BI: Can you start by describing the Jordan-Israel trade zones that exist?

Moore: The Qualified Industrial Zones (QIZs) were a product of the Oslo peace process under the economic component of the bilateral and multilateral agreements. The idea behind it was that if Palestinians, Jordanians and Israelis were in trade together, this would work to deepen the peace process and provide a natural bulwark against radicalism.

Beginning in 1995 or '96, the agreements stipulated that there would be zones located in Palestine, Israel or Jordan, but the point was really to locate them in either Palestine or Jordan. Goods would then be exported from these zones duty-free to the United States. The duty-free status had a requirement, which was that there had to be a certain amount of Jordanian, Palestinian and Israeli input in the product. This was to create incentives for Palestinians, Jordanians and Israelis to work together.

But the QIZs were really only taken up in Jordan; the fast decline in the peace process meant that it was virtually impossible for Palestinian industrialists to get these zones together.

To date, there are 12 of these zones located in Jordan in geographically defined areas that have factories, mostly textile manufacturing. Basically, 11 percent of the goods have to be of Jordanian content. The Israeli component is seven or eight percent. Most of the products are exported out of Haifa [in Israel] and the Israeli value-added is usually added at the port.

BI: Several years on, what is your assessment of their successes and drawbacks?

Moore: The QIZ is meant as a first step for Jordan to realize a free trade agreement with the United States. Jordan is intended to be the fourth recipient of a free-trade agreement after Mexico, Canada and Israel. It is seen as an incubator stage after which all of Jordan would essentially be a QIZ and therefore, Jordan has a lot of stake in these zones.

Typically, US trade representative Robert Zoellick and Jordanian trade representatives have touted the accomplishments of these zones. First, Jordanian exports to the US have jumped several hundred percentage points. There have been some 20,000 to 25,000 jobs created by these zones. Jordanian and Israeli businessmen work together in these zones, [which is considered part of the peace dividend].

But once you scratch the surface, you see that there are some problems. First, despite a jump in Jordanian exports as a direct result of the QIZs, most of these exports are textiles. These are not high-manufacturing jobs or complex manufacturing processes that might have spin-off effects, but mostly textiles, children's clothing, things that are going into Walmart.

Of 55 companies that are actually located in the zones, only seven or eight are actually Jordanian companies. The majority of these companies are East Asian and Chinese South Asian textile manufacturers who have located to Jordan on a temporary basis to export to the United States duty-free. The tariffs that the US has on textile exports from the rest of the world will be going down next year, so many of these Asian manufactures will likely leave the zones. Therefore, there is serious concern about their longevity.

Also, only half of the jobs created have been filled by Jordanians; many of the manufacturers bring in their own workers. Therefore, the impact is only marginal on Jordanian unemployment, which in unofficial estimates runs as high as 20 percent.

BI: What about the cooperation aspect between Jordanians, Palestinians and Israelis?

Moore: It is clear that the QIZs have not had anything to do with the peace process, which is collapsing. The economic arrangements are collapsing with them.

In my research of this, Israeli contributions are typically things like zippers, labels, or packaging at the port in Haifa--sort of "in the spirit" of having some sort of content. But the idea that Israeli and Jordanian businesses are working deeply together is not really factual. In fact, most of the Jordanians involved in the zones are management, so what you have are prominent Jordanian business groups running the zones and charging rent, but they are not really contributing to the economy. All the fabric is imported from Asia and there is no Jordanian import for materials, very little Jordanian contribution for machine tools. Mostly, Jordanians contribute water and power.

BI: How do Palestinians fulfill their part in the zones?

Moore: Most depressingly, the Palestinians have been left out of this. It is almost impossible to get Palestinian input--they might be able to contribute dyes or zippers-- because it is nearly impossible to get things across the border. Therefore, the Palestinians are left out. What it has turned into is profitable for a small number of Jordanian businessmen, and American political leaders and people in the royal court in Amman who can say that this is a way forward for economic liberalization.

BI: Why did Jordan allow the Asian companies to come in and bring their own workers?

Moore: To the Jordanian government's credit, there have been a number of complaints, not only about the lack of Jordanian workers, but also about the working conditions. The government has tried to negotiate to put up new guidelines. But this is all after the fact. The companies really have the Jordanian government over the barrel.

I do think they saw it coming. You didn't have the kind of textile industry in Jordan that existed in Asia and a lot of people knew that the Asian companies would move in. The hope was that this would be a first step, that you would move on to making shoes or higher-end clothing. But none of that happened.

BI: How does this fit into the Bush administration's plan for the Middle East?

Moore: If you listen to Zoellick and you listen to people in the US State Department, Jordan is the poster child for the larger effort, which is simple and very attractive in its logic. They say, "We are going to increase economic liberalization in the Middle East so that these countries will trade more with the United States because this enhances the forces of liberalization in the region."

Logically, it has a degree of attractiveness. But there are two problems with this. Number one, the unspoken part of this is to set aside all the outstanding questions of justice, from Palestine to the treatment of Egyptian opposition members, and focus on making money. It hopes to "bypass" fundamental issues of justice in the Middle East that contribute to radicalism.

The other part of the problem here is that there is lots of evidence around the world that these policies have not always been successful. These zones started in the 1960s in the Dominican Republic, El Salvador, Ireland of all places and Sri Lanka, and the results were mixed. In some places, in South Korea for example, the zones were precursors to higher growth in trade and income.

In other places, these zones did not do that, but concentrated more wealth in fewer hands. Indeed, it may be that economic forces do not make political change, but that you have to have the political change first, before you can realize the benefits of open trade.

The lessons are not that the administration's idea of liberalization is a bad thing, but in isolation it is. Jordan and the QIZs are at the heart of this debate, and there are a lot of problems that are being ignored.-Published 13/5/2004©bitterlemons-international.org

Pete Moore is assistant professor of political science at the University of Miami. His book, Doing Business in the Middle East: Politics and Economic Crisis in Jordan and Kuwait, is forthcoming in August.