By  on June 12, 2009

WASHINGTON — Importers could find themselves partially funding duty free manufacturing zones in the war-torn Afghanistan and Pakistan border area, which they have deemed unusable, if a bill the House passed Thursday is enacted.

U.S. apparel sourcing executives were up in arms as the House debated and approved the broad Pakistan aid bill that includes a section authorizing “reconstruction opportunity zones” providing duty free treatment to a limited amount of textile and apparel products and other specified consumer goods made in the zones. The vote in the House was 234 to 185. It was uncertain when the Senate would take up the bill.

The broader legislation, which authorizes millions of dollars in aid to Pakistan, hews closely to a comprehensive plan President Obama has outlined and supports to intensify the military campaign in Afghanistan and stabilize Pakistan and the region. Democrats couched the Pakistan aid bill in national security terms during floor debate.

However, importers, who shipped $3 billion worth of textile and apparel products to the U.S. from Pakistan last year, were upset the legislation stipulated they will have to help pay for a duty free program they have argued is ill-conceived and unworkable. They were also annoyed at more stringent labor provisions included in the bill.

The bill stipulates duty free manufacturing zones, which will result in lost revenue to the U.S., could be paid for by imposing “customs user fees” on other imported products from Pakistan not made in the duty free zones. The bill stated that a minimum of $12 million in fees must be assessed by Sept. 30, 2014 and a minimum of $105 million must be assessed by Sept. 30, 2019.

Importers pay merchandise processing fees on imports and most industry veterans said the customs user fees would increase these costs on imported products from Pakistan that are not made in the duty free zones.

“The outrageous thing about this bill that we can’t understand is the pay-for provision,” said Janet Fox, vice president and director of strategic sourcing for J.C. Penney Private Brands Inc., who is also chairwoman of the U.S. Association of Importers of Textiles & Apparel. “To me, they don’t want us to be in the ROZs because they don’t have the type of products that most of us would use and now they don’t want us to be in the non-ROZ areas [such as the three main apparel manufacturing hubs of Karachi, Lahore and Faisalabad] because they’ve got this outrageous pay-for provision. How is that going to help stabilize the country?

“To me, this is a punitive trade measure,” said Fox, noting Penney’s has a liaison office in Pakistan, one of its top 10 suppliers. “Anything that adds to our costs” means companies will reassess Pakistan as a viable source of production.

Domestic textile producers are wary the duty free zones could become hubs for transshipped merchandise from China.

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