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Last Updated: Friday, 10 June, 2005, 17:01 GMT 18:01 UK
Egypt-Israel textile ties spark controversy
By Malcolm Brabant
BBC News, Giza

Textile workers at the Giza Spinning and Weaving in Giza, Egypt
Increased business could help ease Egypt's unemployment
A US trade scheme which boosts Egyptian firms - but only if they link up with Israeli businesses - has divided opinion in Egypt.

Supporters say Egypt's vulnerable textile industry has been given a much-needed boost by the scheme.

But critics accuse the US of interference and say partnership with Israeli firms is wrong while Palestinian lands remain occupied.

The programme is designed to bolster the Middle East peace process and improve economic ties between Egypt and Israel.

This time last year, the future of textile firms had been looking bleak because of the end of a system which helped the Egyptians export to the US.

They faced a free-for-all, competing against Asian manufacturers with cheaper labour costs, as well as having their products loaded with a 16% levy.

But then the US created a system of qualified industrial zones, or QIZs, a scheme that enables companies with Israeli partners to obtain tax-free access to US market.

Tough conditions

At the Giza Spinning and Weaving company just outside Cairo, business is booming. The knitting machines, creating fabrics that will dress America in smart-casual clothes, have never been busier.

The factory produces cotton garments for US stores such as Old Navy, Gap and Wal-Mart.

"Our turnover last year was $31m (17m), and our target this year is $40m," says Ayman Rateb, the company's marketing director.

Fadel Marzouk, chief executive of the Giza Spinning and Weaving in Giza, Egypt
This issue has no relation to the Palestinian problem
Fadel Marzouk
Giza Spinning chief executive

"Now, we can compete with Pakistan, now we can compete with Bangladesh and most of the Far East. Everyone is trying to compete with China, but nobody can compete with China."

The scheme should at least ease Egypt's unemployment burden. About 10% of the nation's labour force is out of work, and each year Egypt has to find 800,000 new jobs for young people leaving education.

But the scheme has outraged some of the country's more militant Islamists, who resent what they see as the US imposing its will on the region.

"The Israelis will never, ever be accepted on a personal level, and on the commercial level," says Mohamed Morsi, an MP who belongs to the Muslim Brotherhood.

"The Israelis are still occupying the Palestinian lands, they are shedding Palestinian blood. And the Americans are helping the Israelis with weapons and political positions."

'Already partners'

Many argue that without such partnerships, scores of Egyptian businesses could collapse and a serious unemployment problem would be made even worse.

This is not a convincing argument as far as Mr Morsi is concerned.

"Only a minimum number of jobs would be affected. You are talking about maybe 50,000 jobs at the most. And we have more than five million people on the streets without jobs. These companies can find better markets in the East."

At Giza Spinning, the Israelis supply dyes, chemicals and other materials. The rules demand that Israeli products account for 12% of the finished article.

Textile workers at the Giza Spinning and Weaving in Giza, Egypt
There is still sensitivity in Egypt about co-operation with Israel

Anticipating increased profits, the company is looking to hire hundreds more workers.

Fadel Marzouk, the company's chief executive, believes the Muslim Brotherhood arguments are not shared by the majority of Egyptians.

"Israel is already our partner because we have had a peace agreement since 1979 and we have no problem or issue with Israel. We have become stronger partners right now," he says.

"This issue has no relation to the Palestinian problem. It's a business relationship between the Israeli economy and the Egyptian economy.

"I think it is a positive development and will encourage the economy."

About 400 Egyptian companies now belong to the QIZ programme, 90% of them in textiles.

Some Egyptian businessmen complain about the cost of components from Israel, where living standards and therefore salaries are higher.

But scores of firms are signing up each week because they recognise the dividends for business and peace.

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