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Sunday, February 7, 2010

Afghanistan and Pakistan Reconstruction Opportunity Zones (ROZs), H.R. 1318/H.R.1886/H.R. 2410 and S. 496: Issues and Arguments

Mary Jane Bolle 
Specialist in International Trade and Finance

On June 9, 2009, the House Rules Committee issued a rule providing for the consideration of H.R. 1886, the Pakistan Enduring Assistance and Cooperation Enhancement Act. The rule inserted, with modifications, H.R. 1318, the Afghanistan-Pakistan Security and Prosperity Enhancement Act, the ROZ legislation, into the base text of H.R. 1886. On June 11, 2009, the House passed H.R. 1886 by a vote of 234 to 185, and the clerk was directed to add it as new matter to the end of H.R. 2410, the Foreign Relations Authorization Act, Fiscal Years 2010 and 2011. On September 24, 2009, by Unanimous Consent, the Senate passed S. 1707, the Enhanced Partnership with Pakistan Act of 2009, in lieu of H.R. 1886. It did not include the House ROZ language. It became law (P.L. 111-73) on October 15, 2009. 

The Afghanistan-Pakistan Security and Prosperity Enhancement Act (H.R. 1318) and the Afghanistan and Pakistan Reconstruction Opportunity Zones Act (S. 496) would establish a unilateral U.S. trade preference program for Afghanistan and parts of Pakistan. In an effort to promote economic development in both countries, the legislation would permit certain goods produced in designated geographic areas called Reconstruction Opportunity Zones (ROZs) to be imported into the United States duty-free. ROZs would be a specific type of export processing zone, and thus part of a world-wide network of free trade zones. Free trade zones are typically fenced-in industrial parks. As such they are self-contained islands of infrastructure necessary to support manufacturing, often located in relatively undeveloped geographic locations. They support economic development by facilitating cooperative production among workers in more than one country. 

Both Pakistan and Afghanistan are currently exporting certain goods to the United States dutyfree under the Generalized System of Preferences (GSP). The ROZ program would offer additional tariff benefits to Afghanistan and Pakistan. In turn, it would place additional requirements on both countries. 

The 300 top U.S. import categories from Pakistan are valued at $3 billion. These 300 represent 98 % of all dutiable imports from Pakistan, almost all of which are textile and apparel products. The ROZ proposal would remove tariffs on about half the value of these imports–98 items which are mostly textile products such as towels, sheets, comforters, and curtains, which carry an average trade-weighted tariff rate of 8.1%. The ROZ proposal would not remove tariffs on 195 items of which are mostly apparel items, such as shirts, trousers, blue jeans, socks and underwear, which carry an average trade-weighted tariff rate of 14.9%. 

The legislation appears to be of primarily political and symbolic importance for U.S. relationships with Afghanistan and Pakistan, and was specifically supported by President Obama in his March 27 announcement of a new U.S. strategy for Afghanistan and Pakistan. Proponents of the legislation see it as a way of promoting economic development in remote and restive areas of Afghanistan and Pakistan. On the other hand, there are those who point out restrictions: 

• the limited possible locations for ROZ production in order to be eligible for tariff-free treatment; 

• the limited range of products eligible for tariff-free treatment; 

• the labor requirements in H.R. 1318; and 

• security concerns.

Date of Report: January 22, 2010
Number of Pages: 39
Order Number: R40627
Price: $29.95

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