Qualifying Industrial Zone (QIZ)

Qualifying Industrial Zone (QIZ)

Agreement

Questions and Answers

Fact Sheet

Agreement Between The Hashemite Kingdom Of Jordan And Israel On Irbid Qualifying Industrial Zone

In recognition of the requirements in section 9 of the United States-Israel Free Trade Area implementation Act of 1985, as amended (the “Legislation”), and Proclamation No. 6955 of the President of the United States of America (the “Proclamation”), the Governments of the Hashemite Kingdom of Jordan and the State of Israel hereby agree to the creation of the “Irbid Qualifying Industrial Zone”, and request that the Government of the United States designate it as a “Qualifying Industrial Zone” under the legislation and Proclamation.

ARTICLE 1 – GEOGRAPHIC BOUNDARIES

The Government of Jordan and the Government of Israel and the hereby designate the following territory of their respective countries as enclaves where merchandise may enter without payment of duty or excise taxes, no matter what the country of origin of the merchandise.

A.
For the Government of Jordan: the Irbid duty-free area. Shown on the map attached as Exhibit B.

B.
For the Government of Israel: an area under Israeli customs control within the boundaries of the land crossing border at Sheikh Hussein-Nahar Hayarden bridge. Shown on the map attached as Exhibit A.

On the basis of the respective national legislation of the parties, the customs authorities of Jordan and Israel shall establish special customs procedures for the purpose of assuring the speedy flow of goods into and out of the zone. The purpose of these procedures is to ensure the strict enforcement of the principles of duty and taxation pursuant to this agreement. In the case of Israel, where factories lying outside the zone will contribute of the 35% minimum content required by the legislation and Proclamation, the Israeli customs authority will ensure that inputs imported from abroad incorporated into goods shipped into the zone will be exempt from duty.

ARTICLE II – ECONOMIC COOPERATION

A.
Recognizing that one of the primary purposes of the legislation and Proclamation is to encourage economic cooperation in the region, the Government of Jordan and the Government of Israel hereby agree to the establishment of a joint Committee which will have the responsibility outlined below of identifying those businesses located within the Irbid Qualifying Industrial Zone which involve substantial economic cooperation between Jordan and Israel. Goods processed in the zone by businesses identified by the commission will be eligible for duty-free entry into the United States if the goods meet the requirements of the legislation and Proclamation.

B.
A representative of the United States shall have the right to participate in meetings of the Committee as an observer.

C.
The Committee may determine that a business involves substantial economic cooperation between Jordan and Israel:

1.
If the manufacturer on the Jordanian side of the QIZ and the Israeli manufacturer each contribute and maintain at least one third of the minimum 35% [1] content required under the legislation and Proclamation for duty-free treatment in the United States; or,

2.
If the manufacturer on the Jordanian side of the QIZ and the Israeli manufacturer each contribute and maintain at least 20% of the total cost of production of goods eligible for duty-free treatment, excluding profits, even if the costs cannot be considered as part of the 35% minimum content requirement for this purpose, costs may include originating materials, wages and salaries, design R&D, depreciation of capital investment, overhead including marketing expenses, etc [2]

D.
The joint Committee shall have the authority to approve those businesses whose products will be eligible for duty free entry into the United States on the requirements of paragraph (C) and to cancel this eligibility if these requirements are no longer met. Approval of eligibility for duty-free privileges will be reconfirmed by the Joint Committee on an annual basis.

E.
The Joint Committee will promptly transmit to the U.S. Customs (Trade Compliance Office. Office of Field Operations) the names of those businesses whose products are eligible for duty-free treatment and identify the products produced or processed in the QIZ by those businesses which comply with the rule of origin requirements set out in the “Outline for Designations of Qualifying Industrial Zone under Proclamation No. 6955 attached to the July 28, 1997 letter from the U.S. Trade Representative office to the Jordanian and Israeli Ministers of Industry and Trade.

ARTICLE III – RULES OF ORIGIN

The Government of Jordan and the Government of Israel agree that origin of any textile or apparel product that is processed in the Irbid Qualifying Industrial Zone, regardless of the origin or place of processing of any of its inputs or materials prior to entry into, or subsequent to withdrawal from, the Zone, will be determined solely pursuant to the Rules of Origin for Textile and Apparel Products set out in Section 334 of Uruguay Round Agreement Act, 19 U.S.C.3592

ARTICLE IV – CUSTOMS COOPERATION

The Governments of Jordan and Israel will assist United States authorities in obtaining information, including by means of verification, for the purpose of reviewing transactions for which duty-free access into the U.S. is claimed in order to verify compliance with applicable conditions, and to prevent unlawful transshipment of articles qualifying for duty-free access into the U.S.

ARTICLE V – ENTRY INTO FORCE

This Agreement shall enter into force upon the completion of the necessary legal procedures by the Parties.
(This took place on March 13, 1998).

Done in Doha, Qatar on the 16th day of the month of November, 1997, in three original copies in the English language

For the Government of the Hashemite Kingdom of Jordan
For the Government of the State of Israel

Dr. Hani F. Mulki
Minister of Industry and Trade
Natan Sharansky
Minister of Industry and Trade

Qualifying Industrial Zones – Questions and Answers

What does designation of the Qualifying Industrial Zone do for Jordan? How does this help Jordan?

What does Jordan have to do in return for this benefit?

How does it benefit Israel?

What is a “Qualifying Industrial Zone?

How many Qualifying Industrial Zones are there?

Is every product produced in a Qualifying Industrial Zone entitled to duty-free entry into the United States? What rules of origin apply?

How is a new and different article of commerce defined?

Are there quotas on goods that can be exported from Qualifying Industrial Zones?

How long will Qualifying Industrial Zones be in effect?

How will products of Qualifying Industrial Zones be identified under this arrangement?

Will any special customs provisions be required?

Can products of the Qualifying Industrial Zone be shipped through Jordan or Israel?

What about “cumulation” in establishing product origin?

Who determines the value from these many sources?

What is the rule of origin arrangement with regard to textiles?

What does designation of the Qualifying Industrial Zone do for Jordan? How does this help Jordan?

Designation of the Al-Hassan Industrial Estate as the first ever Qualifying Industrial Zone makes products produced within the estate eligible for duty-free entry into the United States provided they meet certain criteria. In many cases this will mean that products produced in the zone can enter the U.S. at lower, more competitive, prices than similar products from other countries. The criteria are described in the October 2, 1996 legislation giving the President authority to proclaim duty-free treatment of products from the West Bank, Gaza Strip, or Qualifying Industrial Zones and the November 13, 1996 Presidential proclamation modifying the harmonized tariff schedule in order to implement duty-free treatment.

What does Jordan have to do in return for this benefit?

Establishment of the Qualifying Industrial Zone provision and designation of Al-Hassan Industrial Estate as the first Qualifying Industrial Zone were unilateral actions by the U.S.. No Jordanian action was required or requested. The Qualifying Industrial Zone provision was created to reaffirm the importance of fostering economic development and investment in the region. Therefore, Qualifying Industrial Zones are defined as encompassing the territory of Jordan and Israel. The proclamation authorizes USTR to designate such zones.

How does it benefit Israel?

Under the 1985 U.S.-Israel Free Trade Area Agreement, almost all products of Israel are already eligible for duty-free entry into the U.S. In return, almost all U.S. products are allowed duty-free entry into Israel. Qualifying Industrial Zones will allow Israel businesses to partner with Jordanian business in Jordan without losing their eligibility to export products to the U.S. duty-free.

What is a “Qualifying Industrial Zone?

The October 2, 1996 legislation defines a Qualifying Industrial Zone as any area that:

(1) encompasses portion of the territory of Israel and Jordan;

(2) has been designated by local authorities as an enclave where merchandise may enter without payment of duty or excise taxes; and

(3) has been specified by the President as a Qualifying Industrial Zone.

How many Qualifying Industrial Zones are there?

Upto date (August, 2000) there are 5 Qualifying Industrial Zones as follows:

Al-Hassan Industrial Estate designated March, 1998
Al-Karak Industrial Estate designated October, 1999
Al-Tajamouat Industrial City designated October, 1999
Al-Dulayl Industrial Park
Gateway Project

Is every product produced in a Qualifying Industrial Zone entitled to duty-free entry into the United States? What rules of origin apply?

No. Products from Qualifying Industrial Zones must meet the criteria described in the October 2, 1996 legislation and November 13, 1996 proclamation on provision of duty-free treatment for products of the West Bank, Gaza Strip and Qualifying Industrial Zones. A product is entitled to duty-free entry if:

(1) it is wholly the growth, product or manufacture of the Qualifying Industrial Zone or a new or different article of commerce that has been grown, produced or manufactured in the Qualifying Industrial Zone;

(2) the sum of:

I. The cost or value of the materials produced in Qualifying Industrial Zone, the West Bank, the Gaza Strip, or Israel, plus

II. The direct costs of processing operations performed in the QIZ, the West Bank, the Gaza Strip, or Israel, is not less than 35 percent of the appraised value of such articles;

(3) It is imported directly from the QIZ or Israel.

No article shall be considered a new or different article of commerce, and no materials shall be included for purposes of determining the 35 percent requirement, by virtue of merely having undergone simple combining or packaging operations, or mere dilution with water, or with another substance that does not materially alter the characteristics of the article.

Materials which are used in the production of articles in the Qualifying Industrial Zone, the West Bank, the Gaza Strip, or Israel, and which are the product of the United States may be counted in an amount up to 15 percent of the appraised value of such articles.

How is a new and different article of commerce defined?

“A new and different article of commerce” is one which has been substantially transformed as a result of manufacture in a QIZ into an article having a new name, character or use.

Examples of a substantial transformation include weaving fabric from yarn, making orange juice concentrate from oranges and other ingredients, and assembling a large number of components onto a printed circuit board.

Further information on this issue can be obtained from the U.S. Customs service web site, http://www.customs.treas.gov

Firms that have specific questions on whether a product will meet the requirements for duty-free entry may write to:

The U.S. Customs Service
Office of Regulations and Rulings
Special Classification and Marking Branch
1300 Pennsylvania Ave. N.W.
Washington, D.C. 20229

Are there quotas on goods that can be exported from Qualifying Industrial Zones?

There are currently no quotas on goods exported from any of the 5 designated Qualifying Industrial Zones.

How long will Qualifying Industrial Zones be in effect?

The proclamation went into effect on November 21, 1996, three days after its publication in the Federal Register. The proclamation contains no time limits or renewal requirements; it will remain in effect at the Presidents discretion. The President retains the authority to modify, suspend, or terminate the duty-free status unilaterally.

USTR Barshefsky designated Al-Hassan Industrial Estate as a Qualifying Industrial Zone on March 6, 1998. The U.S. participates as an observer in a status of ventures within the Qualifying Industrial Zone to ensure that there is genuine Jordanian-Israeli cooperation involved in the venture.

How will products of Qualifying Industrial Zones be identified under this arrangement?

The country of origin will be either Jordan or Israel depending on where the last substantial transformation of the product occurred.

Will any special customs provisions be required?

Special certificates are usually not required to be presented at time of entry. However, the customs service may require the importer, manufacturer, or exporter to submit a declaration setting forth:

(a) A description of the article, quantity, numbers and marks of packages, invoice numbers, and bills of lading:

(b) A description of the operations performed in the Qualifying Industrial Zone, the West Bank, Gaza Strip, or Israel and identification of the direct costs of processing operations;

( c) A description of any materials used in the production of the article which are wholly the growth, product or manufacture of the Qualifying Industrial Zone, the west Bank, Gaza Strip, or Israel and a statement as to the cost or value of such material;

(d) A description of the operations performed on, and a statement as to the origin and cost or value of any foreign materials used in the article which is claimed to have been sufficiently processed in the Qualifying Industrial Zone, West Bank, Gaza Strip or Israel;

(e) A description of the origin and cost or value of any foreign materials used in the article which have not been substantially transformed in the Qualifying Industrial Zone, West Bank, Gaza Strip or Israel. With regard to merchandise accompanying travelers, it should be noted that in order to avoid delays to passengers, the inspecting customs officer will extend duty-free treatment to all eligible articles when satisfied, from the facts available, that the merchandise concerned is a product of the Qualifying Industrial Zone.

Can products of the Qualifying Industrial Zone be shipped through Jordan or Israel?

Products of the Qualifying Industrial Zone may be shipped from either Jordan or Israel. Products must indicate the country of origin and indicate that the product was produced in a Qualifying Industrial Zone.

What about “cumulation” in establishing product origin?

The cost or value of the materials produced in Israel or the West Bank and Gaza Strip plus the direct cost of processing operations performed in Israel or the West Bank and Gaza Strip count toward the 35 percent product origin for Qualifying Industrial Zones. In addition, if materials produced in the customs territory of the United States are used in the production of the article, costs attributable to the materials of or production in the United States may be applied toward determining the 35 percent up to an amount not to exceed 15 percent of the appraised value of the article at the time it is entered. Therefore, if 15% of the appraised value of an article is attributable to the U.S., then only 20 percent of the appraised value of the article must be attributable to the Qualifying Industrial Zone, Israel or the West Bank and Gaza Strip.

Who determines the value from these many sources?

The U.S. Customs Service will make that determination.

What is the rule of origin arrangement with regard to textiles?

The rule of origin with regard to textiles from Qualifying Industrial Zones derives from section 335 of the Uruguay Round Negotiations, and is embodied in 19 CFR 102.21. These rules are based on product tariff shift, which is to say that the country of origin is determined on the basis of the location where the product is wholly assembled.

Fact Sheet on “Qualifying Industrial Zones” (QIZs)

The QIZ Concept

The United States proposed the concept of QIZs in President Clinton’s Proclamation No. 6955 of November 1996. That proclamation extends duty free status to “products of the West Bank, Gaza Strip and Qualifying Industrial Zones”. The QIZ represents an unprecedented opportunity to gain duty-free access to the U.S. market without the requirement for any reciprocal benefits and is available only to Jordan and Egypt.

The First QIZ

The first Qualifying Industrial Zone (QIZ) designated by the USTR is Al-Hassan Industrial Estate in Irbid, in nothern Jordan. The total area of this QIZ is 100.5 ha. of which 24.3ha. comprise phase III which will be completed by end of year 2000. Phases I&II encompass 85 companies with a labor of above 10,500 worker.

Additional QIZ’s

Al-Karak Industrial Estate which is managed by the Jordan Industrial Estates Corporation (JIEC), was designated in October, 1999 as the second QIZ in Jordan. It is strategically located on the international highway connecting Al-Karak city with the port of Aqaba and is 110km South of Amman. This estate specializes in different Qiz manufactured products. Two international Apparels companies are already located within this estate and are in the process of starting production and qualifying their products. Many more applications are being processed .

Al-Dulayl Industrial Park is located in the center of the town of Al-Dulayl, 45km northeast of Amman easily accessible by highway.

Al-Tajamouat Industrial City is a privately owned industrial estate in Jordan and is owned and run by Specialized Investment Compounds Co. It is only 18km from West Amman and 8km from East Amman.

Gateway Park is located on the shores of the Jordan River, straddling the border between Jordan and Israel. Garment and other labor-intensive industries will be locating at this site, as well as telecommunication, electronic and computer industries from the USA and the Far East.

Duty Free Entry of Products

In order for QIZ products to gain duty-free entry into the U.S., certain requirements set by U.S. law and a Jordanian-Israeli agreement must be met. U.S. law requires that the article be a new and different article of commerce that has been grown, produced or manufactured in the zone, and that at least 35 percent of the appraised value of a product at the time it enters the U.S. must consist of the cost or value of materials produced and direct cost of producing operations performed in the QIZ. Content from Israel, the West Bank or Gaza Strip can also be included in the 35%. For textiles or apparel produced in a QIZ, rules of origin set out in section 334 of the Uruguay Round Agreement Act, 19 USC 3592, will apply.

The Jordanian-Israeli agreement establishes a joint committee to identify products of businesses located within the zone which involve “substantial cooperation” between the two countries. The committee may determine that a product involves substantial economic cooperation in one of two ways:

First, The manufacturer on the Jordanian side of the QIZ should contribute and manitain at least 11.7% of the minimum 35% content requirement under the legislation and proclamation for duty-free treatment in the United States. The Israeli side should contribute and maintain at least 8% of the minimum 35% (7% for hight tech.products) content requirement, namely 15.3% should be obtained through any combination of input from a Jordanian QIZ, Israel, USA and the West Bank/Gaza Strip.

Second, If the manufacturer on the Jordanian side of the QIZ and the Israeli manufacturer each contribute and maintain at least 20% of the total cost of production of goods eligible for duty free treatment, excluding profits. Production cost includes: cost excluding profit, originating material, wages and salaries, design, R&D, overhead expenses such as marketing expenses.

Third, A situation where one party contributes to the product in accordance to alternative First and the other party contributes to the same product in accordance to the alternative Second is permitted (i.e. Mixing and matching of First and Second alternatives between the two parties).

The joint committee will consist of representatives named by the Jordanian and Israeli governments and an observer from the U.S. If the committee determines that one of the above criteria for substantial economic cooperation is met, it informs U.S. Customs of products and manufacturers eligible for duty-free entry. The joint committee will reconfirm eligibility for duty-free privileges annually, and can suspend a company’s eligibility if the committee’s requirements are no longer met.

Future QIZ Designations

Other areas in Jordan and Israel that meet eligibility requirements may be designated in the future as QIZ’s.

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