A recent study revealed that the Qualified Industrial Zones (QIZ) protocol has boosted Egypt's textile and clothing industry. Mona El-Fiqi reviews the report A study conducted by the Egyptian Centre for Economic Studies (ECES) found that the application of the Qualified Industrial Zones (QIZ) protocol to the textile and clothing industry has augmented Egyptian textiles and clothing exports to the US. The protocol, which was signed in December 2004 and entered into force in February 2005, has also led to increased employment and investment opportunities in many exporting companies. Products of companies which qualify for QIZ are produced in specific zones and satisfy certain rules of origin, are then allowed to enter the United States duty free. Moreover, the study asserted that the QIZ has achieved several short-term objectives such as preventing a drop in Egypt's share of the US market, following the end of the international system of quota. This comes at a time when Egypt is seeking to expand opportunities in the US market since it is Egypt's largest single trading partner, absorbing about 33 per cent of Egypt's total exports according to figures of the Central Bank of Egypt. The US market also offers very promising export opportunities, given that it is the largest and fastest growing import market in the world. Under QIZ, a product qualifies for duty free access to the US market when at least 35 per cent of the final product is produced locally. QIZ companies and the Israeli party each contributes at least one third (11.7 per cent) of the 35 per cent, while the rest is covered by Egypt, the US or West Bank and Gaza. Moreover, compliance with the 11.7 per cent Israeli content is checked every three months, which gives QIZ companies more flexibility. If the Israeli component achieved in one quarter is more than 11.7, the excess can be carried over the following quarter. According to the study, Egypt's exports to the US in 2005 amounted to $2.08 billion; excluding mineral fuels, exports are estimated at $1.02 billion. Textiles and clothing exports amounted to $612.3 million in 2005 compared to $561.1million in 2004, which is a growth rate of 9.1 per cent. Exports of apparel increased from $422 million in 2004 to $444 million in 2005, floor coverings from $69 million to $96 million, home furnishings from $38 million to $43 million and fabrics from $9 million to $10 million, whereas exports from fibers declined from $22 million to $16 million. "The positive growth rates in apparel exports estimated at 5.3 per cent occurred despite their initial decline during the first half of 2005 compared to 2004," stated the study, attributing the decline to the fact that any new trade arrangement takes time to be beneficial. Besides, the QIZ protocol was signed in December 2004 and since this industry is seasonal, orders are placed far in advance of the start of each season. The study added that Egypt's apparel performance in 2005 was below that of China, India, and Indonesia (the countries that were expected to benefit the most from the elimination of the quota system) and below that of Jordan, which has a similar QIZ agreement. However, it outperformed Turkey, Mexico, and Korea which experienced negative growth rates in apparel exports. According to the ECES study, prior to the QIZ protocol Egypt benefited on a very limited scale from duty free access to the US market under the Generalised System of Preferences (GSP). In 2004, for example, Egyptian exports under GSP totaled only $38.1 million, representing 29 per cent of Egypt's total exports to the United States. Since February 2005, the QIZ's preferential treatment has been very beneficial because it eliminates the relatively high tarriffs on textile and clothing imports. Since the QIZ protocol is considered a good opportunity for textile and clothing companies in general, and exporting companies in particular, Egyptian companies are keen to sign up for QIZ. The protocol started with a total of 397 companies, and currently includes 570 after extending the QIZ to include new geographical areas. Current qualified zones include Greater Cairo, Alexandria, the Suez Canal and the central Delta governorates of Gharbiya, Daqahliya, Menoufiya and Damietta. Moreover, the current number of exporting QIZ companies nearly doubled from 54 in the second quarter of 2005 to 96 companies during the first quarter of 2006. According to the study, new investments are a very important determinant of the export potential of textiles and clothing. The General Authority for Investment (GAFI) announced that as of March 2006 there were 19 new investment projects with a total investment of $63.3 million, and 30 new projects underway with a total investment of $62.9 million. In the long run, the impact of QIZ on textiles and clothing exports, according to the study, will depend on Foreign Direct Investments (FDI) inflows and the ability of existing firms to exports. As for domestic producers, the study predicted significant expansion in exports by a small number of companies.
