Qualifying Industrial Zone
Encyclopedia
Free trade zone
A free trade zone or export processing zone , also called foreign-trade zone, formerly free port is an area within which goods may be landed, handled, manufactured or reconfigured, and reexported without the intervention of the customs authorities...
s established in collaboration with Israel to take advantage of the free trade agreements between the United States and Israel. Under the trade agreements with Jordan as laid down by the United States, goods produced in QIZ-notified areas can directly access US markets without tariff
Tariff
A tariff may be either tax on imports or exports , or a list or schedule of prices for such things as rail service, bus routes, and electrical usage ....
or quota
Import quota
An import quota is a type of protectionist trade restriction that sets a physical limit on the quantity of a good that can be imported into a country in a given period of time....
restrictions, subject to certain conditions. To qualify, goods produced in these zones must contain a small portion of Israeli input. In addition, a minimum 35% value to the goods must be added to the finished product.
The brainchild of Jordanian businessman Omar Salah, the first QIZ was authorized by the United States Congress
United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
in 1997. The Al-Hassan Industrial Estate in Irbid
Irbid
Irbid , known in ancient times as Arabella or Arbela , is the capital and largest city of the Irbid Governorate. It also has the second largest metropolitan population in Jordan after Amman, with a population of around 660,000, and is located about 70 km north of Amman on the northern ridge of...
in northern Jordan was designated as the world's first QIZ under the agreement. Since 1998, several other QIZ locations have been set up in Jordan, and later in Egypt. The idea behind the establishment of QIZs was to foster a sense of prosperity and stability in Middle East
Middle East
The Middle East is a region that encompasses Western Asia and Northern Africa. It is often used as a synonym for Near East, in opposition to Far East...
through economic cooperation and employment.
Qualifying Industrial Zones differ from other trade zones as they are stand-alone entities within one country and not directly connected to other countries. In addition, QIZ products are for exports and domestic consumption in any country, not limited to specific countries, and most importantly operate only under the authority and conditions laid down by the host government.
, there are five Qualifying Industrial Zones in Jordan and four QIZ designated regions in Egypt.
History
Irbid
Irbid , known in ancient times as Arabella or Arbela , is the capital and largest city of the Irbid Governorate. It also has the second largest metropolitan population in Jordan after Amman, with a population of around 660,000, and is located about 70 km north of Amman on the northern ridge of...
in northern Jordan, to take advantage of low labor costs that were forty to seventy percent lower than in Israel. Salah had envisioned that by exploiting Israeli resources such as labor, finances, and contacts, and then leveraging it to produce value-added goods, the economy of Jordan would be benefited. In addition, he surmised that economic cooperation between the two nations would help foster peace in the region.
Additional business ventures followed and Salah then set up a public share-holding company Century Investments. For doing business with Israel, many Jordanian organizations criticized Salah and boycott
Boycott
A boycott is an act of voluntarily abstaining from using, buying, or dealing with a person, organization, or country as an expression of protest, usually for political reasons...
ed the purchase of output in Jordan. Despite the heavy criticism, Salah nevertheless received tacit support from King Abdullah
Abdullah II of Jordan
Abdullah II ibn al-Hussein is the reigning King of the Hashemite Kingdom of Jordan. He ascended the throne on 7 February 1999 after the death of his father King Hussein. King Abdullah, whose mother is Princess Muna al-Hussein, is a member of the Hashemite family...
of Jordan. To combat the boycott, Salah began to work with multinational
Multinational corporation
A multi national corporation or enterprise , is a corporation or an enterprise that manages production or delivers services in more than one country. It can also be referred to as an international corporation...
s with a larger international stake. He then actively lobbied the Jordanian government to set negotiate a free trade agreement with the United States on the lines of the United States-Israel Free Trade Area Implementation Act of 1985. Faced with little enthusiasm by the Jordanian government, Salah scrutinized the Presidential Proclamation (No. 6955) that was part of the Palestinian agreement signed between the Palestine Liberation Organization
Palestine Liberation Organization
The Palestine Liberation Organization is a political and paramilitary organization which was created in 1964. It is recognized as the "sole legitimate representative of the Palestinian people" by the United Nations and over 100 states with which it holds diplomatic relations, and has enjoyed...
and Israel in 1993. In the agreement, the areas on the border between Israel and Jordan were designated as "Qualifying Industrial Zones", and goods produced here would not have tariff
Tariff
A tariff may be either tax on imports or exports , or a list or schedule of prices for such things as rail service, bus routes, and electrical usage ....
and quota
Import quota
An import quota is a type of protectionist trade restriction that sets a physical limit on the quantity of a good that can be imported into a country in a given period of time....
restrictions to the US markets. Since the Hassan industrial estate in Irbid, where Salah had factories located, was situated far from the bordering areas, it did not qualify for QIZ status.
Salah then lobbied the Jordanian government for extending these regions into other parts of Jordan. Government officials were luke-warm to the idea and told him that it would be "naive to assume" that the United States would give Jordan this status. Unfazed by this response, Salah traveled to the United States and lobbied hard with the US State Department, the White House
White House
The White House is the official residence and principal workplace of the president of the United States. Located at 1600 Pennsylvania Avenue NW in Washington, D.C., the house was designed by Irish-born James Hoban, and built between 1792 and 1800 of white-painted Aquia sandstone in the Neoclassical...
, and the US Trade Representative that it was in US interests to extend the QIZ into Jordan's interiors. Lawyers in the United States then told Salah that even if a small portion of Israeli territory was associated with a QIZ, the proposal might materialize. Soon, USTR officials began to travel to Jordan to work on the deal.
Finally, in 1997, an agreement was signed at the Middle East and North Africa (MENA) conference at Doha
Doha
Doha is the capital city of the state of Qatar. Located on the Persian Gulf, it had a population of 998,651 in 2008, and is also one of the municipalities of Qatar...
that established a QIZ agreement with Jordan. On 6 March 1998, the Al-Hassan Zone in Irbid was designated the first QIZ in Jordan.
After the setting up of the first QIZ, few Jordanian companies took advantage of QIZ benefits due to the general hostility in doing business with Israel. Instead, Chinese and Indian companies quickly took advantage of the vacuum to set up business establishments. The lack of local enthusiasm was criticized by the Jordan Times
Jordan Times
The Jordan Times is an English daily newspaper in Amman, Jordan. The newspaper was established in 1975 and is owned by the Jordan Press Foundation, which also runs the Arabic-language daily Al-Rai, the Kingdom's best selling daily....
for missing the "golden opportunity". Gradually though, more Jordanian businesses began to set up business establishments as political hostilities began to be overshadowed by business economics. Soon after 1998, an additional twelve sites were given QIZ status by USTR.
Positive results from the Jordanian QIZ led to the Government of Egypt negotiating a separate QIZ protocol with the United States in Cairo on 24 December 2004. The protocol came into effect in February 2005.
Regulations
To quality for this scheme a product must be substantially transformed in the manufacturing process. Material and processing costs incurred in a QIZ must total not less than 35% of the appraised value of the product when imported into the United States. Of this 35%, 15% must be either US materials or materials from Israel, the West Bank
West Bank
The West Bank ) of the Jordan River is the landlocked geographical eastern part of the Palestinian territories located in Western Asia. To the west, north, and south, the West Bank shares borders with the state of Israel. To the east, across the Jordan River, lies the Hashemite Kingdom of Jordan...
, or the Gaza Strip
Gaza Strip
thumb|Gaza city skylineThe Gaza Strip lies on the Eastern coast of the Mediterranean Sea. The Strip borders Egypt on the southwest and Israel on the south, east and north. It is about long, and between 6 and 12 kilometres wide, with a total area of...
, and/or Jordan or Egypt depending on the program. The remaining 20% of the 35% input must come from Israel and Jordan or Egypt. The remaining 65% can come from any part of the world. All importers must also certify that the article meet conditions for duty exemption.
Under the sharing agreements, the manufacturer from the Jordanian side must contribute at least 11.7% of the final produce, and the manufacturer on the Israeli side must contribute 8% (7% on high-tech products). Under the Israeli-Egyptian agreement, 11.7% of the inputs must be made in Israel.
The clothing and textile industry
Textile industry
The textile industry is primarily concerned with the production of yarn, and cloth and the subsequent design or manufacture of clothing and their distribution. The raw material may be natural, or synthetic using products of the chemical industry....
has benefited most from this arrangement. As tariffs on these goods into the United States are relatively high, exporters have used the duty-free benefits of QIZs to gain quick access to markets in the United States.
Jordan
Irbid
Irbid , known in ancient times as Arabella or Arbela , is the capital and largest city of the Irbid Governorate. It also has the second largest metropolitan population in Jordan after Amman, with a population of around 660,000, and is located about 70 km north of Amman on the northern ridge of...
as the first QIZ. Since then, an addition twelve QIZs have been also designated across the country. Prominent QIZs include the Al-Hussein Ibn Abdullah II Industrial Estate at Al Karak
Al Karak
Karak is a city in Jordan that is known for the famous crusader castle Kerak. The castle is one of the three largest castles in the region, the other two being in Syria...
, owned and operated by the Jordan Industrial Estate Corporation, the Jordan Cyber City in Irbid, the privately owned Al-Tajamouat Industrial Estate at Amman
Amman
Amman is the capital of Jordan. It is the country's political, cultural and commercial centre and one of the oldest continuously inhabited cities in the world. The Greater Amman area has a population of 2,842,629 as of 2010. The population of Amman is expected to jump from 2.8 million to almost...
, Ad-Dulayl Industrial Park and El-Zai Ready-wear Manufacturing Company near Zarqa
Zarqa
Az-Zarqāʔ is a city in Jordan located to the northeast of Amman. With a population of more than one million 1000,000. It is the country's second largest city after Amman. Zarqa is the capital of Zarqa Governorate . Its name means "the blue one".- Overview :Zarqa is Jordan's industrial centre, home...
. Upcoming industrial parks include the Gateway QIZ on the northern border with Israel, Aqaba Industrial Estate at Aqaba
Aqaba
Aqaba is a coastal city in the far south of Jordan, the capital of Aqaba Governorate at the head of the Gulf of Aqaba. Aqaba is strategically important to Jordan as it is the country's only seaport. Aqaba is best known today as a diving and beach resort, but industrial activity remains important...
, and the Mushatta International complex in Amman.
Jordan has seen a substantial economic growth since the QIZ were set up. Exports from Jordan to the United States grew from 15 million USD to over 1 billion USD in 2004. Government sources have estimated that over 40,000 jobs have been created with the set up of QIZs. Investment is currently valued at USD 85–100 million and expected to grow to $180 to $200 million. The success of QIZ have led to the United States and Jordan signing a Free Trade Agreement in 2001 that was approved by the US Congress.
Between 1998 and 2005 Jordan moved up from the United States' thirteenth to eight largest trading partner among the 20 Middle-East-North African (MENA) entities. In 2005, US exports to and imports from Jordan totalled an estimated $1.9 billion: U.S. exports, at an estimated $646 million, were 1.8 times their 1998 level; US imports, at $1.3 billion, were 80 times their 1998 level. Despite the 2001 FTA between the United States and Jordan, 75% of Jordanian
articles enter the United States through the QIZ program.
The apparel industry dominates both Jordan's QIZs and total exports to the United States, accounting for 99.9% of all QIZ exports and 86% of all Jordanian exports to the United States. The reason for this dominance is that QIZ products enter the United States free of duty, whereas, under the US–Jordan FTA, tariffs will not be fully eliminated until the end of the ten-year phase-in period, in 2011.
Egypt
World Trade Organization
The World Trade Organization is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade , which commenced in 1948...
phased out quantitative quotas on textile in 2004 under the Agreement on Textile and Closing, ATC, Egyptian textile and garment producers feared that their industry would be threatened by global competition from China and India. The flood of similar articles from these two nations to the United States could edge out Egyptian exports, and possibly result in the loss of 150,000 job opportunities. This was estimated to cost some of the $3.2 billion in US foreign direct investment in Egypt. Further, Egypt was in search of sources for increased economic growth and trade to provide jobs for its rapidly growing labor force.
Positive results from the Jordanian led to the Government of Egypt negotiating a QIZ protocol in Cairo
Cairo
Cairo , is the capital of Egypt and the largest city in the Arab world and Africa, and the 16th largest metropolitan area in the world. Nicknamed "The City of a Thousand Minarets" for its preponderance of Islamic architecture, Cairo has long been a centre of the region's political and cultural life...
on 24 December 2004 that came into effect in February 2005. USTR has designated three QIZs in Egypt – the Greater Cairo
Greater Cairo
Greater Cairo is the largest metropolitan area in Egypt and the third largest urban area in the Islamic World after Jakarta and Greater Istanbul. It is the largest urban area in Africa. It is the world's 16th largest metropolitan area, consisting of governorates Cairo, Giza and Shubra El Khiema of...
Zone, the Alexandria
Alexandria
Alexandria is the second-largest city of Egypt, with a population of 4.1 million, extending about along the coast of the Mediterranean Sea in the north central part of the country; it is also the largest city lying directly on the Mediterranean coast. It is Egypt's largest seaport, serving...
Zone, and the Suez Canal Zone (69 CFR 78094). On 4 November 2005, the USTR designated a fourth zone in the Central Delta region and expanded the Greater Cairo and Suez Canal zones.
The protocol signed between the two nations is a non-reciprocal arrangement and is expected to be a step towards the establishment of a Free Trade Agreement (FTA) between the two countries. However negotiations toward a US–Egyptian free trade agreement have recently been suspended over human rights issues.
The results have been positive. Israeli exports to Egypt rose over 30% from USD 29 million in 2004 to USD 93.2 million and exceeded USD 125 million in 2006. ten QIZs have been set up in Egypt. Some estimate that approximately 20% of companies based in QIZs are wholly owned by
Jordanians.
Social impact
Women in Jordan
Despite a seemingly conservative milieu, the number of women working outside the home increased in the 1980s. Women formed a little over 12 percent of the labor force in 1985. Many poor and lower-class women worked out of economic necessity, but a substantial number of working women came from...
) In response, the Jordanian Ministry of Labor has worked to ease the adjustment of women moving from the home to a new job by providing free transportation to work, subsidizing the cost of food in QIZs, and paying for dormitories near factories to cut commuting times.
The long-term effect of female employment in QIZs are yet to be quantified, and there is some concern that over time, Jordanian women may have difficulty in achieving higher wages in a global economy where apparel manufacturers can easily relocate to cheaper labor markets.
When the QIZ program came into being in 1996, observers regarded it as a vehicle to support the development of peaceful relations and normalization of commercial ties between Israel and the two Arab states (Jordan and Egypt) with which it had signed peace treaties. In both cases, however, a tenuous peace continues to prevail between Israel and the two Arab states. Since the conclusion of the Jordan–Israel peace treaty in October 1994, large numbers of Jordanians, particularly fundamentalists, those of Palestinian origin, and members of the professional unions continue to oppose normalization with Israel and resist the expansion of commercial relations. With the establishment of 13 QIZs in Jordan, there has been an increase in the volume of bilateral trade, though the overall totals remain modest.
Criticisms
By far the biggest international criticism of QIZs in Jordan is the humanitarian crisis within the factories. A comprehensive report by the Institute for Global Labour and Human Rights found that Sri Lankan migrant workers were subject to "routine sexual abuse and rape."The United States Trade Representative (USTR) designation of 13 factories throughout Jordan (under the US-Jordan Free Trade Agreement) has led to disastrous realities, gender inequality and gender based violence:
- "There are over 30,000 poor, mostly young women, foreign guest workers toiling in Jordan‘s largely foreign-owned garment factories sewing clothing for export to the United States. Under the Free Trade Agreement, those garments enter the U.S. duty-free.
- "The guest workers are from Sri Lanka, Bangladesh, India, China, Nepal and Egypt. They earn less than three-quarters the wage of Jordanian garment workers, who account for only 15 to 25 percent of the total garment workforce. Jordanians earn $1.02 an hour while the foreign guest workers take home 74½ cents an hour. The Jordanians work eight hours a day, while the guest workers toil an average of 12 hours a day."