US embassy cable - 05CAIRO7147

UNCLAS SECTION 01 OF 03 CAIRO 007147 
 
SIPDIS 
 
STATE FOR NEA/ELA, NEA/RA 
STATE FOR EB/TPP/ABT HEARTNEY 
USTR FOR HEYLIGER 
COMMERCE FOR ITA/OTEXA/ANDREA 
USAID FOR ANE/MEA MCCLOUD 
 
E.O.  12958: N/A 
TAGS: KTEX, ECON, ETRD, EINV, EG, USTR 
SUBJECT: TRACKING CHANGES IN TEXTILES AND APPAREL EMPLOYMENT 
AND PRODUCTION AFTER QUOTA ELIMINATION 
 
REFS:  A)STATE 146213  B) 04 CAIRO 07291 
 
1.   The following data responds to ref A request for 
specific data and information on textiles and apparel 
production, trade and employment. 
 
--------------------------- 
Total Industrial production 
--------------------------- 
 
Figures are for Egyptian fiscal year (July-June); 
conversion based on a LE5.8/USD exchange rate. 
 
2003/2004           2004/2005 
---------           --------- 
$47.50 billion      $49.26 billion 
 
------------------------------------- 
Total textiles and apparel production 
------------------------------------- 
 
Updated data for 2004-2005 is not available.  Figures are 
for Egyptian fiscal year (July-June) and by quantity, not 
USD value.  Textiles production data includes cotton yarn, 
wool yarn, silk yarn and artificial fibers. 
 
                         2002/2003   2003/2004 
                         ---------   --------- 
Textiles (thous. tons)   409.2       402.8 
Blankets (mill. pieces)   15.0        15.5 
Apparel  (mill. pieces)   277.0       286.4 
 
 
--------------------------------------------- -------------- 
Textiles and apparel's share of Egypt's imports and exports 
--------------------------------------------- -------------- 
 
Total represents the share of textiles and apparel trade in 
Egypt's imports and exports.  Figures are for calendar year. 
2005 figures cover period first quarter (January-March). 
 
            IMPORTS                 EXPORTS 
          2004   2005             2004   2005 
          ----   ----             ----   ---- 
Textiles  0.50%  0.58%             4.06%  5.29% 
Apparel   0.58%  0.29%            2.29%  2.20% 
Total     1.08%  0.87%            6.34%  7.49% 
 
------------------------------ 
Total manufacturing employment 
------------------------------ 
 
Updated data is not available.  Available figures are for 
workers in industry and mining in fiscal years.  According 
to a broader definition of commodity sectors -- which 
includes industry and mining, petroleum and products, 
electricity and water and construction -- the figures reach 
as high as 4.2 million workers in 2001/01 and in 2001/02 and 
4.3 million workers in 2002/03. 
 
2000/2001      2001/2002 
---------      --------- 
2.1 million    2.2 million 
 
--------------------------------------------- --------- 
Total textiles employment and total apparel employment 
--------------------------------------------- --------- 
 
According to an August 2004 study conducted by the American 
Chamber of Commerce in Egypt (AMCHAM) and anecdotal 
information from contacts in the sector, the total number of 
workers in the textiles/apparel sector (formal/informal and 
public/private sectors) is about one million.  Official 
detailed data on the number of workers in the textiles and 
apparel sectors is not available. 
 
2.  Are host country producers receiving lower prices due to 
heightened international competition?  Have the 
manufacturers received more, less, or the same number of 
orders as in years past?  Have foreign investors, including 
Asian investors, closed factories or otherwise pulled out of 
local production? 
 
-- Official information regarding prices and orders received 
by producers following the elimination of textiles quotas is 
not available.  There have been no reports of factories 
closing down and pulling out of local production because of 
increased international competition. 
 
3.  Have the U.S. safeguards or the EU deal affected the 
export prospects for your host country manufacturers?  Has 
your host government implemented, or is it considering 
implementing safeguards or other measures to reduce the 
growth of imports of Chinese textiles and apparel products 
into the host country? 
-- The U.S. safeguards and EU deal have not immediately 
affected export prospects for Egyptian manufacturers due to 
the preferential treatment the latter receive under the QIZ 
and European-Egyptian Association agreements.  The Egyptian 
Ministry of Foreign Trade and Industry (MOFTI) is allowing 
U.S. and European manufacturers to register their overseas 
factories producing goods under U.S. labels and to export 
those goods into Egypt.  Imports of brands not 
internationally known face stricter registration 
requirements.  Importers must demonstrate through a 
certification process that the foreign factories comply with 
international labor and environmental standards and follow 
customary rules of origin procedures.  These effect of this 
certification process appears aimed at limiting low quality 
goods from Asian countries, especially China. 
 
4.  Has increased global competition affected local labor 
conditions by causing employers to reduce wages, seek 
flexibility from government-required minimum wages, or 
adversely affected union organizing? 
 
-- Wages, local labor conditions and union organizing in 
Egypt are regulated by labor law 12 of 2003.  There have no 
reports of employers seeking reductions in compensation for 
workers due to the increased global competition in textiles 
and garments production. 
 
5.  Has the government or private industry taken action to 
increase the host country's competitiveness, such as 
improving infrastructure, reducing bureaucratic 
requirements, developing the textiles (fabric production) 
industry, moving to higher value-added goods, or identifying 
niche markets.  Does post think that the host government or 
private industry's strategy will be successful?  If host 
government is the partner in a free trade agreement or a 
beneficiary of a preference program such as AGOA, CBTPA, or 
ATPDEA, will this be sufficient for the country to remain 
competitive?  Overall, if not already addressed, does post 
think that the host country can be competitive in textiles 
and apparel exports with the end of global textiles and 
apparel quotas? 
 
-- A research paper by the Institute for International 
Economics titled "Egypt after the Multi-Fiber Arrangement: 
Global Apparel and Textile Supply Chains as a Route for 
Industrial Upgrading" analyzes the competitiveness of 
Egypt's textile and apparel sector and its future prospects 
(http://www.iie.com/publications/wp/wp05-8.pd f). According 
to the paper "it has been suggested that in the post-MFA 
era, relative proximity to the European market could be a 
source of competitive advantage to Egyptian producers. 
Application of a formal supply chain model finds that could 
indeed have an impact on competitiveness, but the effect is 
not tremendous, amounting to a 0.3 to 0.9 increase in 
profits for every week improvement in lead times.  The 
business environment in Egypt continues to lag a number of 
competitor countries, though recent reforms are addressing a 
number of these constraints on competitiveness." 
 
-- The MOFTI has taken steps since the appointment of the 
new Minister in July 2004 to improve the investment climate 
and reduce bureaucratic processes impeding manufacturers, 
especially in the textiles and garments sector.  Several 
initiatives have been implemented through the Industry 
Modernization Program co-funded by the European Union to 
improve the textiles industry and increase its 
competitiveness.  Egypt has also signed the QIZ agreement in 
December 2004, which allows duty free entry of goods to the 
U.S. for goods with qualifying Israeli and Egyptian content 
ratios.  The Egyptian garments industry has been the main 
beneficiary of this agreement, as it allows manufacturers to 
compete with low-cost Chinese products. 
 
-- The Egyptian textiles and ready made garment industry has 
the potential to increase its competitiveness and exports to 
foreign markets.  It will require Egyptian manufacturers to 
increase their productivity and efficiency and take 
advantage of Egypt's proximity to major markets in Europe 
and the U.S. and the beneficial treatment accorded Egypt in 
agreements with these trading partners.  The existing 
preferential trade agreements with the U.S., including the 
GSP and the QIZ, are not solely sufficient for Egypt to 
remain competitive, but do create the opportunity for Egypt 
to reform its industry, investment climate and export-import 
processes to increase its competitiveness and take an active 
role in increasing its share in the textiles and garments 
international trade.  Major garment producers are well aware 
of these issues and are undertaking steps to improve 
productivity and quality. 
 
RICCIARDONE