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Cairo carpet maker sees free trade unravel

Rising protectionism in the U.S. and Europe is squeezing the global textile industry.

March 20, 2009|Jeffrey Fleishman

CAIRO — As whispers of protectionism began to unsettle the export-import business, Oriental Weavers, one of the world's largest carpet makers, reset its looms and recast its prices to compete in an increasingly bargain-conscious U.S. market.

The Cairo-based company fared relatively well over an 18-month period as the U.S. housing crisis spread and oil prices soared. But its sales to America have since slipped, forcing it to look toward emerging markets in Asia and former Soviet republics. This comes as rising protectionist sentiments in Washington and Europe have added new pressure to the already strained international textile industry.

"The margins are shrinking. Everyone is worried," said Farida Khamis, vice president for corporate finance at Oriental Weavers. "Our fear is global spending will shrink more and more."

Cheap labor and tax breaks have helped Oriental Weavers endure the downturn even as four of its main competitors, including companies in Turkey and Belgium, have gone bankrupt since January. Open markets and globalization are being squeezed by national interests, which can mean bad tidings for poor, labor-intensive nations such as Egypt, a major textile exporter for decades.

The pressure was articulated by Mohamed Qassem, chairman of World Trading Co., a textile corporation based in Cairo, who recently pressed Egypt for more help to deal with a protectionist mood in India, where the government has cut interest rates and is investing $4 billion in textile and garment industries.

Similar pleas have echoed across other developing countries, which have emphasized to the Obama administration the need for free trade to reverse the United States' economic fortunes.

It's been a sobering time amid the whoosh-click of the looms and thick spools of wool from New Zealand and Libya. Oriental Weavers, a family-controlled company that supplies IKEA and had a contract to carpet the Hard Rock Cafe in Las Vegas, watched exports drop to 60% of its total sales in 2008 from 67% in 2007. To compensate, it increased sales at home by targeting resorts and the upper-middle-class suburbs burgeoning outside Cairo; it recently announced price cuts of as much as 15% to improve its hand in the U.S.

"We have to keep on reinventing," Khamis said.

The recent decline in oil prices allowed Oriental Weavers to reduce its prices, but it nonetheless encounters obstacles in the U.S. as politicians and unions call for protectionism as a means to prevent the loss of tens of thousands of American jobs. The company, which has plants in the U.S. and China, is accustomed to looking for niches, including modestly priced nylon carpets that resemble Iranian silk.

"We've hedged and diversified," Khamis said. "We don't want to have all our eggs in one basket."

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jeffrey.fleishman@latimes.com

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