This report briefly examines the evolution and economic effects of the QIZ program for Jordan and Egypt during the past 15 years and identifies some related issues for Congress. It does not address the current turmoil in Egypt. For a discussion of this issue, see CRS Report RL33003, Egypt: Background and U.S. Relations , by [author name scrubbed]. Overview

The Qualifying Industrial Zone (QIZ) program was created by the 1996 West Bank and Gaza Strip Free Trade Benefits Act, which amended the 1985 U.S.-Israel Free Trade Agreement (USIFTA). The events of September 11, 2001, expanded the U.S. focus on the Middle East, both geographically and politically. This led to broader and more comprehensive U.S.-Middle East trade initiatives to assist the region. The second initiative was the Middle-East/North Africa Trade and Investment Partnership Initiative (MENA-TIP), announced by President Barack Obama in 2011. For many of these countries, the Generalized System of Preferences (GSP) program is their only trade preference option. However, for MENA countries, the GSP program is more limited than the QIZ program in the following ways:
The GSP program generally excludes from duty-free eligibility most of the high-tariff products exported tariff-free under the QIZ program; GSP does not authorize eligible MENA countries to co-produce with other countries in order to meet the 35% QIZ content requirement; and U.S. content is not permitted to count for any of the 35% content requirement under GSP, whereas it can contribute 15% under the QIZ program. Key Provisions of the QIZ Program

The QIZ program extends U.S. tariff-free benefits to the West Bank and Gaza Strip, and to certain goods co-produced by Israel and Jordan, or Israel and Egypt in export processing zones that meet country of origin and local content requirements. The program grew rapidly, giving a huge boost to Jordan's economy, until the U.S.-Jordan free trade agreement was well into effect. The U.S. Trade Representative (USTR) officially designated the Jordan zones as QIZs. The result of Jordan's expanded trade with the world was that between 2002 and 2011, Jordan's annual exports to the world averaged 31% of its GDP; while its exports to the United States averaged 6%, and its QIZ exports to the United States, which tapered off after 2006, averaged 3% ( Figure 6 ). While the QIZ program decreased in importance after the implementation of Jordan's FTA with the United States, the continuing expansion of its zone system and its increase in trade with other countries suggests that an important outcome of the QIZ program for Jordan was trade capacity building. In March 2013, nearly a decade after Egypt entered the QIZ program, the USTR announced an expansion of the QIZ program (a) to include two new QIZ areas (in Beni Suef and Minya, in Upper Egypt, in addition to existing areas in and around Cairo, Alexandria, the Suez Canal, and the Central Delta in Lower Egypt); and (b) to include all production facilities, present and future, located in the six QIZs. Accordingly, it estimates that the overall economic impact of the QIZ program for Egypt is that:
During 2005 and 2006, the first two years of Egypt's QIZ program, its QIZ exports to the United States accounted for an amount equivalent to 2% of its GDP growth ( Fi gure 13, red bars). (This compares with 30% for four years for Jordan.) Should a regional MENA trade preference program be established similar to what the United States has established for other regions, such as the Caribbean or sub-Saharan Africa?
Congress passed the Qualifying Industrial Zone (QIZ) program in 1996, as an amendment to the U.S.-Israel Free Trade Agreement (USIFTA) implementing legislation. This narrowly focused program provides duty-free access to the U.S. market for goods produced with certain levels of Israeli and Jordanian; Israeli and Egyptian; or Palestinian content. The purpose of the program was political (to further the Middle-East peace process) and economic (to support economic growth in the Middle East/North Africa (MENA) region). After the terrorist events of September 11, 2001, the Bush Administration, and six years later, the Obama Administration, undertook broader initiatives to expand regional efforts to promote peace, democratic transitions, and economic development in the larger Middle East region through trade and investment. Thus, the QIZ program may now be viewed against a backdrop of these more comprehensive programs.
The QIZ program carries some provisions beyond those in most other U.S. trade preference programs. On one hand, it requires cooperative production. On the other, it includes more relaxed content requirements and more generous tariff benefits on certain goods than most trade preference programs, and permits U.S. input to reach the USIFTA 35% content requirement. Jordan joined the QIZ program in 1997, and Egypt joined seven years later in 2004. Three years after Jordan opened its QIZ program, it entered into a free trade agreement (FTA) with the United States. The FTA eliminated tariffs between Jordan and the United States without requiring cooperative production, leading to a decrease in the importance of the QIZ program in U.S.-Jordan trade.
Initially, the QIZ program was a driver of economic growth for Jordan. In 13 QIZs along the border with Israel, factories primarily funded by Asian investment and predominately populated by guest workers from Asian countries co-produced apparel products with partner operations in Israel. For four years, the program contributed an amount equivalent to 30% of Jordan's total GDP growth. Today, the United States is Jordan's second-most important trading partner (after Saudi Arabia). While Jordan's QIZ program has been largely superseded by the U.S.-Jordan FTA, its QIZs remain the source of many of its exports to the United States, as well as to other countries.
For Egypt, the QIZ program was not as transformational as it was for Jordan and contributed, at best, an amount equivalent to 2% of its GDP growth for two years. The country already produced and exported apparel and textiles from Egypt's own cotton woven into fabric in Egyptian factories. The United States was and remains Egypt's top trading partner. President Obama recently expanded the QIZ program for Egypt, naming more zones and including all present and future producers in those zones as eligible for QIZ tariff benefits.
If Congress were to explore additional trade options for stimulating MENA intra-regional and world trade, it might move to reexamine the purposes and effects of the QIZ program. Options for the 113th Congress include possible consideration of the QIZ program in the context of larger policy options relating to U.S.-MENA relations and MENA trade and development.
This report does not address the current turmoil in Egypt. For a discussion of this issue, see CRS Report RL33003, Egypt: Background and U.S. Relations, by [author name scrubbed].