The Jordan-Israel QIZs have been insignificant for peace

The Daily Star (Beirut)

The Jordan-Israel QIZs have been insignificant for peace

By Yusuf Mansur

Tuesday, May 29, 2007

The impact of the Qualifying Industrial Zones — a concept proposed by the United States in 1996 to bolster cooperation between Jordan and Israel after the Jordan-Israel peace agreement was signed in 1995 — remains, after 10 years, difficult to determine. In spite of the tremendous growth of exports to the US market through these zones, QIZs continue to receive mixed reviews and their future is uncertain. Most importantly, the impact of the QIZs on the peace effort has been insignificant, to say the least.

The QIZs are areas designated by the Jordanian and Israeli authorities and approved by the US government. Products originating in the zones are granted duty-free and quota-free access to the US market. Both Jordan and Israel must contribute and maintain at least one-third each of a minimum 35 percent value added. The remaining third of the minimum content requirement could be any combination of input from Jordanian QIZs, Israel or the West Bank and Gaza.

Alternatively, a Jordanian manufacturer operating in a QIZ and an Israeli manufacturer can both shoulder at least 20 percent of the total cost of production of goods eligible for duty-free treatment, excluding profit. Based upon claims that Israeli manufacturers were charging exorbitant prices for their inputs, the agreement was renegotiated and amended in February 1999, reducing the Israeli content to a minimum of 7 percent for high-tech products and 8 percent for all other products.

In December 2004, a similar agreement was signed with Egypt. The Egyptian QIZs are considered in competition with the Jordanian QIZs as some investors in Jordanian QIZs have expressed their willingness to relocate to Egypt. Another challenge is the full compliance of the US with its commitments under the Multifiber Arrangement with the World Trade Organization to remove quotas on textiles and apparels, which would render the QIZs ineffective.

Has cooperation between Jordan and Israel improved because of the QIZs? Partially. Jordanian exports to the US market rose to $1.3 billion in 2006 (with $1 billion originating from the QIZs alone) from a paltry $7.9 million in 1998. Israeli components are used in the manufacture of garments and apparel - the bulk of the exports from the QIZs. Several Israelis, some of Arabic origin, have located in the QIZs. Israeli distributors, relying on the strength of their links with Western importers, provide venues for orders and exports to the large chains in the US.

On the other hand, two-third of the labor force in the QIZs is non-Jordanian, mainly from Far Eastern countries. There are virtually no linkages between the QIZs and the rest of the economy. Spillovers in terms of technology and managerial skills transfer are almost non-existent. In addition, cooperation between Israeli and Jordanian businesspersons outside the QIZs remains dismal, as indicated by the trade figures between the two economies. In fact, overall economic cooperation outside the QIZs decreased in light of the first and second uprisings in the West Bank and Gaza - which analysts view as a direct consequence of the hawkish policies of right-wing Israeli governments. Furthermore, increasingly, Jordanians are opting to export to the US under the Jordan-US Free Trade Agreement instead of the QIZs.

Meanwhile, Palestinians in the Occupied Territories are currently worse off. Prior to 1996, they provided an inexpensive labor source to Israeli manufacturers in the manufacture of apparels and garments, which is a labor-intensive industry, and who at the inception of the QIZs voiced concerns that the QIZ agreement with Jordan would transfer jobs across the river.

The upshot is that economic cooperation was not greatly enhanced by the QIZs. Had the overall pending political issues concerning the Palestinians been resolved, or at least not worsened, prior to the QIZ agreement, economic cooperation would have followed, possibly even without the QIZs, and peace prospects would have been markedly improved.

Yusuf Mansur is managing partner of the Envision Consulting Group and former CEO of the Jordan Agency for Enterprise and Investment Development. This commentary first appeared at bitterlemons-international.org, an online newsletter.

source: Daily Star