US embassy cable - 04AMMAN9945

UNCLAS SECTION 01 OF 02 AMMAN 009945 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR NEA/LEA 
STATE PASS TO USTR 
 
E.O. 12958: N/A 
TAGS: ETRD, PREL, KTIA, JO 
SUBJECT: QIZ'S PRESS GOVERNMENT; EDGY ABOUT EGYPTIAN QIZ'S, 
MFA, PORT ACCESS, TRUCKERS "DISRUPTION" 
 
SENSITIVE BUT UNCLASSIFIED.  FOR USG USE ONLY. 
 
1.  (SBU)  SUMMARY:  In an unprecedented series of meetings 
with high government officials, Qualifying Industrial Zone 
(QIZ) factory owners and zone operators have been pushing 
hard for reforms in key areas affecting their operations, 
from paperwork to Aqaba Port congestion to handling of a work 
"disruption" by a truckers' cartel in Aqaba.  With the 
impending end of apparel quotas and consequent loss of a 
major QIZ advantage taking its toll, QIZ businesses are 
talking about pulling up stakes and relocating to countries 
where the costs in time and money are fewer or more 
predictable.  The new Egyptian QIZs are cited as one 
attractive site, given their lower wages.  The government of 
Jordan is listening -- right up to the highest levels.  The 
trade minister met with 21 QIZ owners on December 14.  The 
King is meeting with a QIZ group on December 22 to review 
progress since a meeting in mid-October.  While the GOJ has 
the political will to take action, the clock is ticking as it 
transforms its transport sector and governmental services to 
be more accommodating to the highly competitive garment 
industry that is undergoing a sea change after the expiration 
of the Multi-Fiber Arrangement (MFA).  It will take a major 
commitment to do enough on time;  at stake is Jordan's USD 1 
billion garment export industry and tens of thousands of 
jobs.  END SUMMARY. 
 
2.  (SBU)  Minister of Industry and Trade Ahmad Hindawi met 
with 21 QIZ factory owners and zone operators on December 14 
to review the government's action on a two-week-old work 
disruption by the Jordan Truck Owners Association (for all 
the puffing, the so-called strike in fact has had no impact 
on truck operations, which continue unabated according to 
Jordan,s Transport Minister).  While listening in daily 
negotiations to the truckers' demands to keep a ticket queue 
system that guarantees work to all independent carriers but 
stifles competition, the government has decided to stand by a 
decision to exempt from the system trucks carrying QIZ 
containers, according to multiple sources.  The containers 
carry mostly raw inputs -- cloth, yarn, and thread -- from 
the Far East that are transformed in QIZs into garments.  QIZ 
factories have for months expressed their dismay at the 
first-come-first-served ticket queue system that did not 
reward efficient cargo handling or timely delivery.  Truckers 
were known to disappear with a QIZ load for days at a time 
while they sold Aqaba duty-free goods along the way or went 
home to visit family.  After the late delivery, they could go 
back to Aqaba, get another ticket and start all over again. 
Under the new system now in operation, QIZ factories can 
select the trucking company they contract to take their 
containers under a direct appointment system at the port. 
For those factories still using Aqaba, the "system is much 
better" said a manager from Camel Factory in southern Kerak, 
which relies heavily on Aqaba. 
 
Government Steadfast 
-------------------- 
 
3.  (SBU)  A senior MOIT official told us December 14 the 
government was steadfast behind its decision to exempt QIZ 
loads from the ticket queue system and that this was 
supported by the GOJ cabinet.  Owing to the absence of the 
Prime Minister, he said, GOJ negotiators from Labor and Trade 
ministries were staying low-key.  When the PM returns, expect 
a "more forceful" approach, said the MOIT official. 
 
QIZs Going to Dubai 
------------------- 
 
4.  (SBU)  In the meantime, QIZ operators have been paying 
about three times more than the cost through Aqaba to get 
their raw inputs via land transport from Jabal Ali port in 
Dubai.  Over a year, they are spending tens of millions of 
dollars extra above what land transport costs from Aqaba. 
But they also avoid Aqaba port congestion and can predict 
when their inputs will arrive.  A typical Jordanian QIZ 
shipping via Dubai can make an order for cloth from Shanghai 
port and predict its arrival to within a day about a month 
later, according to factory logistics managers.  Aqaba port, 
apart from being farther away from Shanghai and supported 
mainly by feeder ships out of Jeddah, is taking ten days on 
average to clear QIZ containers from a docked ship. 
Jordanian truck owners continue to press for their "fair" 
ticket system with new "guarantees," paying little heed to 
the fact that 80 percent of QIZ factories have already voted 
with their feet to predictable Dubai. 
 
5.  (SBU)  The Aqaba Development Corporation (ADC) and the 
Aqaba Container Terminal (now under the contracted private 
management of AP Moller Terminals) are trying hard to address 
these and other processing problems to attract back the 
"lead-time" driven QIZ garment industry.  In a seminar 
December 14, ADC's dynamic CEO, Imad Fakhoury, led a pitch 
showing all of the improvements the port has made.  However, 
he said it would take another six to eight weeks before a 
container could be unloaded and on a truck in just seven 
days;  for now this "dwell time" is 12 days.  They are 
spurred to act rapidly by news that the Haifa Port may go on 
strike in early February, which could cause major problems 
for QIZs' access to the U.S. during the peak season in 
February/March.  (Only a small fraction of QIZs use Aqaba for 
exports -- to transport goods to the U.S., preferring ships 
sailing directly to the eastern U.S. seaboard out of Haifa.) 
 
6.  (SBU)  ADC and the Aqaba Special Economic Zone Authority 
are examples of GOJ efforts to correct 25 years of 
traditional trading practices in Jordan.  The remainder of 
the GOJ bureaucracy will have to follow suit, according to 
GOJ officials, if QIZs are to stay and thrive.  One QIZ zone 
operator said that Egyptian labor costs will save a factory 
at least USD 200,000 a month.  Proposals for cost savings 
include better water service, more affordable electricity 
distribution, and escaping Jordanian Customs' requirements 
for letters of credit on raw inputs.  (Hundreds of thousands 
of dollars in operating capital sit idly in order to meet 
this Customs requirement, meant to guarantee that a raw input 
will be transformed into a product and exported.) 
 
7.  (SBU)  King Abdullah plans to meet with the QIZ group on 
December 22 to measure progress made since his last meeting 
with them in mid-October.  One QIZ owner said she will raise 
the lack of adequate air cargo planes from Jordan to handle 
QIZ exports on a short-fuse order.  Virtually all of the QIZ 
factory owners are confident of one thing, however:  Jordan 
is committed to being competitive in the international 
garment industry.  As Imad Fakhoury told them at the ADC 
seminar, "We will do whatever it takes to make Jordan a 
world-class operation." 
HALE