US embassy cable - 03AMMAN2212

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 002212 
 
SIPDIS 
 
STATE PASS USTR FOR NED SAUMS 
USDOC FOR 4520/ITA/MAC/ONE/PTHANOS 
 
E.O. 12958: DECL: 04/08/2013 
TAGS: ETRD, IZ, JO 
SUBJECT: QIZ'S WEATHERING WAR WELL - FOR NOW 
 
REF: A. AMMAN 2072 
     B. 01 AMMAN 5288 
 
Classified By: AMBASSADOR EDWARD W. GNEHM, REASONS 1.5 (B,D) 
 
1.  (u)  This cable has been coordinated with Embassy Tel 
Aviv. 
 
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SUMMARY 
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2.  (sbu)  There is little evidence of systemic negative 
impacts on the QIZ's from the war, although there have been 
isolated instances of order cancellations.  Although the 
government is concerned that cancellations may mount and new 
orders stall, more disconcerting to exporters was the 
days-long closure of the Sheikh Hussein bridge due to Israeli 
customs strikes.  While we continue to be optimistic about 
the ability of QIZ's to get through the current crisis, the 
impact of the strikes is likely to encourage QIZ exporters to 
switch from QIZ to FTA exports, once tariff breaks equalize. 
End Summary. 
 
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QIZ's REPORT FEW PROBLEMS FROM WAR 
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3.  (sbu)  We have regularly canvassed QIZ exporters, park 
managers, and the Trade Ministry since the beginning of the 
war to track any impact on QIZ businesses.  In the run-up to 
the war, Costandi Yaghnam of El Zay menswear (a suit 
manufacturer) informed us of a decision by one of his clients 
to cancel a substantial order.  It remains unclear, though, 
after follow-up activities by the Embassy, Washington 
agencies, and the Jordanian Embassy in Washington, whether 
this cancellation was a result of war uncertainty or a more 
straightforward business decision. 
 
4.  (sbu)  We also received word from one QIZ exporter at Al 
Tajammouat industrial park outside Amman that several April 
orders from one of his U.S. importers had been canceled due 
to war uncertainty.  This same exporter later told us that 
"the worst has passed," and that he is fully booked for May 
orders from the same client, and he expects a good summer 
season.  He added that the lack of noticeable impact from the 
war on QIZ exports has served to bolster both importer and 
exporter confidence about continuing business. 
 
5.  (sbu)  Aside from these two cases, we have uncovered no 
significant negative impact from the war on current QIZ 
exports.  Air and sea freight charges have increased, but 
insurance companies have not imposed war risk insurance.  Sea 
and air ports remain open, and there has been no labor unrest 
or other demonstration activity at QIZ parks to slow the work 
of exporters (though exporters report a glum mood among 
Jordanian staff as a result of the war).  We have heard from 
at least one park manager and one independent QIZ watcher 
that expressions of interest from potential new investors are 
still coming in, and the manager of the Al Tajammouat park 
tells us construction and make-ready for newly-contracted 
factory space continues on schedule.  In addition, the 
regional Target representative based in Cairo told us her 
company continues to place orders in Jordan and views the QIZ 
initiative very favorably. 
 
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PM VOICES CONCERN 
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6.  (c)  Prime Minister Abul Ragheb told the Ambassador April 
6 that an increasing number of reports were surfacing of 
canceled QIZ orders and reduced volumes of new orders (ref 
a).  Trade Minister Bashir reiterated those concerns to the 
Ambassador on April 8.  The Ambassador told both the PM and 
Trade Minister that we have received a few reports of order 
cancellations (noted above), but that the volumes were not 
yet unexpectedly high.  The Ambassador assured the ministers 
that we are keeping close, regular tabs on QIZ developments, 
and that Washington agencies have already met with U.S. 
garment importers to impress upon them our continued support 
for the QIZ initiative.  He added that both Washington 
agencies and the Embassy have offered to talk to any U.S. 
importers who have concerns or questions about the QIZ's. 
 
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STRIKES - THE REAL ISSUE 
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7.  (sbu)  Of far more concern to QIZ exporters is a strike 
by Israeli customs employees that has crippled traffic across 
the Sheikh Hussein bridge in both directions for more than a 
week.  A number of QIZ exporters have complained to us that 
they are unable to import necessary Israeli product inputs to 
complete outstanding orders.  One factory owner said he was 
temporarily operating at half-staff pending delivery of an 
order of Israeli zippers need to fill his 8% quota and finish 
his order.  According to park managers, trucks loaded with 
outbound cargo are increasingly visible outside factories, 
where they have been waiting for several days to get 
clearance to cross to Israel to continue on to Haifa. 
Meanwhile, Israel's Deputy Head of Customs spoke out very 
strongly against strikes impacting QIZ business in 
conversations with Tel Aviv ECONOFF April 4.  He said it was 
in Israel's national interest that this trade move forward 
and that he would speak to the appropriate Histadrut (union) 
people about it.  According to Jordanian bridge officials, 
bridge traffic was still severely restricted as of April 8, 
with only a handful of trucks cleared (though 80 trucks 
cleared on April 7). 
 
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COMMENT 
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8.  (sbu)  Trade Ministry officials told us April 9 that 
their chief concern is not cancellations, but a slowdown in 
new orders for the summer based on a perception of regional 
instability from the war - a perception that is keeping 
critical Quality Control and Compliance officers from 
visiting Jordan to supervise orders.  We are talking to the 
Ministry to ascertain their approach to building importer 
confidence, and will coordinate a strategy with Washington to 
support their efforts. 
 
9.  (sbu)  Meanwhile, the problems at the bridge - while 
unconnected to the war - have put both QIZ exporters and the 
GOJ on edge.  This is not the first bridge closure related to 
Israeli labor issues (ref b), and it underscores the degree 
to which the Jordanian and Israeli textile sectors have 
become entwined through the QIZ initiative.In the long term, 
the problems caused by the strikes are likely to drive QIZ 
exporters to export more goods under the FTA as soon as 
tariff benefits under the two programs approach parity.  This 
switch to FTA export is even more likely when one factors in 
the production cost savings of using Asian, rather than 
Israeli, inputs.  Israel may find itself scrambling to keep 
QIZ business as time goes on, barring changes to their price 
structure, improved reliability of bridge access, and/or 
changes to the way the Israeli inputs are calculated (i.e., 
either reducing the 8% requirement or moving to a sliding 
scale that would allow more expensive garments to have a 
lower percentage of Israeli content, either of which would 
reduce QIZ production costs). 
GNEHM