Thomas G. Travis
Thomas G. Travis is managing partner of Sandler, Travis & Rosenberg, P.A., a customs and international trade law firm. He is the author of Doing Business Anywhere (John Whiley & Sons, 2007).
Washington, D.C. (August 2006)-As Israeli troops move out of southern Lebanon and U.N. Interim troops take their place, the world is watching to see if the cease-fire will turn into a lasting peace. Sadly, such an outcome is hard to imagine. The Middle East has been rife with conflict for centuries, as followers of Islam, Judaism, and Christianity have fought to take possession of sacred areas central to their religions. Small wonder that so many of us assume such deep-rooted conflicts will never be mollified. But there is at least one reason for optimism: new trade programs that have been successfully introduced in the region.
Although the violence generally takes center stage, inroads to peace are quietly being paved on an economic foundation. Today, two countries in particular, Egypt and Jordan, are working with Israel, quite successfully I might add, to find peace through prosperity thanks to a little-known trade agreement.
Here's how the agreement works: In 1996, the U.S. invited Jordan, Egypt, and the Palestinian territories (the West Bank and Gaza Strip) to designate certain industrial parks and facilities as Qualifying Industrial Zones, or QIZs. The articles produced in the zones can gain duty-free access to the U.S. if at least 35 percent of the value of the article is produced in Arab-owned and operated QIZ or in Israel. The upshot? Goods produced in an Jordan, Egypt, and the Palestinian territories with Israeli inputs are afforded the same beneficial trade rules as goods manufactured entirely in Israel.
The QIZ program is, in essence, a mechanism to foster trade relations between Israel and its Arab neighbors. When it was initiated, the hope in the U.S. was that these relationships would bring prosperity, and through prosperity, peace to the region. And amazingly, it worked!
Stage 1: Patience. The relationships that the new trade agreement proposed weren't initially welcomed with open arms. Many thought the idea that trade between Israel and Arab nations could be successful (and even produce a peace dividend) was ridiculous. Due to political reasons, Egypt wouldn't even open its first QIZ until 2005. But as with any new business paradigm, it takes only one brave entrepreneur to seize an opportunity and prove it will work. In the case of the QIZ programs, that entrepreneur was 28-year-old Jordanian Omar Salah.
Salah immediately recognized the benefits that the trade agreement offered. Armed with a healthy dose of patience, he set out to find an Israeli entrepreneur who would be willing to work with a Jordanian. After many cold-calls to Israeli apparel companies, Salah found his partner in Dov Lautman, owner of Delta Galil. Recognizing opportunity when he saw it, Lautman agreed to work with Salah in order to take advantage of the less costly Jordanian labor.
However, the program was not without its detractors. Century Investment Group, Salah's Jordanian holding company, was blacklisted by the Anti-Normalization Commimee, a Jordanian group dedicated to ending all links with Israel. Others looked at employment in a cooperative venture with Israel as nothing short of treason.
But the men persevered. The apparel they produced at their new joint venture, Century Wear, would receive duty-free and quota-free access to the U.S. The business created some 850 new jobs, each with salary rates that exceeded similar Jordanian payrolls by 40 percent.
Entrepreneurs like Salah and Lautman are necessary for these trade agreements to work. Salah had the patience to find the right person to partner with, and both men had the business sense and the courage to ignore those who didn't want the relationship between Jordan and Israel to move forward.
Stage 2: Prosperity. To the surprise of many (excluding Salah and Lautman, of course!), sales at Century Wear topped $10 million in the first year of operation. The men had proven that by working together for a common cause, Israelis and Jordanians could benefit from the trade agreement. Seeing the success of Lautman and Salah, other Jordanian entrepreneurs followed suit, forming additional QIZ parks, and by 2002 more than 30,000 Jordanians were employed in QIZs, and exports topped $400 million.
Between 1996 and 2001, U.S. imports from Jordan rose from $50 million to $250 million. In 1985 when the original trade agreement was passed, Israel exports totaled about $2 billion. Today that number has risen to $12 billion.
In 2005 Egypt followed suit and opened its first designated QIZ. With an already sophisticated garment industry, the country could offer customers the economic benefits of long-standing, sophisticated, vertically integrated operations that could handle everything from fabric creation to garment completion. At the time, the Israeli press reported that due to the QIZ program, Egypt's trade with Israel rose 130 percent in 2005 and created an estimated 15,000 new jobs in 2005, with 30,000 new jobs expected by the end of 2006.
U.S. companies looking for alternatives to paying high duty rates on imports from Asia and other regions have benefited as well. The QIZ allows them to import goods duty-free from the QIZ, compared to paying as much as 31 percent duty on the same item from Asia. This savings can be passed on to the U.S. consumer, producing a win-win for all concerned.
The business opportunities created by the QIZ program are phenomenal. It's vital that these countries continue to take advantage of everything the programs offer in order to continue achieving very positive monetary results for the people of the region.
Stage 3: Peace. The prosperity that results from these countries working together means more than just a boost in the region's economic stability. It means that because of the countries' successful business relationships, they are able to achieve and maintain peaceful political relationships. While violence is prevalent in other parts of the region, Egypt and Jordan, who both had very contentious relationships with Israel in the past, are still doing business with the country. The countries continue to benefit from their relationship and their close proximity, doing their best to move past their deeply strained past relationships. The great thing about the programs is that the peace that results doesn't come as part of a government mandate or order. It starts with the people of the nation.
In a 2001 interview with me, Dr. Mohammed Halaiqa, then Deputy Prime Minister of Jordan and Minister of Industry and Trade, said that in order for peace to be meaningful it had to involve the people, and involving the people means helping them achieve economic prosperity. The QIZ programs have enjoyed great prosperity, and through that prosperity have allowed Egypt, Israel, and Jordan to find a measure of peace.
The success of the QIZ programs shows that one trade initiative can have a global impact. The programs lower the cost of goods, create business opportunities, and contribute to the Middle Eastern peace process. Though detractors remain, the countries seem to be on the right track, and their continued success is sure to help them maintain their peaceful relationships with one another. If they pull out and start fighting for whatever reason, all of the countries lose and their citizens lose right along with them.
I heard a great story that illustrates the major role the QIZ programs are playing in changing minds and making people more willing to keep the peace. A high-ranking Hamas official discovered that his daughter was working in a QIZ park founded by Salah. He ordered her to quit her job because he didn't want her cooperating with the Israelis in any way, but she convinced him to come to the factory to see what was going on. He visited and saw that the workers were treated well, made more competitive salaries, and that the women were being empowered through economic opportunities that afforded them a decent wage and relative autonomy. Long story short, he liked what he saw and even admitted that the economic stability the QIZ factories brought to the region was beneficial to the Palestinian workers.
Perhaps not every Hamas official feels the way the man in the story does. But his change in position indicates that people within the region are willing to shift their attitudes regarding Israel. They see the economic benefits and the peace the programs bring to the nations that participate.
Results so far seem to indicate that when countries become linked by economic ties, they are less likely to jeopardize their economies by engaging in violence. As seen with Jordan, the programs also serve as great stepping stones to stronger diplomatic relationships. In 2000 King Hussein used the success of his nation's QIZ program to move to a full free trade agreement with the United States. As the existing programs continue in the Middle East and new programs are created between hostile nations, the better chance we have that the prosperity that results from the programs will spread peace throughout the region. *
"There are many fronts in our struggle against Islamic terrorists from the 7th century. The American people must be reminded of our challenges constantly in lieu of platitudes about the inevitable triumph of freedom and democracy. In short, our government should provide much more explanation of this complex war and far less simple declarations about it." --Victor Davis Hanson