US embassy cable - 05ABUDHABI3925

UNCLAS SECTION 01 OF 03 ABU DHABI 003925 
 
SIPDIS 
 
STATE FOR EB/TPP/ABT EDWARD HEARNEY, COMMERCE FOR ITA/OTEXA 
MARIA D'ANDREA, USTR FOR ABIOLA HEYLIGER 
 
E.O. 12958: DECL N/A 
TAGS: KTEX, ECON, ETRD, TC 
SUBJECT: TROUBLED UAE TEXTILES AND APPAREL SECTOR PINNING 
HOPES ON US-UAE FTA 
 
REF:A. State 146213 
    B. 04 Abu Dhabi 3427 
 
1. SUMMARY: The UAE textile industry is slowing down due to 
increased international competition sparked by the 
elimination of the worldwide textile quotas. The Ministry of 
Economy and Planning and senior officials from five textile 
factories in the Jebel Ali Free Zone (AlPine Creation, Fine 
Textiles Company, Emirates Textiles LTD., ATRACO Industrial 
and Carolina Fabrics LTD.) are anxious about current and 
future prospects of the UAE textile industry.  There are no 
direct measures by the UAEG to increase competition, 
although Dubai and Sharjah emirates encourage this sector 
through exhibitions and some new projects.  The UAEG has not 
implemented safeguards to reduce imports of Chinese 
textiles, and US safeguards to restrict the growth of 
Chinese import growth have no notable effect on the UAE 
textile and apparel export prospects.  The industry is 
counting on benefits from an anticipated FTA between the US 
and the UAE to maintain the industry as an important part of 
the UAE's manufacturing sector.  End Summary. 
 
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Updated Textile and Apparel Statistics 
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2. Official data for 2004 is not available regarding the 
total textile and apparel production. However, based on 
analysis of Central Bank information, the textile and 
apparel sector comprised an estimated 10.16 percent of the 
UAE non-oil economy.  In 2004,the total manufacturing 
industrial production in the UAE was 13.5 billion USD, which 
comprised 57.90 percent of the total industrial sector, 
according to the Ministry of Economy and Planning's 
statistics.  In 2004, textiles and apparel comprised 7.10 
percent of the UAE's imports, 4.82 percent of its non-oil 
exports, and 9.59 percent of the country's re-exports, based 
on estimated data by the UAE Central Bank. 
 
3. Analysis based on time series data for 2001 onward shows 
a negative slope in the trend of the percentage of textile 
and apparel's trade compared to total non-oil trade. The UAE 
yearbook reports that the UAE textile industry is valued at 
2.4 billion USD annually. Textiles are the second largest 
component of Dubai's economy, including imports and exports. 
 
4. According to statistics from Ministry of Finance and 
Industry and Ministry of Economy and Planning, in 2004, 
there were 231,275 individuals employed in the manufacturing 
sector, which comprised 9.40 percent of the total UAE work 
force. Of the manufacturing employees, 1.85 percent were 
employed in textiles (4,286 individuals), and 11.80 percent 
were employed in the apparel industry (27,297 individuals). 
 
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Anxiety Regarding International Competition 
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5. Textile and apparel manufacturers are very anxious about 
international competition as a result of the January 2005 
elimination of the worldwide textile quota. The main 
competitor countries for the UAE textile and apparel sector 
are China, India, Egypt, Bangladesh, Jordan and Kenya. As a 
result of international competition from these countries, 
local textile and apparel manufacturers have lowered the 
price of their products. One official from the Ministry of 
Economy stated that the demand by local textile and apparel 
manufacturers on certificates of origin has decreased, which 
indicates that fewer UAE companies are exporting products. 
 
6. Due to international competition, many factories have 
closed their businesses.  Between 2003 and 2005, 57 textile 
factories closed or relocated from the UAE to countries with 
lower costs and which receive preferential treatment from 
the US (such as Jordan and Bahrain, in order to take 
advantage of their FTAs with the United States) according to 
officials from the UAE-based Fine Textile Company. 
 
7. During March 2005 meetings between US FTA textile 
negotiators and officials from three textile factories in 
the UAE's Jebel Ali Free Zone, company executives noted that 
they are pessimistic about the future of the textile 
industry in the UAE. They see the UAE textile industry as 
unable to compete with China, India and Bangladesh because 
of higher costs in the UAE, particularly with regard to 
labor and electricity. Officials from Emirates Textiles 
Limited said that because of competition in the local market 
and low demand for export, the factory produces less than 
its full production capacity and sells its products in the 
UAE market below cost. Company officials pointed out that 
many textile factories in Jebel Ali have closed.  Twelve 
textile factories recently relocated their business from 
Jebel Ali to other countries.  The number of textile 
factories in Jebel Ali has decreased from 150 to 95 during 
the last four years. One company source said that unless the 
UAE government takes measures to protect the local textile 
industry, their business will close down in the UAE. 
 
 
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Measures to Face International Competition 
------------------------------------------- 
 
8. There are no direct measures by the UAE government or 
private industry to increase textile industry 
competitiveness in international markets.  The Dubai and 
Sharjah governments, however, are assisting this sector by 
sponsoring exhibitions, which attract many international 
textile and apparel manufacturers. The International Middle 
East Exhibition for Textile, Embroidery and Sewing Machinery 
and Accessories (ITCE Dubai 2004) was held in September 
2004, and coincided with its partner show, Middle East 
Fashion Textile, Leather and Accessories Exhibition (MOTEXHA 
2004), the Middle East region's largest Fashion and Textile 
trade fair. MOTEXHA was held September 12-15, 2004, and 
featured more than 500 exhibitors from 36 countries. 
Another four-day textile exhibition, "Texpo", was held at 
the Expo Center in Sharjah this week.   Additionally, in 
2004, Dubai Government launched a USD 60 million "Textile 
City" to promote this sector. Textile City will be completed 
before the end of 2005, and the first phase of the project 
had already been rented out to more than 90 investors. 
Officials hope that Textile City will make Dubai a textile 
industry hub between Asia, Europe and the US. 
 
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Safeguards to restrict imports from China 
--------------------------------------- 
 
9. Ministry of Economy contacts stated that the UAE 
Government has not implemented safeguards or measures to 
reduce the growth of imports of Chinese textile products 
into the UAE. One official said that this issue might be 
discussed through the upcoming FTA negotiations between GCC 
states and China. 
 
10. Ministry of Economy and private sector reps say that so 
far the US safeguards to restrict the growth of Chinese 
imports and the European Agreement with China to limit 
import growth of certain textile and apparel products have 
had no notable effect on the UAE textile and apparel export 
prospects, but they agreed that such measures will enhance 
future export prospects. Business leaders from across the 
garment manufacturing industry in the UAE assembled for the 
Texpo exhibition in Sharjah this week to explore and 
interact on trade opportunities arising out of the US and 
European Union decision to impose restriction on certain 
categories of textile and clothing from China, according to 
the Emirates News Agency (WAM). 
 
 
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Impact on Labor 
--------------- 
 
11. The majority of laborers in the textile sector are 
expatriates, and the closure of textile and apparel 
factories and businesses required these workers to leave the 
country for a minimum of 6 months before they can be re- 
employed by a new company.  Consequently, many textile 
workers have remained illegally in the country. Ministry of 
Economy sources report that some companies have retained 
employees on the payroll in hopes of re-opening businesses, 
but have stopped paying employee salaries. 
 
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Expected Benefits from a US/UAE FTA 
------------------------------------ 
 
12. Textile and apparel producers believe that an FTA 
between the US and UAE will enhance textile exports to US 
markets by providing preferential advantages and lowering 
tariffs on UAE textile exports to the US. In addition, an 
FTA would allow cheaper import of some materials from the 
US, such as rolls of yarn. Manufacturers believe that the 
anticipated FTA would enhance the UAE textile and apparel 
sector by lowering tariffs on UAE textile and apparel 
exports to the US.   Textile and apparel industry sources 
have stated their concern that many factories in the UAE 
will close down if US/UAE negotiations are not successful. 
 
13. Textile and apparel industry contacts noted that some 
closed factories are renewing their commercial licenses, 
awaiting the outcome of the FTA negotiations.  Ministry of 
Economy officials claim that UAE textile and apparel 
producers will develop their infrastructure once the US and 
the UAE sign an FTA. 
 
14. Comment:  The textile sector in UAE is slowing down due 
to international competition, but is pinning its hopes of 
revival on the conclusion of a US-UAE FTA. 
 
SISON