The US-market-oriented qualifying industrial zones: economic realities and scope of benefits (1996-2006).

AuthorKandeel, Amal A.

DURING THE 1980S AND 1990S EXTENSIVE projections were made about the potential benefits that would accrue to the Middle East from normalization between Israel and the Arab countries. In fact, in writings on the Middle East economy during these two decades, a regional economic development peace dividend was seen almost entirely dependent on the resolution of the long-standing Arab-Israeli conflict.

There is of course a sound basis to the view that an end to the state of war between Israel and its immediate Arab neighbors could bring about financial and economic fruits for these countries if such transition to peaceful coexistence was to be accompanied by a significant de-escalation in the military build-up of all the adversaries as well. However, this military factor did not play a central role in the peace dividend literature and related discourse that permeated public forums during that time. It was rather intraregional economic and investment cooperation between Israel and the Arab countries which was the focal point of these writings and the perceptions they embodied--perceptions that presumed full, permanent and enduring Arab-Israeli reconciliation. This single fateful, political condition, therefore, became perceived as a magic key to the transformation of the region's investment climate in such a way, never before or otherwise achievable, that could spread such vast gains across the region as being so creatively and colorfully imagined in those years. As the events in the region today tell us, as the region's poor and hapless people, whose numbers have been steadily rising, still struggle just to obtain their daily bread, the disconnect between these forecasts and reality could not have been greater.

One of the countries whose economy was made part of these lavish projections was Jordan. Various academic and theoretical documents published and official statements made during this period indicated that bets were being made that living conditions in Jordan would definitely improve, although only in tandem with many variables over which the kingdom itself did not have control. The dynamics of the Arab-Israeli negotiations and how in the end they would play out, as well as, by conjunction, international interests and superpower influences in the region, were implicitly considered at the heart of what would determine the outcome--whether Jordan would pass or fail the test to enduring prosperity at last.

Ten years after Arab-Israeli talks began in 1991, however, "comprehensive Middle East peace" had still not been attained. Starting with the election of Benjamin Netanyahu as Israeli Prime Minister in 1996, the bubble of projected regional and bilateral dividends tied to Arab normalization with Israel began to deflate. By the turn of the second millennia the voices that had only a few years earlier articulated these peace-boom forecasts for the Middle East economy were little more than a distant echo from what had become a very different time and place.

Jordan has historically been one of the Arab countries most deeply affected by the state of war in the Middle East that has accompanied, and has persisted in the region since, Israel's formation. After Jordan and Israel reached a peace treaty in 1994, they devised a production-export cooperation framework which led to the establishment in Jordan of industrial zones that came to be known as Qualifying Industrial Zones (QIZ). These QIZ were given a special status of unique value to Jordan's export sector and its ambitions. Quickly, however, QIZ became the center of controversy among writers, activists and Middle East analysts.

Although this special economic arrangement under which QIZ were formed has embodied elements in principle conducive to generating financial advantages, and in fact benefits did accrue in Jordan from these zones' operations, neither has the leading beneficiary been Jordan itself nor have the gains it derived from them been as bountiful as aggressively drummed up by certain influential sources. The QIZ framework has yielded benefits to Jordan, but the significance of these gains and their true implications for its economy have been dimmed, distorted and blown out of proportion in the literature and popular media. These gains were presented and discussed strictly in abstract terms, in isolation from the fundamental parameters that define Jordan's economy and its strengths and weakness.

This article places the most important income-redistribution gain derived in Jordan from the development of the QIZ sector in the context of its economy--its resource base and its constraints, and the unemployment and poverty challenges it faces. Examining wage and employment levels and some policies that determine them in Jordan, especially in QIZ, and the salient characteristics of the principal industry that emerged in this country out of the QIZ framework, the analysis reveals the fundamental deficiencies, for Jordan's economy, of this arrangement and of the particular focal production area in which it has been most widely applied and utilized.

Jordan is a small country with a meager natural resource base and hardly any commercial hydrocarbon fuel deposits to speak of. Almost three quarters of its land area is comprised of desert land. The current annual quantity of water available in and to the country is extremely deficient compared to its human and socioeconomic development needs. Over the last half a century, the water stress experienced in Jordan has risen steadily due to a fierce and prolonged water conflict with Israel on one hand, and because of population growth inflated by recurrent refugee influxes that have been produced by regional warfare. The country has a youthful population composition and unemployment is reportedly high; the most recently published official joblessness figure (for 2004) was 12 percent (out of a total labor force of about 1.8 million people). (1) Unemployment among the country's youth was reportedly more than double this figure, however. (2) By necessity, Jordan is also an open economy, dependent to a large extent on trade in goods and services as well as foreign employment for the highly skilled segment of its workforce. These basic characteristics have left Jordan vulnerable to the effects of international and regional shocks, especially but not only including those of an economic or commercial nature. Its material constraints have also historically been to a considerable extent responsible for making any long-term development of robust, large scale and diverse home-grown manufacturing industries unachievable.

THE US-ISRAEL FREE TRADE AGREEMENT AND THE EMERGENCE OF THE QIZ CONCEPT

In 1996, two years after the Jordan-Israel peace treaty was ratified, the US government issued a law that extended the scope of the US-Israel Free Trade Implementation Act (1985) to allow for the participation of three additional players in the bilateral commercial agreement. The new provisions permitted exports from Jordan, Egypt, and the West Bank and Gaza to enjoy free trade benefits associated with the US-Israel FTA if these commodities were co-produced in any of these Arab countries/territories in cooperation with Israel, and met certain rules of origin and other criteria. Among these additional criteria was the requirement that production of such commodities must be carried out in industrial compounds designated in these Arab territories, for this purpose, by the US Trade Representative--establishments that were given the name Qualifying Industrial Zones (QIZ). (3) In Jordan, several QIZ were established and started to operate since 1998. These QIZ are spread out across the kingdom, but are generally located in closer proximity to Israel's port of Haifa than to Jordan's Aqaba port.

Based on the provisions of this production-export arrangement and the manner by which it has been possible for investors to choose QIZ as production locations, not all commodities produced in these zones automatically qualify for quota and duty free entry into the US market. Some companies do set up shop in QIZ but do not undertake production in cooperation with Israeli firms. In this case, their products do not qualify for preferential treatment in the US. Others may not even produce commodities that are exported to the US in the first place. While Jordan's QIZ have drawn investors hungry for even a sliver of the US market, others entrepreneurs have based their production in QIZ in order to take advantage of certain incentives these industrial parks offer u-respective of the origins of the products' components or the final output's eventual destination.

An important claim that various writers have reiterated in support of Jordan's QIZ is that they have played a significant role in reducing joblessness in this country. In fact, the ability of QIZ to strike at the heart of...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT