WASHINGTON — The U.S. is set to approve, with Israeli consent, the formation of three special export zones in Egypt that will allow duty-free access to the U.S. for apparel and textiles made there.
U.S. Trade Representative Robert Zoellick will participate in the signing ceremony today in Cairo with Egyptian Minister of Foreign Trade & Industry Rachid Mohamed Rachid and Israeli Vice Prime Minister Ehud Olmert.
“This is the most important economic agreement between Egypt and Israel in two decades,” Zoellick said Monday in a statement.
The Egyptian Qualified Industrial Zone program is a by-product of the U.S.-Israeli Free Trade Agreement. Under the QIZ program, at least 35 percent of the value of the goods and direct costs of manufacturing them must be of Egyptian, Israeli or U.S. origin. The agreement between Egypt and Israel stipulates that at least 11.7 percent of the value of the covered products must be Israeli.
Egypt and Israel have the ability to negotiate the terms of a QIZ agreement, while the USTR has the responsibility and the authority to designate areas to be QIZs. The U.S. has approved the request of Egypt and Israel to designate the three QIZs in the greater Cairo area, Alexandria and the Suez Canal Zone.
Apparel and textile imports from Egypt totaled $529.7 million for the year ended Sept. 30, according to U.S. Department of Commerce figures.
The purpose of the QIZ initiative is to support the peace process in the Middle East by promoting economic cooperation between Israel, Egypt, Jordan and the Palestinian territories. Since 1999, the U.S. has designated 13 QIZs in Jordan. Apparel and textile imports from Jordan grew to $828.9 million for the year ended Sept. 30 from $385.6 million in 2002, according to the Office of the USTR.
“These QIZs will help ensure that U.S. apparel and footwear companies in Egypt remain competitive, particularly after quotas are removed on textiles and apparel beginning Jan. 1,” said Kevin Burke, president and chief executive officer at the American Apparel & Footwear Association.
Burke also noted that Egypt has announced it will eliminate or reform several testing, registration and labeling requirements that act as foreign trade barriers.
Cass Johnson, president of the National Council of Textile Organizations, said the textile industry has concerns about the 35 percent value-added rule of origin in QIZ arrangements. Johnson said value-added rules are complex and Customs officials have a difficult time enforcing them. He pointed to a recent Customs review of factories in Jordan and Israel, which turned up a 25 percent “fraud rate.”
“You have to break down 60 different things to make a shirt, assign a value and add them up,” said Johnson. “It’s a horrible, statistical mess.” In addition, transshipping becomes a problem in any FTA.
“Typically, when these things are opened, we see a big surge in exports of apparel to Israel or Jordan from China, then a big surge from those countries to the U.S.” said Johnson. “The U.S. government needs to find a way to enforce these agreements that can easily become a conduit for Chinese goods entering the U.S. duty free.”