US gives pledge on war-zone factories
By Syed Fazl-e-Haider
KARACHI - The Barack Obama administration and Pakistan have agreed to work
together and with the US Congress to move forward with legislation supporting
Reconstruction Opportunity Zones (ROZs) in Pakistan to realize the key priority
of creating legitimate and productive jobs in areas vulnerable to the influence
of violent extremism.
Former president George W Bush proposed establishing ROZs in the border areas
of Pakistan and Afghanistan four years ago, but the measure has been bottled up
in the US Senate. The ROZs would give duty-free access to products from
designated parts of the border region in a bid to create new industries and
help the area rebuild from fighting.
Passed by the US House of Representatives last year, the ROZ legislation is
stuck due to the concerns of US textile makers and
unions. While US retailers and clothing importers favor the ROZ program,
American manufacturers and unions say retailers would take advantage of the
duty savings and the 35 US cents an hour labor costs in Pakistan while putting
at stake workers' jobs in the US.
The controversy has blocked senate action on the legislation, with no
resolution in sight. Analysts in Pakistan argue that the strife-torn economy
cannot be stabilized without ensuring duty-free access of Pakistani merchandise
to US markets - ie, activating ROZs. They argue that elimination of the
existing US-imposed import duty of 11.3% on Pakistan goods may double the South
Asian country's exports to the US, with an estimated $2 billion in additional
Senior US and Pakistani officials, who met in Washington on April 24,
recognized that Pakistan's efforts to defeat extremists had seriously affected
the country's export competitiveness. The United States side pledged to work
towards greater market access for Pakistani products and early finalization of
the ROZ legislation.
The Pakistan government's finance adviser, Abdul Hafeez Shaikh, and US Trade
Representative Ron Kirk agreed at a meeting of the US-Pakistan Trade and
Investment Council in Washington to support Islamabad's efforts for market
access to major economic powers in Europe and Asia and to advance bilateral
trade and economic ties under the strategic partnership.
A council statement issued after the meeting said, "We reaffirmed our
commitment to support Pakistan through market access initiatives," Reuters
reported. "By providing trade-based sustainable development, we will assist in
the reconstruction and development of areas affected by the insurgency."
Pakistan's business community considers development of ROZs very important for
alleviating poverty and unemployment, especially in the trouble-hit areas of
the country, but the ROZ legislation has faced political obstacles in congress.
Critics say the ROZs could be used as a place to warehouse, label or package
textile goods made in the industrialized Pakistani cities of Faisalabad and
Karachi. They also contend that the ROZs could lead to trans-shipment from
China, particularly since customs officials would be unable to monitor
effectively trade from that region.
The former George W Bush administration promised the ROZ program in March 2006
as an indication of Pakistan's role as a key ally of the United States in its
war against al-Qaeda and Taliban militants. Two Democratic lawmakers, Senator
Maria Cantwell of Washington and Representative Chris Van Hollen of Maryland,
officially proposed the ROZs last year.
The US Congress is expected to review all US trade preference programs this
year, but many lawmakers from textile states strongly oppose cutting remaining
US textile tariffs.
Pakistan pays about US$315 million in US duties on its clothing, bedsheet and
towel exports to the United States, Reuters reported, citing Edward Gresser, a
trade policy specialist at the Progressive Policy Institute. Textile products,
Pakistan's biggest export to the US, accounted for $2.4 billion of its total
exports of $3.2 billion to the US last year.
Pakistan had proposed three options for market access that included immediate
approval of legislation on ROZs and the possibility of a bilateral free-trade
agreement (FTA) over and above the Generalized System of Preference (GSP)
status for Pakistan through eliminating the existing import tariff on
Pakistan's goods brought into the US, according to a recent report in the Daily
Elimination of the import tariff was seen as the only solution to providing
relief against the losses that the country suffered during the "war against
terror" during the past eight years.
Last month, Islamabad also pressed on a US delegation led by Secretary of State
Hillary Clinton its wish for a larger quota on exports.
Although Pakistan has been a key US ally in the "war on terror", it falls low
in the list of US trade partners. The share of exports from the South Asian
country to the US market has remained stagnant at around 0.21% during the past
Pakistan exports textile products worth $2.4 billion a year to the US, where
the total textile market is worth as much as $110 billion. Local exporters say
any increase in their share of the American as well as the European markets is
hampered by duty-free access given to textile exports from Bangladesh and Sri
Lanka. The country's overseas sales of textiles are also hampered by growing
terror attacks, power outages and poor market access.
Free-trade agreements with other countries in the region, such as Oman, also
encourage entrepreneurs in these markets to develop their textile industries to
export to the US.
Some analysts believe Chinese companies will invest heavily in the proposed
ROZs. As a result of a FTA between Pakistan and China signed in 2006, the
Pak-China Investment Company is working as a window of the China Development
Bank for evaluation of joint ventures between the two countries.
Syed Fazl-e-Haider (www.syedfazlehaider.com ) is a development analyst in
Pakistan. He is the author of many books, including The Economic
Development of Balochistan (2004). He can be contacted at email@example.com.