore, 70 
percent of the UAE's textile production is exported to the 
United States.  UAE officials have expressed their concern 
about the UAE's trade deficit with the United States, and 
the expected decreased in 2005 of UAE textile exports to 
the United States due to increased competition from other 
low-cost textile producing countries (India, China and 
others) probably will raise the profile of this bilateral 
issue.  End summary and comment. 
 
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Turning Rags To Riches 
---------------------- 
 
2.  (U) Textiles and apparel have become big business in 
the UAE due to a confluence of factors, notably the U.S. 
quota system and the creation of manufacturing free zones 
in the UAE.  According to official UAE statistics, textile 
manufacturing represented approximately 10 percent of the 
UAE's GDP in 2003, thanks to the 180 garment factories here 
(including four weaving and spinning factories, and about 
33 factories engaged in the production of textile furniture 
accessories, bed sheets, pillows, etc.)  Ministry of 
Economy officials tell us that the textile sector is key to 
the UAE's efforts to diversify its oil-dependent economy. 
 
3.  (U) The number of textile manufacturers in the UAE has 
tripled since the mid-1990s, mostly due to the creation of 
the free zones in Dubai and the northern emirates.  Indian, 
Chinese and other traditional textile manufacturers moved 
to the free zones to take advantage of the UAE's existing 
textile quota with the United States, although wages here 
are relatively higher than the subcontinent and elsewhere 
in Asia.  We expect that some of these manufacturers will 
return to their homelands once the quota system is 
eliminated because of the other countries' lower production 
costs.  Indeed, the Ministry of Economy reports that some 
UAE textile manufacturers already have moved to Jordan 
because of the zero tariffs on textiles embodied in the 
U.S.-Jordan free trade agreement (FTA).  UAEG officials are 
optimistic, however, that these manufacturers will return 
when the UAE completes its own FTA with Washington. 
 
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Preparing For The Worst 
----------------------- 
 
4.  (U) For more than a year, the UAEG has sought to 
restructure its textile and apparel industry in 
anticipation of elimination of the quota system in 2005. 
At the January meeting of the Gulf Cooperation Council 
(GCC) Customs officials in January, the UAE called for the 
elimination of customs tariffs on textiles traded among the 
GCC countries.  In its statement to the GCC Secretariat, 
the UAEG stated that its textile sector would face many 
challenges in the coming year and it sought to remove any 
existing barriers to textile trading within the GCC as soon 
as possible.  The GCC members currently impose a 4 percent 
tariff on textile imports. 
 
5.  (U) In 2003, the Dubai Government announced the 
development of a $60 million textile free zone, called 
Dubai Textile City.  Once completed (expected October 
2005), Dubai Textile City will house nearly 200 textile 
manufacturers from all over the world.  Dubai officials 
hope that the textile free zone will confirm the emirate as 
the preeminent textile hub between Asia, Europe and the 
United States. 
 
6.  (U) This cable was coordinated with ConGen Dubai. 
 
Albright