China main beneficiary of US-Israel-Jordan QIZ - report

Ran Dagoni, Washington 4 May 06 14:10


China, not Israel or Jordan, is the main beneficiary of the US-Israel-Jordan qualified industrial zone (QIZ) agreement, under which goods manufactured with Israeli and Jordanian inputs are exported duty-free to the US, states a report by the National Labor Committee, an international non-profit organization for the protection of labor rights. The report was released in the US yesterday.

National Labor Committee executive director Charles Kernaghan told “Globes” that most plants in Jordan’s QIZs were owned by investors from China, Hong Kong or other Asian countries, including Taiwan and Pakistan. These investors were exploiting loopholes in the QIZ treaty and US-Jordan Free-Trade Agreement, which undermined their purposes of deepening Israeli-Jordanian relations and boosting Jordan’s economy.

Most of the National Labor Committee’s report is devoted to the exploitation of non-Jordanian workers, mostly from Bangladesh, and serious abuses of them, including rape, at factories producing products under the QIZ and US-Jordan Free-Trade Agreement. A chapter in the report lists the ways in which Chinese investors exploit loopholes in the agreements, thereby becoming the main beneficiaries, even though China is not a party to these agreements.

Signed in 1998, the QIZ agreement is described as a great success by Israeli government publications. A report from 2004 says that 80% of Israeli exports to Jordan comprise inputs for QIZ factories. Jordanian exports to the US have also greatly increased.

The Chinese have hitched a ride on this success. A document written by the Jordan Investment Board for US investors sheds light on the pricing of QIZ products, and how they are being manipulated by the Chinese. The document gives the example of children’s shirts. These cost $3.50 to make, broken down as follows: fabric and buttons from China - $2.20, 63% of the cost; Israeli inputs, including cutting and the supply of accessories - $0.32, 9.1%; direct production costs in Jordan, including direct labor - $0.42, 12%; and total recognized Jordanian inputs - $0.68, 19.4%. Indirect labor costs in Jordan, which is not eligible for duty-free imports to the US amount to $0.26.

The aggregate Israeli-Jordanian inputs amount to $0.74, 21% of the total cost of these items. However, this figure is far less than the 35% aggregate Israeli and Jordanian inputs of the total value of a good to become eligible for duty-free imports to the US, stipulated in the QIZ agreement.

This is where the Chinese manipulation comes in to play. The QIZ agreement stipulates that if apparel undergoes a “double process” at a factory, such as cutting and sewing, the factory can accredit the cost of the fabric as if it were produced in Jordan. In this way, Chinese investors inflate the local value of the cloth in order to obtain duties benefits in the US.

In 2005, Jordan exported to the US just over $1 billion in duty-free apparel sewn at QIZ factories. $682 million of this comprised Chinese inputs.

The National Labor Committee report estimates that Jordanian textiles factories employ at least 25,000 non-Jordanian workers. The report cites cases of ill-treatment of these workers, including Chinese overseers beating workers who fail to meet quotas, limiting time for visiting the bathroom, and confiscating passports.

The output of these factories are exported to giant low-cost retailers in the US, such as Wal-Mart Stores (NYSE: WMT) and Target Corporation (NYSE:TGT), as well as more high-end marketing channels. A Wal-Mart spokesman said the company would send supervisors to Jordan to examine the claims.

Published by Globes [online], Israel business news - www.globes.co.il - on May 4, 2006