US embassy cable - 03AMMAN3056

UNCLAS SECTION 01 OF 02 AMMAN 003056 
 
SIPDIS 
 
SENSITIVE 
 
STATE PASS USTR FOR NED SAUMS 
DOC FOR 4520/ITA/MAC/ONE/PTHANOS 
 
E.O. 12958: N/A 
TAGS: ETRD, EINV, ELAB, IS, JO 
SUBJECT: JORDAN QIZ UPDATE MAY 2003 
 
Sensitive but unclassified; please protect accordingly. 
 
1.  (u)  This message has been cleared by Embassy Tel Aviv. 
 
2.  (sbu)  Summary:  Putting war worries to rest, Jordan's 
QIZ exporters maintained solid growth throughout the first 
four months of the year and are bullish on prospects for the 
balance of 2003.  Both the government and private sector are 
exploring new programs to bring more trained local laborers 
into the QIZ labor pool, but exporters continue to complain 
of a severe shortage of skilled workers.  The SARS epidemic 
has had an uneven effect on QIZ exporters, restricting access 
to skilled Asian labor while simultaneously enjoying a shift 
of some orders out of SARS-affected areas and into Jordan. 
Exporters were badly hurt over the short term by widespread 
labor strikes in Israel, and are eager to see a plan 
developed that will mitigate the effects of any future 
Israeli labor unrest on the QIZ initiative.  We should 
encourage both the GOI and GOJ to come to such an agreement, 
using the upcoming U.S.-Israel Joint Economic Committee 
meeting as a venue to encourage this with the Israelis.  End 
summary. 
 
PRODUCTION BOOMING DESPITE WAR JITTERS 
 
3.  (u)  Before hostilities began in March, many local QIZ 
exporters and GOJ officials fretted openly and constantly 
about the potential effects of war in Iraq on QIZ exports, 
due to a prediction of limited access to shipping and 
potential order cancellations.  In the event, however, QIZ 
exports continued their impressive growth despite the war. 
Exports from the Al Hassan QIZ in Irbid in Q1 2003 rose 45% 
compared to Q1 of the previous year, and exporters in Dulayl 
and Tajammouat reported similar strong Q1 sales.  April's 
numbers, while more modest, still showed solid growth, 
including a 15% increase over April 2002 for Irbid and 
similar growth in Dulayl (numbers for Tajammouat 
unavailable).  Dulayl's park manager told us QIZ exports 
average $5 million per month now (about 3/4 of all exports 
for the Zarqa governorate), and should top $10 million per 
month by year end, when he expects a number of new companies 
and expansions to come on-line.  QIZ exporters expressed 
confidence that 2003 would be another solid year, noting that 
summer bookings are full and prospects for fall are good. 
 
GOVT, QIZ PARKS FILLING LABOR POOL 
 
4.  (u)  The GOJ announced in April that it would begin a 
targeted training effort to bring more skilled local workers 
into the QIZ labor market.  The project, which will be 
tendered to a private-sector training company and funded by 
the GOJ, aims to train 5,000 Jordanians to replace current 
expatriate workers in QIZ factories.  The program will also 
has a "train the trainer" component that will qualify nearly 
100 Jordanians to continue the program following the end of 
the contract.  (Note:  given current growth projections, 
these new positions should be easily absorbed by exporters 
without displacing current expat workers.  End note.) 
 
5.  (u)  Also in April, the Tajammouat QIZ announced the 
expansion of its successful "village workers" program, which 
has brought in workers from the south of the country to live 
and work in QIZ parks, with dormitory housing provided by the 
park management and funded by exporting companies.  The pilot 
program, which brought several hundred workers from the 
impoverished Tafileh region to work in Amman, was widely 
praised by exporters and the GOJ, and welcomed by the new 
workers themselves.  The program expansion will bring another 
100 workers into the zone. 
 
6.  (u)  As new workers enter the labor market, the SARS 
epidemic has begun to cause problems for some QIZ exporters, 
particularly start-up companies that hoped to rely on Chinese 
labor in their start-up phase.  In an effort to keep SARS out 
of Jordan, the GOJ currently bars entry into the country by 
any resident/citizen of WHO-recognized high-risk areas who 
does not carry a "SARS-free" certificate issued by a local 
Jordanian embassy.  Effectively, this has meant new Chinese 
workers have been unable to enter, and a small number of 
Chinese workers who traveled to China for vacation just prior 
to or during the SARS outbreak have been barred from 
returning.  Established exporters are taking the problem in 
stride, but a few start-ups have noted the development will 
set back their production schedules significantly. 
Meanwhile, the SARS outbreak has had a mild windfall effect 
on Jordanian exporters, as some buyers have begun to shift 
orders out of SARS-affected areas and into "safe" sourcing 
countries, including Jordan. 
 
EXPORTER CONCERNS - ISRAEL IS ISSUE #1 
 
7.  (sbu)  QIZ exporters have been complaining increasingly 
bitterly about the negative impact of labor strikes in Israel 
on their production.  As a direct result of the strikes, 
exporters reported over the past weeks a growing stack of 
unapproved QPR's (qualifying product registration - the 
document that allows them to ship under the QIZ program, and 
which must be approved by the Jordanian and Israeli trade 
ministries prior to import into the U.S.) and a total 
inability to contact Israeli authorities to shake them loose. 
 Israeli trade ministry officials confirmed to Embassy Tel 
Aviv that Israel's QIZ committee had not met during the 
strikes, but said they were now scheduling additional QIZ 
committee meetings to clear the backlog and should be caught 
up by the end of the week (May 23). 
 
8.  (sbu)  In addition to QPR delays, exporters complained 
that the strikes caused serious disruptions in their 
logistics chains - limiting access both to needed Israeli 
inputs and to border and port facilities to facilitate 
exports of finished goods.  At least one Jordanian exporter 
who works with an Israeli buyer said she had to close her 
production floor entirely for several days when fabric inputs 
from Haifa were unable to leave the docks as a result of 
strikes. 
 
9.  (sbu)  Exporters say that they have been unable to 
impress upon Israeli authorities the significance of the 
damage to this time-sensitive industry such delays cause, and 
have asked us to find creative ways to mitigate the impact on 
the QIZ's of future labor problems in Israel.  They have 
proposed getting the Israeli Embassy in Amman to be 
authorized to approve QPR's.  They have also asked the USG to 
grant QIZ exporters a 30 day "grace period" to submit 
supporting import documentation to claim QIZ status at U.S. 
entry points during times of Israeli labor unrest, in order 
to overcome delays on the Israeli side. 
 
10.  (sbu)  Finally, exporters continue to ask for our 
support in encouraging the Israeli and Jordanian governments 
to begin formal discussions to improve the current 
requirements for Israeli inputs.  Notably, exporters have 
stopped asking for a straight reduction from 8% value-added, 
and are instead urging the two sides to begin talks on a 
"sliding scale" of assessment for Israeli inputs, whereby 
lower-value goods require a higher percentage of Israeli 
inputs, and higher-value goods require a correspondingly 
lower percentage of Israeli inputs.  In any case, exporters 
are eager to see the two sides come to some sort of agreement 
before February, 2004, when the current "temporary" agreement 
to lower Israeli input percentages from 11.7% to 8% expires. 
Israeli trade ministry officials told Embassy Tel Aviv that 
formal talks were delayed by the government shake-up, but 
that formal meetings could take place in 2-3 weeks when 
Israel's and Jordan's trade ministers are scheduled to meet. 
Embassy Amman continues to encourage Jordanian MoIT to attend 
such a meeting, and has tracked the GOJ's "sliding scale" 
proposal first forwarded to the GOI through the Jordanian 
Embassy in Tel Aviv in spring 2002. 
 
11.  (sbu)  Comment:  The twin problems of lack of skilled 
labor and disruptions from internal issues in Israel are 
exporters' key concerns.  While we can try to be helpful in 
making the process more efficient (including perhaps finding 
a helpful role for the Israeli embassy here), it will 
ultimately be up to Israeli and Jordanian officials to work 
out arrangements to ensure the sustainability of the QIZ 
initiative even during times of labor unrest or other 
domestic problems in Israel.  Because of the political 
importance of the program to all sides, and the centrality of 
QIZ's in Jordan's future economic growth plans, we should 
impress upon both sides the usefulness of making such 
arrangements.  Embassies Amman and Tel Aviv note that the 
upcoming U.S.-Israel Joint Economic Committee meetings could 
be a useful venue for making that point, and will provide 
suggested points for concerned Washington agencies to raise 
during the meetings separately.  Concerning the input 
negotiations, Embassies Tel Aviv and Amman will continue to 
encourage both sides to begin formal talks as soon as 
possible. 
GNEHM