Reconstruction Opportunity Zones: Road Map

USAID/PAKISTAN: TRADE
RECONSTRUCTION
OPPORTUNITY ZONE ROAD MAP
24 JANUARY 2010
JANUARY 2010
This publication was produced for review by the United States Agency for International Development. It was
prepared by Deloitte Consulting, LLP.
USAID/PAKISTAN: TRADE
RECONSTRUCTION OPPORTUNITY
ZONE ROAD MAP
Date of Report: January 24, 2010
Contract Number: EEM-I-00-07-00005
Contractor: Deloitte Consulting, LLP
USAID Cognizant Technical Office: Geoff Wright, Greg Polk,
John Arnold, Kathleen
Montgomery
 USAID/Pakistan: Trade Project

House 02 • Street 16
Sector F-6/3 • Islamabad
Phone +92 51 8438281 – 84 • Fax +92 51 8438280
Email www.pakistantrade.org
DISCLAIMER:
The author’s views expressed in this publication do not necessarily reflect the views of the United
States Agency for international Development or the United States Government.
CONTENTS
ACRONYMS ............................................................................................................................ I
INTRODUCTION ................................................................................................................... 3
EXECUTIVE SUMMARY....................................................................................................... 4
ROZ ROAD MAP TIMELINE SUMMARY ............................................................................ 5
1 SUMMARY OF ROZ LEGISLATION ........................................................................ 7
1.1 DEFINITION OF ROZ .................................................................................................................7
1.1.1. ROZ DESIGNATION CRITERIA, INCLUDING CUSTOMS AND LABOR COMPLIANCE ....9
1.1.2. DESIGNATION OF ROZS.....................................................................................................9
1.1.3. LABOR STANDARD COMPLIANCE .................................................................................10
1.1.4. RULES OF ORIGIN COMPLIANCE ....................................................................................11
1.2. REVIEW OF QIZ PROGRAMS IN JORDAN AND EGYPT .........................................................12
1.2.1. QIZ LESSONS ....................................................................................................................13
2 MARKET ASSESSMENT ......................................................................................... 15
2.1. PREFERENCES FOR NON-TEXTILE/NON-APPAREL ITEMS ..................................................15
2.2. PREFERENCES FOR TEXTILE/APPAREL ARTICLES..............................................................15
2.3. COVERED PRODUCTS SUBJECT TO US TARIFFS GREATER THAN 10% .......................21
2.4. RULES OF ORIGIN ...................................................................................................................28
3 EXISTING INDUSTRIAL CAPACITY OF ELIGIBLE ROZ AREAS ....................... 29
3.1. ROZS AS HUBS FOR LOCAL VALUE CHAINS........................................................................29
3.2. THE US GENERALIZED SYSTEM OF PREFERENCES ............................................................32
3.3. FACILITATING VALUE CHAINS IN ROZ ELIGIBLE AREAS ..................................................35
4 ROZ INSTITUTIONAL ENVIRONMENT ................................................................ 37
4.1. REGULATORY VS. OPERATIONAL ROLES ............................................................................38
4.1.1 THE ROLE OF THE REGULATOR .....................................................................................38
4.1.2 INSTITUTIONAL EXPERIENCE IN PAKISTAN .................................................................41
4.1.3 PRIVATE SECTOR PARTICIPATION ................................................................................42
4.1.4 ESTATE AND ZONE CHALLENGES .................................................................................43
4.1.5 SPECIAL ECONOMIC ZONE (SEZ) INITIATIVE ...............................................................44
4.1.6 RECOMMENDATIONS ......................................................................................................44
4.1.7 NEXT STEPS – ROZ INSTITUTIONAL FRAMEWORK WORK PLAN ................................45
4.1.8 NEXT STEPS – PROVINCIAL PMU CAPACITY BUILDING ..............................................46
5 ROZ LEGAL AND REGULATORY FRAMEWORK ............................................... 48
5.1 EXISTING REGULATIONS IN PAKISTAN ...............................................................................48
5.2 STRUCTURE OF ROZ LEGISLATION ......................................................................................49
5.3 INVESTMENT INCENTIVES ....................................................................................................51
5.4 INVESTMENT INCENTIVES IN PAKISTAN ............................................................................51
5.5 LABOR 54
5.6 NEXT STEPS: ROZ LEGAL AND REGULATORY FRAMEWORK WORK PLAN .....................55
6 ESTABLISHING ROZS ............................................................................................ 57
6.1 ROZ DEVELOPMENT PROCESS ..............................................................................................57
6.2 IDENTIFYING THE DEMONSTRATION ROZS ........................................................................57
6.3 REVIEW OF EXISTING INDUSTRIAL ESTATE SITES .................................................59
6.4 CRITERIA FOR SELECTION OF ROZS. ........................................................................60
6.5 MARKETING AND INVESTMENT PROMOTION .........................................................62
6.6 POTENTIAL DEVELOPMENT COSTS ..........................................................................63
ANNEX ONE: RULES OF ORIGIN ...................................................................................... 65
ANNEX TWO: INDUSTRIAL ESTATES IN NWFP AND BALUCHISTAN ......................... 86
ACRONYMS
ADB Asian Development Bank
AGOA African Growth and Opportunity Act
ATPDEA Andean Trade Promotion and Drug Eradication Act
BOI Board of Investment
CBERA Caribbean Basin Economic Recovery Act
CBP Customs and Border Protection Service
CBTPA Caribbean Basin Trade Partnership Act
CSF Competitiveness Support Fund
DR-CAFTA Dominican Republic-Central American FTA
ECC Economic Committee of Cabinet
EPZ Export Processing Zone
FBR Federal Bureau of Revenue
FDI Foreign Direct Investment
FPCCI Federation of Pakistan Chambers of Commerce and Industries
FTA Free Trade Agreement
GOP Government of Pakistan
GPS Generalized System of Preferences
GST General Sales Tax
HR Human Resource
HTS Harmonized Tariff System
IDA Industrial Development Authority
ILO International Labour Organization
IPEC International Program for the Elimination of Child Labor
KCCI Karachi Chamber of Commerce and Industry
LDC Least Development Country
NTR Normal Track Relations
NWFP North West Frontier Province
OICCI Overseas Chamber of Commerce and Industry
PASDEC Pakistan Stone Development Company
PEZA Philippines Economic Zone Authority
PMU Project Management Unit
PPP Public Private Partnership
PTP Pakistan Trade Project
QIZ Qualifying Industrial Zone
RFR Request for Proposal
ROO Rules of Origin
ROZ Reconstruction Opportunity Zone
SAARC South Asian Association for Regional Corporation
SCCI Sarhad Chamber of Commerce and Industry
SDA Sarhad Development Authority
SEZ Special Economic Zone
SRO Statutory Regulatory Orders
TOR Terms of Reference
USAID Pakistan Trade Project | ROZ Roadmap I
USAID United States Agency for International Development
USAID Pakistan Trade Project | ROZ Roadmap II
INTRODUCTION
The USAID Pakistan Trade Project is working with the Government of Pakistan to facilitate increase
in foreign trade through policy reform and capacity building. The Support to Reconstruction
Opportunity Zones (ROZ) and Sustainable Economic Zones Component of the Project is supporting
the development of an ROZ regime and implementation of ROZs projects in the eligible areas of
Pakistan. Illustrative delivery targets for the ROZ Component targets comprise:
1. Two ROZs established, operational and sustainable by the end of year two after the ROZ Bill
is passed
2. Five ROZs established within 4 years or by program end
3. Exports to the US by ROZ firms increase by 25% by program end
4. A minimum of five GDAs that facilitate increased business activity within the ROZs
This Road Map proposes a plan of action for the Government of Pakistan (GOP) to develop a
sustainable ROZ regime with a number of ROZs operating by the end of the USAID Pakistan Trade
Project in mid 2013. Once ROZs are recommended by the GOP and are designated by the President
of the United States, the Project will support the GOP in developing zones as ROZs and supporting
their exports to the US, including both:
a) Strengthening existing factories/estates/zones in the eligible areas and their exports in general;
b) Developing new estates/zones in the eligible areas;
If the ROZ legislation does not pass by Congress or is amended to include all Pakistan, USAID and
the Project will consider alternative options to create employment opportunities through the
development of industrial zones in Pakistan1.
1
Extending US duty‐free access to producers located anywhere in Pakistan will unlikely have a positive impact on the North‐West region
of Pakistan. Existing textile and garment producers in Lahore, Faisalabad and Karachi will enjoy windfall gains without incentivizing
production and employment in the former ROZ‐eligible areas.
USAID Pakistan Trade Project | ROZ Roadmap 3
EXECUTIVE SUMMARY
Legislation currently before Congress seeks to establish a 15 year unilateral U.S. trade preference
program for Afghanistan and parts of Pakistan. The legislation would permit certain goods produced
in designated geographic areas called Reconstruction Opportunity Zones (ROZs) to be imported into
the United States duty-free for the life of the ROZ Program.
The main objective of the bill is to create employment opportunities in the Northwest region of
Pakistan and Afghanistan and enhance regional economic development. The ROZ-eligible areas of
Pakistan are the North West Frontier Province including FATA, the part of Baluchistan lying within
100 miles along the Afghanistan border and the earthquake affected region of Assad Jammu and
Kashmir.
This ROZ Road Map describes a set of activities recommended to take place over 12 months to
establish a sustainable program of reconstruction opportunity zones in Pakistan. The two key
milestones are the announcement of the potential ROZs by the Ministry of Commerce and the launch
of two Demonstration ROZs established within two years of the announcement of the ROZ Program. .
A regulatory and institutional framework will also be established to support the development and
operation of ROZs. The USAID-funded Pakistan Trade Project will work with the ROZ Working
Group under the PTP-Ministry of Commerce Steering Committee, the Project Management Unit
(PMU) within the Ministry of Commerce, and the provincial governments and relevant authorities of
NWFP, Baluchistan, FATA and Azad Jammu and Kashmir to implement the Road Map.
The ROZ bill grants duty free access to US markets for two general groups of products:
 For Non-Textile/Non-Apparel products, the bill grants duty free access for the period of the
ROZ Program to ROZ products already duty-free under the US Generalized System of
Preferences but currently subject to renewal every two years.
 For Textile/Apparel products, the bill grants duty free access for ROZ products for 1,338 10-
digit HTS lines for Textile/Apparel products representing 47 percent of Pakistan’s existing
exports to the US. 438 of these products normally face US tariffs of between 15 percent and
32 percent. ROZ exports will be subject to additional labor and customs compliance
monitoring and specific rules of origin.
Taking into consideration products with sufficient US market size and US tariffs greater than 10
percent (likely sufficient to outweigh the additional costs of locating in the ROZ-eligible areas of
Pakistan), the most attractive products for ROZ production include overcoats, babies clothes, suits and
blouses of woven material, gloves and embroidered bed linen.
Once established with operational apparel manufacturers, ROZs could form logistical and service
hubs for products in which the ROZ-eligible areas that have resource endowments and have a
comparative advantage. These products include marble and stone, gemstones and jewelry and leather
products destined for the national and regional markets. ROZs could form the hub for production
value chains extending into the local economies.
It is recommended that a federal independent regulatory body is mandated and resourced to plan the
ROZ regime and ensure compliance by ROZ developers and enterprises with specially designed ROZ
regulations dealing with land use, customs, labor, the environment, etc. The regulator would be a
public body but subject to a high degree of private sector oversight.
ROZ ROAD MAP TIMELINE
SUMMARY
(DETAILS RELATED SECTIONS OF MAIN REPORT)
2009 2010
ACTIVITY Aug-Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
ROZ Road Map

Obtain input on draft and prepare final Road Map
Present final draft to ROZ Working Group
Establish ROZ Working Group and PMUs

Ministry of Commerce establishes Working Group
Provinces establish PMUs
PMU staffing
PMU Assistance Program

Stakeholder consultation regarding needs
Prepare capacity building curriculum
Conduct w orkshops
Establishing Legal/Reg Framework

PTP conduct review of current regulatory system
Ministry of Commerce completes legal review
Draft Statutory Rules and Orders to incentivize investment
Draft Design for ROZ Customs Monitoring System
Draft Design for ROZ Labor Monitoring System
Draft Design for ROZ Environmental Monitoring System
ROZ Marketing Plan

Conduct market research on ROZ covered products
Prepare Investor Road Show
Implementing marketing and investment promotion plan
Select Demonstration ROZs

Conduct due diligence review of existing industrial estates
Present findings to Working Group and Provincial PMUs
Ministry of Commerce Announce Designated ROZs
Conduct process for selecting 2 demonstration ROZs
ROZ Public-Private Financing

Review and Analysis of Potential ROZ Funding Resources
Prepare funding applications
The ROZ development process is divided into three distinct phases. The first phase consists of field
testing ideas and developing the process for selecting ROZs. The second stage consists of providing
support and technical assistance to the Federal and Provincial level project management units to
insure common understanding of the ROZ objectives and requirements. The third phase will focus on
selecting the demonstration ROZs and launching the marketing and investor promotion campaign.
The ROZ Road Map above describes a set of activities recommended to take place over the next 12
months, sufficient to establish the ROZ regime and initial ROZ zones. The timeline reflects input
from the Ministry of Commerce, the Pakistan Trade Project, and Provincial level business and
government stakeholders. The two key milestones are developing a working partnership with and
capacity building of the Federal ROZ Project Management Unit and the provincial project
management units and the designation and implementation of the initial ROZs once the ROZ Program
is announced. As illustrated in the timeline above, a variety of tasks will be needed to meet these two
milestones.
To support the ROZ process, the Ministry of Commerce will establish the ROZ Working Group under
the USAID-Ministry of Commerce PTP Steering Committee; and the related national Project
Management Unit (PMU) within the Ministry of Commerce. Work on the legal framework will begin
with the delivery of the legal review currently being conducted by the Ministry of Commerce.
Following a review of the available alternatives, the ROZ regulatory body will be established and the
staffing and training will begin. Parallel to the ROZ selection process and establishing the regulator,
the marketing plan and the financing plan will be put in place.
With the adoption of the ROZ law, the process will proceed from the foundation laying stage to the
implementation stage. The ROZ Working Group, consisting of PTP technical advisors and technical
representatives of public and private sector stakeholders and working with the Provincial PMUs will
then begin formal implementation of the program.
The adoption of the ROZ Law will also serve as the launch point for the marketing and investment
promotion campaign. Although there will have been a number of informational road shows, the focus
will shift to specific investor groups both local and international, who might be the most likely to
invest in an ROZ. The preparation of the business assistance plan will also be started at this point in
preparation for the launch of the ROZ.
As will be discussed later in the Road Map, the first two ROZs are intended to be for the purpose of
demonstrating the concept and working through the physical and legal aspects of the ROZ operations.
For the demonstration stage, the focus will be on the existing industrial estates which will minimize
the time to prepare the zones for occupancy.
1 SUMMARY OF ROZ
LEGISLATION
Legislation currently before Congress seeks to establish a unilateral U.S. trade preference program for
Afghanistan and parts of Pakistan. The legislation would permit certain goods produced in designated
geographic areas called Reconstruction Opportunity Zones (ROZs) to be imported into the United
States duty-free until life of the Program (15 years). The main objective of the bill is to create
employment opportunities in the northwest region of Pakistan and Afghanistan and enhance regional
economic development.
The bill grants duty free access to US markets for two general groups of products – Non-Textile/Non-
Apparel and Textile/Non-Apparel:
 For Non-Textile/Non-Apparel products, the bill grants duty free access to ROZ products
under the US GSP for the duration of the ROZ Program.
 For Textile/Apparel products, the bill grants duty free access for ROZ products for 1,338 10
digit HTS lines for Textile/Apparel products where the majority of Pakistan’s exports to the
US are concentrated. Pakistan currently exports 40%, or 527, of these covered products,
which account for 47% of total Pakistan exports to the US, US$1.7 billion in value.
Duty free access is conditional on Rules of Origin requirements, the establishment and
implementation of strict mechanisms to prevent illegal transshipment of goods through the ROZ,
compliance with core labor standards and several reporting requirements related to the establishment
and maintenance of the ROZ zones.
The legislation for the establishment of Reconstruction Opportunity Zones (ROZs) is currently with
the US congress. Two pieces of legislation - a House of Representatives and a Senate Version – are
currently in process. The House version of the legislation is contained in H.R. 2410 and was passed
on 11 June 2009. The related section is Title IV “Duty-Free Treatment for Certain Goods from
Reconstruction Opportunity Zones (ROZs) in Afghanistan and Pakistan” or “Afghanistan-Pakistan
Security and Prosperity Enhancement Act”. The Senate version is S. 496 the “Afghanistan and
Pakistan Reconstruction Opportunity Zones Act of 2009” is currently in committee.
Prior to passage, the Senate bill must leave committee, be debated and approved by the Senate.
Subsequently, the differences between the House and Senate bill must be reconciled in joint
committee prior to being sent to the President for passage. While there are some differences between
the two bills, they are identical with respect to the product coverage. This report is based on the House
version of the bill while differences with the Senate bill are noted where appropriate.
1.1 DEFINITION OF ROZ

Sec. 402 of H.R. 2410 defines a ROZ as any area that solely encompasses portions of one or more of
the following areas of Pakistan:
1. Federally Administered Tribal Areas (FATA)
2. Earthquake Affected Areas of Pakistan administered Kashmir
3. Baluchistan – Areas within 100 miles of Pakistan’s border with Afghanistan
4. North West Frontier Province
Sec. 402 also requires that the area has been designated by the competent authorities in Pakistan “as
an area in which merchandize may be introduced without payment of duties or excise tax”. This is the
only description in the legislation of a ROZ and infers a contiguous and demarcated area of land under
customs control permitting duty free entry of goods. Discussion has generally likened a ROZ to a
traditional export processing zone. These are fenced industrial estates where manufacturers locate in a
duty-free environment producing goods for export. However, they may also include single factory
EPZs – four single entity EPZs operate in Pakistan, such as the Saindak copper and gold processing
EPZ in Baluchistan (Rokko Dik by Australian Company). The definition in Sec. 402 could also refer
to a duty-free port or city. Customs systems have evolved to the point where fences and entry/exit
controls may no longer be necessary to enforce duty free areas. Computerized clearance, inventory
control and post-entry audit can permit more unrestricted movement of goods into and out of a duty-
free area.
This means that an ROZ need not be restricted to green field fenced industrial area. An existing
industrial estate with a mix of vacant and occupied sites could be designated as a ROZ. Existing firms
serving the local market could continue to operate in a duty-paid environment while exporting firms
could enjoy duty-free entry of inputs and exit of products.
Figure 1: Areas of Afghanistan and Pakistan Eligible for Designation as

Reconstruction Opportunity Zones (ROZs) as Provided for in H.R. 1318 and S. 496
1.1.1. ROZ DESIGNATION CRITERIA, INCLUDING CUSTOMS AND LABOR
COMPLIANCE
Passage of the ROZ legislation by the US Congress will trigger a number of decisions and actions
under the legislation to implement the ROZ regime. In particular, H.R. 2410 places labor and rules of
origin compliance conditions upon ROZ enterprises and the Government of Pakistan. These
requirements go beyond those in existing US trade agreements.2 Agreements establishing QIZs do not
require specific compliance with labor rights and enterprises need only provide copies of invoices
from Israeli and Egyptian/Jordanian suppliers to verify rules of origin compliance on a quarterly basis.
However, as the recent experience of Jordanian QIZs indicates, claims by interest groups that labor
rights are being ignored by exporting enterprises in US trade agreement partner countries can lead to
public concern. Furthermore, factory inspection programs currently operate to the benefit of
enterprises, workers, buyers and consumers in Cambodia, Jordan and in Sialkot3.
1.1.2. DESIGNATION OF ROZS

Section 403 of HR 2410 provides that the US President may designate an area within the eligible ROZ
areas if the proposed area and the Government of Pakistan meet the following conditions:
1) Most importantly, the US President shall consider the following criteria specifically relating
to ROZ designation, and shall notify Congress of the US President’s intention to so designate:
a. The Government of Pakistan expresses its interest for the area to be a ROZ;
b. The capacity of Government of Pakistan to establish a labor monitoring program
considering the geography, labor market, skills requirement and infrastructure of the
proposed site;
c. The Government of Pakistan has provided a monitoring and enforcement plan to
facilitate legitimate cross-border commerce, enforce rules of origin, prevent unlawful
transshipment;
d. Potential for the ROZ to create local employment and local and regional economic
development;
e. The physical security of the proposed site;
f. The economic viability of the site including demonstrating a commitment to finance,
existing or planned infrastructure;
g. Compatibility with US security and foreign policy; and
h. The views of interested persons.
2) Pakistan is an eligible GSP beneficiary country. The criteria for such eligibility that are
relevant to Pakistan include: recognizing arbitral awards in favor of US persons, not aiding or
abetting a group committed to international terrorism, working against the worst forms of
child labor and recognizing internationally accepted worker rights. Factors to be considered
include attempts to limit trade and abrogate intellectual property rights.
3) Pakistan is making progress towards establishing the following: a market based economy with
minimal government interference in the operation of markets; rule of law and political
pluralism; favorable economic policies including access to health care and education; a
system to combat corruption; protection of core labor standards; provides national treatment
and facilitates investment; protects intellectual property; resolves trade and investment
disputes; does not engage in activities undermining US security or foreign policy interests;
2
See Mary Jane Bolles, Afghanistan and Pakistan Reconstruction Opportunity Zones: Issues and Arguments, October 15
2009, Congressional Research Service, Report No. R40627 for a discussion of criticisms and defense of the labor and rules
of origin provisions of H.R. 1318/2410
3
The International Program for the Elimination of Child Labor (IPEC).
does not support international terrorism or gross violations of human rights, cooperates
internationally to eliminate human rights violations and terrorist activities.
However, there is significant repetition among criteria and it is important to note the factors relating to
employment and local economic development; physical security of the proposed site; the economic
viability of the site including demonstrating a commitment to finance, existing or planned
infrastructure and the views of interested persons. These are criteria normally assessed by the zone
regulator and developers and so it is comforting to have them expressed in the legislation. As the
Development section of this report suggests, the ROZ Working Group and regulator should take them
into consideration when selecting ROZ sites since they will be called upon to validate these areas at
the initial stages as well as during the certification process by the US President specified by the
legislation below.
1.1.3. LABOR STANDARD COMPLIANCE

Once the ROZ legislation is passed by Congress, the ROZ Steering Group will direct Government of
Pakistan actions to coordinate with relevant US authorities over labor and customs compliance. The
Ministry of Commerce has established a Joint Study Group with its US counterpart to assist with the
implementation of the ROZ legislation. The Project Management Unit under the Ministry of
Commerce and the USAID Pakistan Trade Project can facilitate this coordination and provide input
where appropriate. ROZ Bill HR 2410 appropriates to the US Department of Labor $20 million to
support labor standard compliance. It would be useful for the ROZ Working Group to advocate with
the GOP to designate specific funds to support local labor compliance and monitoring.
Within 16 months of designation of any ROZ, the US President shall certify to Congress that the
government of Pakistan has fulfilled the following obligations:
1) Established a program, in cooperation with an entity designated by the US Department of

Labor, to assess whether enterprises are complying with core labor standards, the relevant
labor law of Pakistan and acceptable conditions relating to hours, wages and occupational
health and safety. The program shall assist any enterprises found not to be in compliance and
provide training to enterprise workers and managers.
2) The entity operating the compliance program shall publish an annual report listing enterprises
in compliance and not in compliance and describing the non-compliance. The US President
may withdraw, suspend or limit the duty-free benefits to the textile and apparel covered
articles of any enterprise. The Secretary of Labor shall evaluate the compliance program
within one year of its commencement and recommend revisions or expansion to non-textile
and non-garment sectors operating in ROZs;
3) Appointed a labor official within the Government reporting directly to the President of
Pakistan to oversee and evaluate the system of labor compliance. The official shall maintain a
register of textile and apparel enterprises.
4) The capacity program under point (1) above shall improve the capacity of the Government of
Pakistan to inspect textile and apparel facilities and enforce labor law and resolve labor
disputes. Such assistance shall include a review of labor law, developing appropriate reforms
if necessary, increase awareness of core labor standards, promote consultation between key
stakeholders including US buyers; assist the labor official and worker representatives; to
provide on the job training to labor inspectors and judicial officials, etc to enforce law and
resolve disputes.
The United States has signed trade agreements with a number of countries linking market access to
compliance with internationally accepted workers’ rights. A 1999 bilateral agreement with Cambodia
permitted an annual increase in Cambodia’s garment quota to the US provided enterprises were in
substantial compliance with internationally recognized labor standards and Cambodian labor law. The
ILO built local capacity to inspect factories and interview workers and employers. Although labor
standards infringements continued, wages and working conditions improved. USAID has funded
projects to improve garment factory compliance with workers’ rights in Central America and Jordan.
Work has been undertaken in Pakistan to address workers’ rights, particularly child labor. The
Government has ratified the ILO Minimum Age and Worst Forms of Child Labor treaties and, in
1994, established the International Program for the Elimination of Child Labor (IPEC). An IPEC
survey found 7,000 child workers representing 17% of the total soccer ball manufacturing work force
in Sialkot in 1996. IPEC worked with the Sialkot Chamber of Commerce and Industry and donors,
including the US Department of Labor, to develop a voluntary monitoring program which also raised
awareness, provided microcredit to families and improved access to education4. A similar program
was initiated by the association of surgical instrument manufacturers and the ILO in 2001 in Sialkot.
Over 2,000 former child workers now attend non-formal education and 1,269 vendors have registered
with the Child Labor Program.
Successful monitoring and enforcement of labor standards involves a multi-stakeholder effort to

develop a mutually beneficial program. Workers enjoy better working conditions, buyers are assured
that their suppliers meet minimum standards and customer concerns, factory owners gain more
contented and productive workers and less pressure and expense from buyers conducting their own
inspections. Monitoring can be undertaken by independent groups for a fee, or by the government.
Once a risk based system for selecting factories to audit is in place, monitoring need not be
unnecessarily intrusive to factory owners.
1.1.4. RULES OF ORIGIN COMPLIANCE

The ROZ legislation requires customs enforcement measures in order to minimize the risk of unlawful
transshipment of articles from ROZs to the United States. Rules of origin compliance are also
necessary under QIZ rules, but QIZ rules are less burdensome than ROZ compliance rules. In Egypt,
QIZ enterprises file copies of a quarterly report to the Joint Committee made up of Egyptian and
Israeli officials – describing total exports to the US over the previous quarter and the type of inputs
purchased supported by copies of invoices from Israeli and Egyptian suppliers. In Jordan, QIZ
enterprises submit supporting documentation to apply in advance for approval to produce and export
to the US every new product or style of product. Enterprises are also required to apply to the Amman
Chamber of Industry for certificate of origins. Even though certificates of origin are not required
under QIZ agreements they support the provision of trade finance and are regarded by Jordanian
authorities as a check on the integrity of customs control. Procedures in both countries are
administered through the respective QIZ Units at each country’s Ministry of Industry and Trade. The
U.S. Customs and Border Protection Service (CBP) has a Textile Production Verification Team that
inspects the factories of garment exporters to the USA in about a dozen countries each year, including
QIZs, for compliance with rules of origin.
ROZ legislation requires The Government of Pakistan to adopt the following measures:
1) An effective visa or electronic certification system, domestic laws, and enforcement
procedures to prevent unlawful transshipment and false documentation. Such laws and
regulations would permit the CBP access to investigate thoroughly allegations of unlawful
transshipment. Such visa systems were used by countries exporting garment and textile
products to the US when trade in such products was subject to quotas under the Multi Fiber
Agreement until 2005;
4
ILO and Government of Pakistan, Capacity Building of Key State Functionaries on International Labor Standards: Policies,
Programs and Practices, 2008, page 39
2) agree to provide the CBP with a monthly report on relevant shipments and cooperate with the
United States to address any necessary actions;
3) must agree to require each ROZ production entity to register with the government and provide
specific information, including names and contact details of enterprise owners, directors and
corporate officers, suppliers and US buyers; and
4) agree to require that all entities in ROZs maintain complete records for at least five years after
production or export. It is up to the US President to determine whether compliance has been
met. If transshipment conditions are not met, he may suspend eligibility.
In addition, the U.S. Customs and Border Protection (CBP) shall submit to Congress, no later than
March 31 of each year, a report on the effectiveness of the visa or electronic certification system, and
on measures taken by Pakistan to prevent circumvention. If the US President determines, based on
sufficient evidences that an entity has engaged in unlawful transshipment, he shall deny eligibility to
the entity, its successor, and any other entity owned, operated, or controlled by the same principals.
For additional customs enforcement by the CBP, the bill authorizes the appropriation of $10 million
annually for fiscal years 2010–2023. However, a new section was added to the House Bill increasing
the level of customs user fees. It would require the Secretary of the Treasury to increase the amount of
fees charged and collected for the provision of customs services for imports and travel from Pakistan.
The minimum amount that can be collected is $10.5 million per year until September 30, 2014. The
above amount would be in addition to the level of normal customs user fees that would otherwise be
charged and collected.
The additional customs user fees have raised concerns among Pakistan’s exporters and travelers to the
US – all would have to pay the additional fees whether or not located in a ROZ. The USAID Pakistan
Trade Project has calculated the tariff equivalent to $10.5 million per year based on Pakistan’s 2008
exports to the US as 0.29%. This figure will decrease as exports to the US likely increase each year.
1.2. REVIEW OF QIZ PROGRAMS IN JORDAN AND EGYPT

The proposed ROZ program has a related precedent in the Qualifying Industrial Zone (QIZ) program
operating in Jordan and Egypt. In 1996, the US President activated a provision of the amended 1985
US-Israeli free trade agreement to permit duty free access for exports from the West Bank, Gaza and
yet to be designated QIZs. In 1998 the US, Israel and Jordan agreed for QIZs to be established in
Jordan. Of the minimum 35 percent Jordanian local content, eight percent had to originate in Israel.
Since 1999, over one hundred firms in three major QIZs and three smaller QIZs have been regularly
operating, employing over 45,000 workers and exporting over $1.25 billion in garments to the US at
the program’s peak in 2006. A similar agreement was reached with Egypt in late 2004. Seven QIZs
were initially established with almost 400 firms. This has grown to 15 currently designated QIZs, with
nearly 700 firms exporting more than $1 billion annual revenues this year. Employment in 2007 had
reached70,000.
The QIZ experience is not directly applicable to ROZs in Pakistan mainly because there are no
restrictions on which products can be produced and exported to the US from a QIZ. Therefore,
producers are free to select those products for which conditions in Jordan or Egypt are most
competitive. The ROZ bill on the other hand specifies the list of garment and textile products that are
eligible for duty-free entry into the USA, in addition to GSP products that are already duty free.
Secondly, QIZs are not limited to any area of each country. Therefore, producers are free to locate
production facilities in the lowest cost parts of the country, i.e. near large population centers and
ports. Thirdly, on the positive side for ROZs, ROZ producers are free to obtain input from any
country; there is no minimum third country content requirement.
However, like the NWFP, Jordan had little indigenous garment and textile industry – foreign investors
preferred garment manufacturing in Jordan because of its lower capital investment than yarn and
textile production. Investors in Jordan also relied upon foreign workers, for the majority of
production, because of the relative scarcity of Jordanian labor and their initial lack of comfort with
factory life.
In terms of rules of origin, there is no minimum ROZ input required from any country of origin, but
additional transformational restrictions have been added to ROZ manufacturing. Yarn products must
be made from ROZ-origin fiber; fabric products must be from yarn woven etc. within one or more
ROZs; and articles must be cut and assembled from component parts within one or more ROZs. QIZ
enterprises have to meet 35% of the total appraised value from local/Israeli/US material and
processing costs. However, in addition to the local content requirement, applicable transformational
rules are more relaxed. The product need only be substantially transformed in the manufacturing
process - which generally permits garments that have only been assembled from component fabric
parts or knit to shape in a QIZ to qualify.
1.2.1. QIZ LESSONS

A number of lessons from the QIZ experience of Jordan and Egypt can be applied to the development
of ROZs in Pakistan:
1. The QIZ agreements did succeed in creating significant additional garment production and
employment – particularly in Jordan where little garment industry existed before. The rapid
growth of QIZ activity was due to a number of factors including: secure and liberal
investment climate, in Jordan, the ability to provide substantial numbers of work permits to
foreign guest workers, ability to locate a QIZ anywhere in each country and lack of
restrictions on product eligibility. The latter two factors do not exist in the ROZ program –
hampering the application of market forces. Nevertheless, ROZ producers are free to source
their inputs from anywhere in the world, subject to the 35% local content rules of origin.
2. Neither country enacted specific QIZ legislation to administer their regimes. Rules and
procedures were issued by the competent authorities but operation of the QIZ regime relied on
existing legislation and bilateral agreements.
3. In order to administer their QIZ programs, Egypt and Jordan created QIZ Units within their
Ministry of Industry and Trade. The QIZ Units processed the approval of firm and product
registration in compliance with the QIZ agreements and rules of origin, and supported their
governments at the regular QIZ Joint Committee meetings with Israel and the United States.
4. The development and operation of QIZs was left to the existing public and private industrial
estate entities.5 This had the advantage of not creating new organizations and additional
bureaucracy to oversee the QIZ programs. However, at least in the case of Jordan, it tended to
fragment oversight among existing public agencies. No central body was responsible for
regulating activities within private industrial estates which increased the time and effort for
QIZ operators to comply with regulatory requirements. During 2006 and 2007 labor
violations were reported in the QIZs and substantial efforts were expended by the government
to develop and formalize a labor inspection and compliance system to fulfill foreign buyer
requirements as well as the US Government. In Egypt, the regulation of any zone has been
historically divided between the General Authority for Free Zones and Investment (GAFI)
and the Industrial Development Authority (IDA) which report to different ministers. The
government is currently seeking to rationalize the roles of these entities under a
comprehensive zone/estate law.
5. Despite a large underemployed labor force, Egypt’s QIZs struggle to recruit sufficient
workers. This appears to be due to a combination of wage rigidity and the difficult working
conditions of operating spinning and weaving machinery. An Egyptian Cabinet research team
reported 30,000 vacancies in 2007 (compared to a workforce of 70,000). Vacancies were
5
The two largest QIZs in Jordan were privately developed and operated.
expected to reach 134,000 over the following year according to their paper6. This suggests
that ROZ growth could outpace the labor supply. Therefore, labor market regulatory
flexibility and training is essential to ensure sufficient workers are available to meet ROZ
demand. In the case of Jordan, that also has substantial underemployment, QIZ tenants have
been hard pressed to recruit sustainable numbers of Jordanian laborers and have had to resort
to transporting worker from other rural areas to supply their needs.
6
http://www.idsc.gov.eg/Publications/PublicationDetails.aspx?id=145
2 MARKET ASSESSMENT
The ROZ bill grants duty free access to US markets for two general groups of products – Non-
Textile/Non-Apparel and Textile/Apparel. Duty free access is conditional on Rules of Origin (ROO)
requirements, the establishment and implementation of strict mechanisms to prevent illegal
transshipment of goods through the ROZ, compliance with core labor standards and several reporting
requirements related to the establishment and maintenance of the ROZ zones.
2.1. PREFERENCES FOR NON-TEXTILE/NON-APPAREL ITEMS

For Non-Textile/Non-Apparel products, the bill grants duty free access to ROZ products already
eligible under the US Generalized System of Preferences (GSP). GSP beneficiary countries are
currently able to export about 3,400 HTS 8-digit products duty-free into the United States. GSP
eligible products represent about 18% of the total number of traded products listed in the US tariff
schedule – see figure 2 below. As Pakistan is already eligible for GSP preferences, there will be no
tariff changes for products in these categories. However, the bill provides greater certainty for
Pakistan’s exporters – currently the unilateral GSP preferences are extended by Congress for only one
or two years – compared to the 15 year span of the ROZ arrangement, if not renewed by Congress
before then. Furthermore, it appears that ROZ eligible products will not be subject to the automatic
quantitative restrictions and annual lobbying by import competitors.7 Currently any country exporting
more than $140 million of any one GSP product to the United States loses its duty free preference.
US Presidential Discretion - The US President may add products to the non-textile/non-apparel list
after seeking the advice of the US International Trade Commission and if the US President determines
that such articles are not import-sensitive. Once the ROZ regime is established, the Government of
Pakistan could request the US Administration to include further products in which the ROZ eligible
areas of Pakistan have a comparative advantage and that are unlikely to be import-sensitive, as ROZ
eligible. Pakistan currently exports about 60 ROZ-uncovered products that are not textile, apparel or
footwear related. Of these, the only product with a total 2008 export value to the US over $100,000 in
2008 and tariff above 12.5% was Scissors.
2.2. Preferences for Textile/Apparel Articles

Textile and apparel products represent about ten percent of the total number of traded products listed
in the US tariff schedule. Yarn and fabric products represent a further six percent of these total
products – see Figure 2 below. The ROZ bill grants duty free access (referred to hereinafter as ROZ
covered) for just over half of the total number of textile and apparel products traded, i.e. 1,338 10-
digit Harmonized Tariff System (HTS) lines8. In spite of the apparent public concern that products
covered by ROZ represent a small share of Pakistan’s current exports – Pakistan currently exports
40%, or 527 of these covered products, which account for 47% of total Pakistan exports to the US,
US$1.7 billion in value.
7
“Import sensitive” products specifically excluded from GSP preferential treatment include textiles and apparel; certain
watches; footwear and other accessories; certain electronics, steel, and glass products; and certain agricultural products
subject to tariff‐rate quotas. The lists of eligible products and the list of beneficiary developing countries are reviewed and
revised annually by the GSP Subcommittee.
8
The CRS (2009) report estimates that 1,600 10-digit textile and garment line items are covered by the ROZ legislation. The
bills use the 1989 OITC garment and textile product categories to list eligible products. The 1989 list no longer exactly
concords to recent US tariff schedules. Of the approximately 2,100 products listed on the 1989 OITC list, only 1,328 remain on
the 2009 US tariff schedule.
Figure 2. US MFN Tariff Line Distribution
‐ Share of Total 18,734 HTS 8‐digit Lines
Other
41%
GSP
18%
Zero‐Tariff
Apparel 25%
10%
Yarn+Fabric
6%
Figure 3 shows the ROZ impact on the total 2,437 textile and apparel traded products. Fifty four percent of the
product lines are covered by the ROZ bill – of which 527 or 40% are already exported. Forty six percent are not
covered – of which 382 or 34% are already exported.
Figure 3. 10-Digit Garment and Textile Products

4202 and Chapters 56-63
801
727
Exported by Pakistan to
527
382 the USA
ROZ Uncovered ROZ Covered
The covered textile and apparel products include almost any apparel or non-apparel article that is
manufactured from fabric; while excluding yarn and fabric themselves, leather garments and shoes.
That is, only the 4-digit category 4202 (leather bags), and products within the 2-digit Chapters 56 to
63 are covered by the ROZ legislation and discussed in this report.
Goods in this category currently face a trade-weighted average tariff of 7.8% with rates ranging from
0% to 32%9. 87 lines are already duty-free including 21 lines which are currently covered under GSP.
The GSP lines include various categories of gloves, plain cotton towels and US$352,000 of carpet
exports.
Figure 4 below shows the US Normal Trade Relations (NTR) tariff for each of the 1,338 HTS 10-digit
products that are covered under the ROZ legislation. The tariffs are ranked from their maximum rate
of 32% (11 products) to the 87 product lines that are already duty-free. As the chart shows, 237
products (17.8%) are subject to tariffs greater than 15% and 438 (32.9%) are subject to tariffs greater
than 10%. The USAID Pakistan Trade Project estimates that the additional land transport costs of
being located in the ROZ eligible areas represent between 1% and 2% of the value of garments.
Additional labor and security costs will also be calculated and added during the implementation of
9
Data from USITC dataweb.
this Road Map. The former USAID FATA Capacity Building Project had estimated that total
additional costs represent an average 8% of the value of goods exported from ROZs due to their
location10. This suggests that, ceteris peribus, garment manufacturers are likely to be only interested in
producing the 438 ROZ covered products with NTR tariffs greater than 10% that would offset the
location disadvantage costs.
Figure 4. Current US Duties on All 1,388 10‐Digit
35.0%
Textile & Garment Products Covered under ROZ
30.0% No. ROZ Products by tariff
band
25.0%
119 (20‐32.0%)
20.0%
119 (15‐19.9%)
15.0%
200 (10‐14.9%)
10.0% 900 (0‐9.9%)
5.0%
0.0%
1
29
57
85
113
141
169
197
225
253
281
309
337
365
393
421
449
477
505
533
561
589
617
645
673
701
729
757
785
813
841
869
897
925
953
981
1009
1037
1065
1093
1121
1149
1177
1205
1233
1261
1289
1317
How are these 1,338 ROZ covered products distributed among the broader and more familiar 4-digit
categories of textile and garment products? Figure 5 below shows the number of covered and
uncovered 10-digit products according to their corresponding 4-digit category. The figure shows all
67 4-digit categories of textile and apparel products including at least one covered product. The bars
are ranked according to the number of covered products (dark bars) in each 4-digit category compared
to total number of products (pale bars). The first point to note is that the detailed 10-digit products are
not distributed evenly among the 4-digit categories; the number of detailed products varies from six to
231 per category11. But more importantly, the ROZ bill generally provides coverage for the majority
of products within each 4-digit category, in particular: carpets, gloves, overcoats and undergarments.
However, consistent with the emphasis of the ROZ bill on apparel, the bill only provides coverage for
one product in the few fabric and yarn categories included in the bill – see category bars at the bottom
of the figure. Moreover, men’s and boys’ suits, t-shirts and shirts; and sweaters are also not well
covered by the bill and these are large volume categories that could provide substantial potential for
Pakistan.
10
The 8% estimate was stated by representatives of the FATA Capacity Building Project at a meeting with USAID Pakistan
Trade Project Staff in Peshawar with Peshawar Chamber of Commerce, Industrial Estate and SDA representatives. A
manufacturer at the Hattar Industrial Estate estimated additional transport, labor and inventory costs between 6-8% over being
located in Karachi.
11
Figure 5 truncates the four largest categories at 140 products. Not knitted women’s and girls’ suits comprise 231 products;
Knitted women’s and girls’ suits comprise 175; men’s and boys’ not knitted suits comprise 155; and not knitted swimwear and
tracksuits comprise 153 products.
Figure 5. Number of ROZ Covered Products (dark bar) and Total Products (pale bar) within
each 4-digit Textile and Garment Category
WOMEN'S OR GIRLS' SUITS, NOT KNITTED/CROCHETED

TRACK SUITS, SKI-SUITS AND SWIMWEAR, NOT KNITTED OR CROCHETED
WOMEN'S OR GIRLS' SUITS, ..., KNITTED OR CROCHETED
BED LINEN, TABLE LINEN, TOILET LINEN AND KITCHEN LINEN
MEN'S OR BOY'S SUITS, .., NOT KNITTED OR CROCHETED
MEN'S OR BOYS' SUITS, ..., KNITTED OR CROCHETED
SWEATERS, PULLOVERS, ..., KNITTED OR CROCHETED
GARMENTS, MADE-UP OF FABRICS OF FELT…
GLOVES, MITTENS AND MITTS, KNITTED OR CROCHETED
MEN'S OR BOYS' OVERCOATS,..., NOT KNITTED OR CROCHETED, NESOI
WOMEN'S OR GIRLS' OVERCOATS, ..., NOT KNITTED OR CROCHETED, NESOI
GARMENTS NESOI, KNITTED OR CROCHETED
TRACK SUITS, SKI-SUITS AND SWIMWEAR, KNITTED OR CROCHETED
CARPETS AND OTHER ..., WOVEN, NOT TUFTED OR FLOCKED, …
MADE-UP CLOTHING ACCESSORIES NESOI, KNITTED OR CROCHETED;
BABIES' GARMENTS ..., KNITTED OR CROCHETED
HATS AND OTHER HEADGEAR, KNITTED OR CROCHETED, OR MADE UP FROM LACE,…
MADE-UP ARTICLES OF TEXTILE MATERIALS NESOI
WOMEN'S OR GIRL'S BLOUSES, SHIRTS AND SHIRT-BLOUSES, NOT KNITTED OR CROCHETED
GLOVES, MITTENS AND MITTS, NOT KNITTED OR CROCHETED
BABIES' GARMENTS AND CLOTHING ACCESSORIES, NOT KNITTED OR CROCHETED
TRAVEL GOODS, VANITY CASES,…
FURNISHING ARTICLES OF TEXTILE MATERIALS NESOI
WOMEN'S OR GIRLS' SLIPS, ..., KNITTED OR CROCHETED
MADE-UP CLOTHING ACCESSORIES NESOI;
WOMEN'S OR GIRLS' SINGLETS AND OTHER UNDERSHIRTS, ..., NOT KNITTED OR CROCHETED
MEN'S OR BOY'S SINGLETS AND OTHER UNDERSHIRTS, ..., NOT KNITTED OR CROCHETED
MEN'S OR BOYS' UNDERPANTS, ..., KNITTED OR CROCHETED
GARMENTS, IMPREGNATED, ...WITH PLASTICS, RUBBER OR OTHER, KNITTED OR CROCHETED
PANTYHOSE, ..., KNITTED OR CROCHETED
TARPAULINS, SAILS FOR BOATS, ..., OF TEXTILE MATERIALS
MATTRESS SUPPORTS; ARTICLES OF BEDDING AND SIMILAR FURNISHINGS …
BRASSIERES, GIRDLES, ..., WHETHER OR NOT KNITTED OR CROCHETED
PARTS OF FOOTWEAR; REMOVABLE INSOLES, …
WOMEN'S OR GIRLS,…, KNITTED OR CROCHETED, NESOI
MEN'S OR BOYS' OVERCOATS,KNITTED/CROCHETED …,NESOI
CARPETS AND OTHER ..., TUFTED, …
MEN'S OR BOYS' SHIRTS, NOT KNITTED OR CROCHETED
CURTAINS (INCLUDING DRAPES) AND INTERIOR BLINDS; CURTAIN OR BED VALANCES
SACKS AND BAGS, OF TEXTILE MATERIALS, USED FOR THE PACKING OF GOODS
CARPETS AND OTHER ..., KNOTTED, …
WADDING OF TEXTILE MATERIALS …
TIES, BOW TIES AND CRAVATS, NOT KNITTED OR CROCHETED
SHAWLS, SCARVES, ..., NOT KNITTED OR CROCHETED
HANDKERCHIEFS
WOMEN'S OR GIRLS' BLOUSES AND SHIRTS, KNITTED OR CROCHETED
HATS AND OTHER ..., PLAITED …
CARPETS AND OTHER ...NESOI
T-SHIRTS, ..., KNITTED OR CROCHETED
MEN'S OR BOYS' SHIRTS, KNITTED OR CROCHETED
LABELS, BADGES AND SIMILAR …
BLANKETS AND TRAVELING RUGS
HAT SHAPES, PLAITED ….
CARPETS AND OTHER ..., OF FELT, NOT TUFTED OR FLOCKED, …
NARROW WOVEN FABRICS (OTHER THAN LABELS ...); …
TULLES AND OTHER NET FABRICS,…
TWINE, CORDAGE, ROPE …
KNITTED OR CROCHETED FABRICS OF A WIDTH NOT EXCEEDING 30 CM, …
NEEDLECRAFT SETS, …
OTHER KNITTED OR CROCHETED FABRICS NESOI
WARP KNIT FABRICS …
NONWOVENS (OF TEXTILE MATERIALS),…
EMBROIDERY IN THE PIECE, IN STRIPS OR IN MOTIFS
BRAIDS IN THE PIECE; …
USED OR NEW RAGS, SCRAP TWINE, …
HANDWOVEN TAPESTRIES …
HAT FORMS, ...OF FELT, NEITHER BLOCKED TO SHAPE NOR WITH MADE BRIMS; …
0 20 40 60 80 100 120 140
It is useful to examine which of the covered products Pakistan already exports. This indicates
products in which Pakistan already has some competitive advantage and the production of which
could be expanded into a ROZ. Figure 6 shows two results. Firstly, the shorter dark bars show
Pakistan’s exports of the covered products in each 4-digit category as a share of total US imports of
all products within the corresponding 4-digit category12. No dark bar means Pakistan exports few, if
any, products within this category. Pakistan’s exports only exceed 0.25% of US imports in 14 of the
4-digit categories. The most important products are bed linen and towels with a very large 26.6% of
total US imports for that category which means that future expansion in that category would be risky.
Other exported products include bar mops, men’s/boys overcoats, curtains, gloves, tracksuits/swim
wear, women’s/girls slips and undershirts, babies knitwear and blankets.
The second result from Figure 6. is the listing of total US imports of all products within each 4-digit
category. This indicates the potential size of the US market for ROZ products13. Despite the attraction
of high foregone tariffs, some categories have small US markets; of the 67 total number of 4-digit
covered categories of garments and textiles, 30 have US market size of less than $500 million and 42
are less than $1 billion.
Table 1. Most Preferred Covered Categories by Tariff Foregone and Market Size
US
No. Avg. Line
Import
HTS Description Cov. US Exports/
s
Lines Tariff US Imports
$billion
BABIES' GARMENTS ..., KNITTED OR
6111 28 15.5% 0.55% 1,769
CROCHETED
WOMEN'S OR GIRL'S BLOUSES, SHIRTS AND
6206 SHIRT-BLOUSES, NOT KNITTED OR 24 14.4% 0.10% 2,434
CROCHETED
MEN'S OR BOY'S SUITS, .., NOT KNITTED OR
6203 72 12.6% 0.06% 7,987
CROCHETED
4202 TRAVEL GOODS, VANITY CASES,… 21 12.4% 0.07% 7,963
6115 PANTYHOSE, ..., KNITTED OR CROCHETED 14 11.9% 0.01% 1,571
WOMEN'S OR GIRLS' SUITS, NOT
6204 129 11.6% 0.06% 11,844
KNITTED/CROCHETED
BRASSIERES, GIRDLES, ..., WHETHER OR
6212 10 11.1% 0.03% 1,995
NOT KNITTED OR CROCHETED
MEN'S OR BOYS' OVERCOATS,..., NOT
6201 35 10.6% 1.01% 1,420
KNITTED OR CROCHETED, NESOI
WOMEN'S OR GIRLS' OVERCOATS, ..., NOT
6202 34 10.3% 0.07% 1,949
KNITTED OR CROCHETED, NESOI
WOMEN'S OR GIRLS' SUITS, ..., KNITTED OR
6104 89 9.8% 0.13% 3,187
CROCHETED
Note: Covered 4-digit textile and garment categories with: more than 10% simple average US
tariff on covered 10-digit lines; 10 or more covered 10-digit lines per 4-digit category; current
Pakistan exports represent 1% or less of total US imports of the 4-digit category; and more
than $1 billion total US Imports per 4-digit category.
12
Total US imports include both covered and uncovered products. A further refinement of the product analysis could be to
examine Pakistan exports of covered products only as a share of total US imports of covered products. Given the high ROZ
coverage of most 4-digit categories this is unlikely to alter the results.
13
Note that in order to fit all US import values on to the chart, the import values of three 4-digit categories were truncated at five
billion dollars.
Figure 6: Simple Average US Tariff facing ROZ Covered Products (pale bar) and Pakistan’s
Share of total US Imports of Covered Products in Each 4-digit Category, 2008
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000
TRACK SUITS, SKI-SUITS AND SWIMWEAR, KNITTED OR CROCHETED 703

PARTS OF FOOTWEAR; REMOVABLE INSOLES, … 379
BABIES' GARMENTS ..., KNITTED OR CROCHETED 1,769
MEN'S OR BOYS' SHIRTS, NOT KNITTED OR CROCHETED 3,051
MEN'S OR BOYS' SHIRTS, KNITTED OR CROCHETED 2,160
BABIES' GARMENTS AND CLOTHING ACCESSORIES, NOT KNITTED OR CROCHETED 557
WOMEN'S OR GIRL'S BLOUSES, SHIRTS AND SHIRT-BLOUSES, NOT KNITTED OR… 2,434
GLOVES, MITTENS AND MITTS, KNITTED OR CROCHETED 527
EMBROIDERY IN THE PIECE, IN STRIPS OR IN MOTIFS 124
WOMEN'S OR GIRLS' BLOUSES AND SHIRTS, KNITTED OR CROCHETED 1,200
MEN'S OR BOY'S SUITS, .., NOT KNITTED OR CROCHETED 5,000
MEN'S OR BOYS' OVERCOATS,KNITTED/CROCHETED …,NESOI 1,035
TRAVEL GOODS, VANITY CASES,…
WOMEN'S OR GIRLS,…, KNITTED OR CROCHETED, NESOI 1,054
PANTYHOSE, ..., KNITTED OR CROCHETED 1,571
GLOVES, MITTENS AND MITTS, NOT KNITTED OR CROCHETED 226
WOMEN'S OR GIRLS' SUITS, NOT KNITTED/CROCHETED 5,000
NEEDLECRAFT SETS, … 2
BRASSIERES, GIRDLES, ..., WHETHER OR NOT KNITTED OR CROCHETED 1,995
MEN'S OR BOYS' SUITS, ..., KNITTED OR CROCHETED 797
MEN'S OR BOYS' OVERCOATS,..., NOT KNITTED OR CROCHETED, NESOI 1,420
MADE-UP CLOTHING ACCESSORIES NESOI; 133
CURTAINS (INCLUDING DRAPES) AND INTERIOR BLINDS; CURTAIN OR BED VALANCES 1,029
WOMEN'S OR GIRLS' OVERCOATS, ..., NOT KNITTED OR CROCHETED, NESOI 1,949
GARMENTS NESOI, KNITTED OR CROCHETED 907
WARP KNIT FABRICS … 181
WOMEN'S OR GIRLS' SUITS, ..., KNITTED OR CROCHETED 3,187
T-SHIRTS, ..., KNITTED OR CROCHETED 4,499
SWEATERS, PULLOVERS, ..., KNITTED OR CROCHETED 5,000
TRACK SUITS, SKI-SUITS AND SWIMWEAR, NOT KNITTED OR CROCHETED 1,462
MEN'S OR BOYS' UNDERPANTS, ..., KNITTED OR CROCHETED 1,156
BED LINEN, TABLE LINEN, TOILET LINEN AND KITCHEN LINEN 4,396
MADE-UP CLOTHING ACCESSORIES NESOI, KNITTED OR CROCHETED; 247
WOMEN'S OR GIRLS' SLIPS, ..., KNITTED OR CROCHETED 2,710
LABELS, BADGES AND SIMILAR … 33
SACKS AND BAGS, OF TEXTILE MATERIALS, USED FOR THE PACKING OF GOODS 440
BLANKETS AND TRAVELING RUGS 598
MATTRESS SUPPORTS; ARTICLES OF BEDDING AND SIMILAR FURNISHINGS … 2,074
TIES, BOW TIES AND CRAVATS, NOT KNITTED OR CROCHETED 242
HATS AND OTHER HEADGEAR, KNITTED OR CROCHETED, OR MADE UP FROM LACE,… 1,070
WOMEN'S OR GIRLS' SINGLETS AND OTHER UNDERSHIRTS, ..., NOT KNITTED OR… 507
MEN'S OR BOY'S SINGLETS AND OTHER UNDERSHIRTS, ..., NOT KNITTED OR CROCHETED 379
HANDKERCHIEFS 31
KNITTED OR CROCHETED FABRICS OF A WIDTH NOT EXCEEDING 30 CM, … 10
GARMENTS, IMPREGNATED, ...WITH PLASTICS, RUBBER OR OTHER, KNITTED OR… 141
GARMENTS, MADE-UP OF FABRICS OF FELT… 1,205
SHAWLS, SCARVES, ..., NOT KNITTED OR CROCHETED 301
TULLES AND OTHER NET FABRICS,… 22
TARPAULINS, SAILS FOR BOATS, ..., OF TEXTILE MATERIALS 538
FURNISHING ARTICLES OF TEXTILE MATERIALS NESOI 613
WADDING OF TEXTILE MATERIALS … 116
MADE-UP ARTICLES OF TEXTILE MATERIALS NESOI 2,663
HATS AND OTHER ..., PLAITED … 54
CARPETS AND OTHER ..., TUFTED, … 655
TWINE, CORDAGE, ROPE … 290
HAT SHAPES, PLAITED …. 5
CARPETS AND OTHER ...NESOI 86
CARPETS AND OTHER ..., WOVEN, NOT TUFTED OR FLOCKED, … 664
NARROW WOVEN FABRICS (OTHER THAN LABELS ...); … 241
CARPETS AND OTHER ..., OF FELT, NOT TUFTED OR FLOCKED, … 60
CARPETS AND OTHER ..., KNOTTED, … 450
NONWOVENS (OF TEXTILE MATERIALS),… 778
BRAIDS IN THE PIECE; … 39
USED OR NEW RAGS, SCRAP TWINE, … 90
HAT FORMS, ...OF FELT, NEITHER BLOCKED TO SHAPE NOR WITH MADE BRIMS; … 8
OTHER KNITTED OR CROCHETED FABRICS NESOI 260
HANDWOVEN TAPESTRIES … 3
0% 2% 4% 6% 8% 10% 12% 14% 16% 18%
The third results from Figure 6 recalls the discussion above regarding targeting products subject to
high US tariffs. The pale colored horizontal bars in Figure 6 show the simple average tariff for the
covered products in each 4-digit category. About half of the 4-digit categories are normally subject to
US tariffs with simple averages greater than 10%, with four categories facing more than 15% average
tariffs, i.e. tracksuits/swim wear, textile parts of footwear, non-knitted men’s and boys’ shirts and
knitted baby clothes.
Table 1 above suggests 4-digit categories that can be targeted for production in ROZs, starting with
products that are already exported by Pakistan, are otherwise subject to high US tariffs and enjoy a
large US import market.
2.3. COVERED PRODUCTS SUBJECT TO US TARIFFS GREATER

THAN 10%
The 1,338 covered products were filtered according to the following criteria:
a) US Import Tariff greater than and equal to 10% (126 products)
b) US imports from the world greater or equal to US$400 million in any year between 2004 and
2008 (41 Products)
c) Pakistan exports to the world greater or equal to US$ 50 million in any year between 2004
and 2008 (5 Products)
Three categories stand out: overcoats, gloves and bed linen (embroidered). Gloves, Categories 6116
and 6216, already have a market share of 16%; embroidered bed linen has a market share of 15%.
Some expansion can be expected from new ROZ glove and bed linen production but due to market
share this cannot be an unlimited increase. Other line items have a very modest US market size, for
example Cateogories 6105/6106, 6112, 6204 and 6212 with less opportunity for significant ROZ
production. Synthetic fiber overcoats represent the best opportunity to gain market share in the US
due to their high MFN rates and current modest market share.
INDICA
HS PAKISTAN's TIVE
USA's IMPORTS
CO ITEM DESCRIPTION TARIFF RANGE EXPORTS TO POTENT
FROM WORLD
DE WORLD IAL
TRADE,
US$ 000
Ann Ann
ual ual
ROZ
from from from from grow grow
Cover Share Value Share
29.9 24.9 19.9 14.9 Value th in th in
ed Abo Belo in in in
Textile & 6 9% 9% 9% 9% in Valu Valu
Description Produ ve w world 2008, world
Apparel Cat digit to to to to 2008, e e
cts 30% 10% expor US$ impor
25.0 20.0 15.0 10.0 US$ 2004 2004
(10 ts, % 000 ts, %
0% 0% 0% 0% 000 -08, -08,
digit)
%, %,
p.a. p.a.
Total Covered Products 306 8 25 21 57 83 112
Products Covered with
Tariff equal & greater 194
than 10%
FURNITURE, BEDDING MATTRESSES &
SIMILAR STUFFED FURNISHINGS
Articles of
9404
362 bedding/furnishing, nes, 12 3 9 41,82 -26 0.63 1,919, 9 27.44
90
stuffed or internally fitted 7 309
HOME
TEXTILES
Curtains/drapes/interior
6303
666 blinds curtain/bd valances,of 1 1 -26 0.28 674,18 5 31.59
92 5,797
syn fib,nt knit 6
Curtains/drapes/interior
6303
369 blinds&curtain/bd 3 3 50,04 -4 9.51 292,14 5 38.38
91
valances,of cotton,not knit 9 9
6302
360 20 5 5 10 767,6 -3 22.7 1,550, 20 46.85
31 470,064
Bed linen, of cotton, nes 99 970
6302
360 Bed linen, of cotton, 20 5 5 10 49,75 20 2.49 486,38 12 21.08
21
printed, not knitted 7 8
WOVEN
APPAREL
&
CLOTHIN
G
ACCESSO
RIES
Women/girls garments and
6212
859 parts thereof, of textile 4 2 2 -60 0 1,868, 3 19.72
10 42
materials 418
Womens/girls garments
6211
nes, of man-made fibres, 11 11 -32 0.06 471,54 3 20.99
43 1,096
not knitted 4
Garments made up of
6210
659 textile felts and of 4 2 2 0 581,23 9 36
10 -
nonwoven textile fabrics 2
Babies garments and
6209
239 clothing accessories of 8 3 5 -11 0.32 467,96 2 23.32
20 6,199 3,218
cotton, not knitted 1
Womens/girls blouses and
6206
641 shirts, of man-made fibres, 8 6 1 1 18 0.13 640,76 -1 20.29
40 3,613 3,084
not knitted 2
Womens/girls blouses and
6206
341 shirts, of cotton, not 9 7 2 -25 0.12 1,503, 2 22.63
30 7,107 5,026
knitted 471
6205
237 Mens/boys shirts, of man- 2 2 -19 0.17 438,12 -11 27.29
30 2,818 1,852
made fibres, not knitted 4
6205
237 Mens/boys shirts, of cotton, 3 3 15,02 -23 0.14 2,493, -1 23.35
20 4,119
not knitted 7 258
Womens/girls trousers &
6204
237 shorts,of other textile 10 2 4 4 28,34 122 0.95 897,87 -7 34.59
69 28,315
materials,not knitted 7 7
Womens/girls trousers and
6204
237 shorts, of synthetic fibres, 8 2 4 2 -7 0.04 1,092, 0 23.57
63 1,794
not knitted 718
6204
237 shorts, of cotton, not 8 4 4 244,1 29 1.24 5,845, 0 27.99
62 134,074
knitted 09 705
Womens/girls skirts, of
6204
642 other textile materials, not 8 2 1 5 123 0.19 179,01 -22 17.76
59 2,077 2,048
knitted 7
6204
636 Womens/girls dresses, of 6 4 1 1 -11 0.06 729,72 8 23.65
43 1,498
synthetic fibres, not knitted 9
6204
336 Womens/girls dresses, of 8 1 7 -25 0.13 686,88 34 21.18
42 3,652 1,537
cotton, not knitted 5
Mens/boys trousers and
6203
237 shorts, of other textile 11 2 9 69,58 138 6.39 185,16 -15 20.14
49 69,188
materials, not knitted 3 2
6203
237 shorts, of synthetic fibres, 9 2 5 2 18,19 10 0.37 1,134, -3 23.73
43 16,824
not knitted 6 001
6203
237 shorts, of cotton, not 9 4 5 609,9 16 2.86 5,390, 2 24.8
42 376,247
knitted 17 716
Womens/girls anoraks &
6202
635 similar article of man-made 6 2 2 2 -16 0 876,12 6 18.31
93 8
fibres,not knitted 1
634 6201 Mens/boys anoraks and 6 2 2 2 -49 0 -1 18.2
93 similar articles,of man-made 114 901,12
fibres,not knitted 9
KNITTED
APPAREL
&
CLOTHIN
G
ACCESSO
RIES
Women''s full-length or
6115
832 knee-length hosiery, knitted 2 1 1
30
or crocheted
Graduated compression
6115
359 hosiery [e.g., stockings for 4 2 1 1
10
varicose veins], of
6114
659 Garments nes, of man- 9 2 7 -8 0.34 343,78 6 16.05
30 7,516
made fibres, knitted 3
6114
359 Garments nes, of cotton, 11 11 12,20 -46 0.69 582,97 14 33.83
20 7,872
knitted 5 0
Babies garments and
6111
239 clothing accessories of 9 1 4 4 15,53 -9 0.33 1,618, 6 29.48
20 3,794
cotton, knitted 8 157
Pullovers, cardigans and
6110
237 similar articles of man-made 11 5 6 51 0.02 3,465, -1 20.73
30 3,247
fibres, knitted 100
Pullovers, cardigans and
6110
237 similar articles of cotton, 9 5 4 29,50 -1 0.13 9,273, 7 36.33
20
knitted 6 933
T-shirts,singlets and other
6109
838 vests,of other textile 4 2 2 26,98 61 0.32 696,57 2 10.1
90 25,938
materials,knitted 6 8
237 6106 Womens/girls blouses and 1 1 3 1.5 7 21.19
10 shirts, of cotton, knitted 77,51 970,09 60,669
3 6
6105
237 Mens/boys shirts, of man- 1 1 16,38 11 1.14 449,14 14 33.54
20 14,254
made fibres, knitted 6 7
6105
237 Mens/boys shirts, of cotton, 1 1 355,3 -6 5.86 1,783, 8 28.71
10 143,918
knitted 88 983
6104
237 shorts, of synthetic fibres, 6 3 3 24 0.12 414,00 -3 23.05
63 2,289 2,048
knitted 4
6104
237 Womens/girls trousers and 6 6 39,19 22 0.81 1,257, 8 31.31
62 8,557
shorts, of cotton, knitted 9 845
6104
636 Womens/girls dresses, of 2 2 -54 0.01 530,14 54 31.65
43 79 60
synthetic fibres, knitted 0
6103
237 shorts, of synthetic fibres, 5 2 3 34 0.38 567,02 2 39.86
43 7,584 6,202
knitted 4
Mens/boys jackets and
6103
633 blazers, of other textile 5 1 4 88,17 222 44.02 -1 1.14
39 901 896
materials, knitted 4
Womens/girls overcoats,
6102
335 anoraks etc, of cotton, 2 2 149 0.05 769,16 26 47.14
20 514
knitted 5
Mens/boys overcoats,
6101
334 anoraks etc, of cotton, 2 2 54 0.55 746,76 40 59.94
20 4,192
knitted 9
TRAVEL
BAGS,
SUIT
CASES,
HANDBA
GS ETC.
Containers,with outer
4202
surface of sheeting of plas 9 4 5 3,172,
92
or tex materials,nes 1,527 135 0.03 184 8 25.87
Articles carrid in
4202
369 pocket/handbag,w/outer 2 1 1 400,04
32
surface sheetg of plas/tex 55 44 0 3 12 17.47
Handbags w outer surface
4202
369 of sheetg of plastics o of 6 2 4 1,674,
22
textile materials 1,124 90 0.01 698 7 19.58 1,023
Trunks,suit-cases&sim
4202
container w/outer surface 5 4 1 876,52
12
of plastics/textiles 1,208 15 0.01 7 6 16.78 1,095
* Source of data is
Trade Map * 16 Product Categories from Last Data Analysis (Bold)
(www.trademap.org) (Selected 40 Product Categories)
Selection Criteria for
Key Product Categories
1. USA Import Tariff
greater than & equal to 10%
- 126 Products Categories;
2. USA Imports from the World – Equal or
Greater than US$ 400 M (in any year between
2004 - 08) - 41 Products Categories;
3. Pakistan Exports to the World – Equal or Greater than US$ 50 M (in any year between 2004 - 08)
(Grey Shaded Area) - 5 Products Categories - Criteria # 3 is independent of Criteria # 2 (US World
Import)
2.4. RULES OF ORIGIN
The legislation outlines the specifics for rules of origin (ROO) for non-textile/non-apparel and
textile/apparel categories of goods eligible for duty free access. The former is in general required to
meet minimum value added requirements while the latter is subject to transformation requirements.
Similarly to GSP and QIZ rules of origin, the overarching criteria is for ROZ exporters of non-
textile/non-apparel products is to add at least 35% local content to the product – with up to 15% of
that content able to be sourced from the United States, i.e. 20% Pakistan content and 15% US content.
For eligible textile/apparel products the transformation rules are somewhat more complex. If yarn is
the final product the constituent staple fibers shall be spun in; or the continuous filament fiber is
extruded in one or more ROZs. If the final product is fabric, the constituent fibers, filaments or yarns
shall be woven, knitted, needled, tufted, felted, entangled or transformed by any other fabric making
process in 1 or more ROZs. If the final product is any other Textile or Apparel article, it shall be cut
(or knit-to-shape) and sewn (or otherwise assembled) in one or more ROZs from its component
pieces.
The following Special Rules of Origin apply for certain listed Textile/Apparel Products:
 Special Group A Articles (comprising 12 HTS 4-digit categories including towels, bed linen,
curtains, quilts, blankets and shawls) need at the very least to have their fibers/yarn woven or
otherwise transformed in an ROZ. This implies towel knitting machines in place, and sheet
weaving facilities.
 Special Group B Articles – A textile or apparel article that is wholly formed on seamless
knitting machines or by hand-knitting in one or more ROZs shall meet the ROO (Special
Group B articles).
 Special Group C Articles (comprising 16 HTS 6-digit categories – linen, curtains and other
furnishings made from man-made or synthetic material/fibres) have to be dyed and printed,
and use two finishing operations within a ROZ.
 Special Group D Articles – FABRICs of silk, cotton, man-made fibre or vegetable fibre also
have to be dyed, printed and use two finishing operations (Special Group D articles).
 See Annex One of this report for a more detailed description of the rules of origin.
3 EXISTING INDUSTRIAL
CAPACITY OF ELIGIBLE
ROZ AREAS
The development of the Reconstruction Opportunities Zones cannot apply the traditional business
model of the Industrial Estates or Export Processing Zones for a number of reasons. The first is the
1,700 km distance between Pakistan’s seaports, Karachi and Port Qasim, and the region where the
ROZs are to be established. The time and cost for the combined movement of imported inputs and re-
exported outputs make goods produced in the ROZ eligible area uncompetitive compared with similar
activities located near Karachi or, more importantly, the West coast of India or the China coast.
While there are various production centers within the country that are a comparable distance from the
seaports, their production activities rely primarily on local inputs.
A second reason is the difficulty in attracting capital investment to the region because of the current
situation in the banking sector, the additional risk associated with investments in areas with security
problems, and the physical distance between the sources of capital and the proposed ROZs. These
factors create a significant risk premium for any investment, especially green field investments in an
area that has heretofore relied on simple technologies and traditional sources of finance. Added to
these concerns is the limited capacity for maintenance of capital equipment because of the availability
of spare parts and technicians, and limited broadband access.
A third reason is the limited supply of skilled labor for modern production activities. While the region
has a substantial supply of artisans, they rely on older technologies to produce customized products at
relatively small-scale. It is the skilled labor in the country’s urban centers that has provided the value-
added processing, agglomeration of production and access to foreign markets.
Finally, the target industries for this region, as discussed below, must compete directly with the
production of the larger urban centers, in particular, Lahore, Faisalabad, Sialkot, and Karachi. The
expected production would also compete with industries in India and China which have more direct
connectivity with international markets. Since these zones are unlikely to be competitive in terms of
economies of scale or efficiency of production, any export-oriented production would have to target
niche markets.
3.1. ROZS AS HUBS FOR LOCAL VALUE CHAINS

The proposed business model for ROZs is focused on several key principals for success which are
explained as follows:
 Establishing the ROZ as a hub that provides enabling infrastructure that helps to offset
location disadvantages for tenants.
 In key with the hub concept, ROZs may encompass other services and public infrastructure
that will increase their volume and commercial significance such as: dry port facilities, higher
technology services centers and even logistics, transport, warehousing and cargo breakdown
and consolidation facilities.
 A streamlined business environment with a One Stop Shop and streamlined permitting and
transaction processes in which transaction time and costs are substantially reduced;
 Clustering of priority sectors to achieve scale and sectoral linkages;
 Provision of shared machinery and facilities to comply with export quality requirements in the
sectors with resource endowments;
 Fostering and development of sustainable linkages with the local economy in the provision of
raw materials as well as intermediate goods and services that support sector competitiveness;
 Integration of related support services from the other USAID Pakistan projects such as
USAID Pakistan FIRMS, USAID Pakistan JOBS and USAID Pakistan ENTREPRENEURS
that will provide substantial value to tenants as well as consolidating the value chains;
 Provision of shared services that ensure environmental friendliness and compliance;
 Each zone needs to be viable and sustainable with or without the ROZ incentives through
sales to the local market and regional exports and trade to Afghanistan and eventually Central
Asia;
 Provision of a full spectrum of world class zones services in support of zone tenants;
The GOP assisted by the USAID Pakistan Trade Project will need to focus on developing local
production capacity, improving the efficiency and quality of these processing activities and gradually
moving up the value chain performing more of the value-added processing. Since much of the
existing production capacity exists in village level clusters scattered throughout the region, the ROZ
would need to encompass a relatively large hinterland. At the same time, it would have to provide a
central location for providing the more capital-intensive processing facilities that would serve a
number of these clusters as well as the specialized services, e.g. design, marketing and training. This
location would also serve as a logistics hub for agglomeration of the output from these clusters and for
organization and management of the supply chains linking the hub with the major gateways and
external markets (figure 7).
This hub would also provide common services not currently available such as:
 Support for financial transactions,

 Development of marketing channels,
 Technical assistance and design,
 Share machinery and infrastructure,
 Technical training and production techniques, and
 Coordination of supply networks,
The hub would also serve as a traditional industrial estate providing a secure environment for
investment in and operation of production facilities with reliable land tenure and utilities. It would
have offices for logistics service providers and space for transport and storage facilities. These could
include warehousing for distribution of consumer goods and inputs to production activities in the
hinterland. It might also provide duty-free storage primarily for consumer goods since it is unlikely
that a convincing business case can be made for re-export industries.
Figure 7: The ROZ Hub and Hinterland Concept
The long-term strategy would be to upgrade the efficiency of the production clusters in the ROZ hub
and the quality of inputs by establishing supplier networks. These would produce linkages that
provide producers and suppliers with new production technology and product designs based on
current market research. As the individual suppliers grow in size, they would increase not only the
scale of production but also the variety of products offered. As they move up the value chain in terms
of quality and sophistication of the products, the ROZ hub would provide more sophisticated logistics,
facilities, support services and real-time connectivity to the markets for these products.
In preparation for the design of the ROZs, it is necessary to identify industries, clusters and resource
based sectors that are likely to thrive on the site selected for the zones. The industries that are
expected to utilize the ROZ can be broadly grouped into:
 resource-based industries such as marble and gemstones that locate close to the source of
inputs,
 artisan-based industries that rely on the skills of clusters of artisans specializing in specific
products such as engraved metal objects and furniture,
 logistics-based industries located on trade routes that offer the first opportunity for processing
goods such as fruits, vegetables and leather moving along the trade corridor or produced in
the immediate hinterland as well as consolidation, storage and cargo breakdown areas for
cross border trade.
The identification process begins with an examination of the industry’s already existing in the
Northwest that could provide a source of skilled labor and production management necessary to
develop these industries. Based on 2007 industrial survey of the Northwest the local industries could
produce exports, either intermediate or final products, of the following:
 Marble blocks and slabs,
 Fabric produced from cotton and man-made yarns,
 Ready-made garments and basic woven goods,
 Carpets,
 Leather, shoes and leather apparel,
 Furniture, paper and other wood products,
 Metal products for construction and handicrafts, and
 Processed foods including canned vegetables,
 Gems and jewelry.
3.2. THE US GENERALIZED SYSTEM OF PREFERENCES

Pakistan already exports many of these products duty-free to the US under the GSP program – see
table 3 below and the pie chart of specific products14. Although Pakistan competes with 132 countries
exporting to the USA under GSP, the ROZ provides some advantages since China is excluded and
large exporters such as India and Brazil are increasingly restricted in some of the products they can
export to the US under GSP. Pakistan’s exports under GSP increased by 36% between 2007 and 2008
compared to a total US GSP import increase of 2.6%. Part of this increase is explained by India losing
its GSP eligibility for gold and platinum jewelry products – permitting Pakistan’s exports in this
category to double.
Table 3: Pakistan 2008 Exports to US under GSP – Key Categories
2008 ($000) % of
% Exports
Category Description # Lines Export Total
to US
Value Category
Precious or Semi-Precious stones,
71 23 33,100 0.92 0.43
metals
39 Plastics and articles thereof 36 29,881 0.83 0.21
82 Tools, …of base metal 46 20,733 0.58 1.02
63 Other made up textile articles; 3 14,197 0.40 0.93
42 Articles of leather; 15 13,419 0.37 1.07
68 Articles of stone, plaster, cement 15 12,417 0.35 0.51
Note: % of Exports to US: Percent of all Pakistan Exports to US; % of Total Category: Pakistan’s
percent of all US imports in this category
Figure 8, Pakistan Exports to US Gold and Platinum Manicure

under GSP, 2008 ($million) Jewelry, $31 Implements, $18
National Flags, $14
Marble, $9
Other, $101
Sports Gloves, $11
14
GSP exports to the US totaled $194 million in 2008, comprising 461, 10‐digit HTS lines accounting for 5.4% of total Pakistan exports to
the USA. GSP permits duty‐free entry of 3,488 products HTS 8‐digit products.
Pakistan’s total exports from July 2007 to June 2008 of other products that are produced in ROZ
eligible areas include15:
 Leather & Leather Product exports, US$ 1,220.1 million, including tanned leather (US$ 415
Million) to Italy, China, Viet Nam, Germany and Turkey, leather garments (Excluding
Gloves) (US$ 528.2 million) to U.A.E., Germany, USA, Spain, UK., and France; and Leather
Footwear (US$ 105 Million) to Saudi Arabia, UAE, Germany, Yemen, and France.
 Carpets US$ 216.6 Million to Germany, France, Turkey South Africa and Canada.
 Cutlery exports US$ 54.9 million to USA, Brazil, Germany, U.A.E. and France.
 Gems and Jewelry US$ 220.9 Million. Gem stones US$ 7.4 Million to UAE., USA, Germany,
Italy, Canada and Japan. Jewelry exports increased significantly by 408% to US$ 213 Million
in 2007-08, to U.A.E., U.K, USA, Canada and Kuwait.
 Marble and stone exports US$22 Million to China, USA, Canada, Italy, UAE and Saudi
Arabia.
 Furniture exports US$ 11 Million in 2007-08 to U.A.E., UK, U.S.A., Uganda and Saudi
Arabia.
Only leather and leather products are excluded from most preferential trade agreements. Most of these
products are exported to UAE, Western Europe and North America. Pakistan has preferential trade
agreements which reduce tariffs over agreed time frames with China (by 2012) and India (by 2016)
and a more limited agreement with Iran16. Seventy percent of Pakistan’s exports to the EU enter either
duty-free or at preferential rates under the EU GSP program – see box17. Therefore, some preferential
market access appears to exist in markets closer than the United States. ROZs could facilitate the
export of these products in which the North-West region of Pakistan has a comparative trade
advantage to neighboring countries by providing logistical support and business services.
15
Review of Pakistan Exports, July-June (2007-08), Trade Development Authority of Pakistan website
16
WTO Trade Policy Review of Pakistan, WT/TPR/S/193/Rev.1, Page 33
17
http://ec.europa.eu/trade/issues/bilateral/countries/pakistan/index_en.htm
European Commission’s Generalized System of Preferences
Pakistan benefited from the EC’s Generalized System of Preferences (GSP) scheme, including the special
arrangements to combat drug production and trafficking during 2002‐05 involving duty‐free access for all
industrial items and certain agricultural products. However, duty‐free exports excluded leather and leather
products, yarn, and fabrics, and, as from 1 January 2005, clothing; this meant that some 80% of exports to the
EC were ineligible (Government of Pakistan, Budget Speech 2006-2007, June, Islamabad. p8). While these
exports are eligible under the EC’s new GSP scheme from 1 January 2006 to end‐2008, Pakistan only qualifies
under the "general arrangements" and preference margins are limited to 20% of MFN rates on textiles and
clothing and to 3.5% on other exports classified "sensitive". It is ineligible for the EC’s "special incentive
arrangement for sustainable development and good governance" (GSP+), which provides additional (tariff‐
free) benefits to vulnerable countries that are applying international standards in sustainable development
and good governance by effectively implementing specified international conventions (WTO (2007b), Trade
Policy Review: European Communities, Geneva). Pakistan believes that the eligibility criterion that requires
exports from such countries to be less than 1% of total EC GSP covered imports (which it exceeds only
slightly) and the cut‐off date for ratifying and implementing the specified conventions of end‐October 2005
generates a "closed" list that unfairly discriminates against Pakistan, which has lower per capita income than
many eligible countries. Most textile and clothing exports are ineligible under the U.S. and Japanese GSP
schemes. Pakistan’s long‐term objective is for improved GSP access, especially to the United States and the
EC. Pakistan is also concerned that some of its LDC competitors receive more preferential access to these and
other major markets (Government of Pakistan, Trade Policy 2007-08, Speech by the Minister of Commerce,
July. Viewed at: http://www.epb.gov.pk/docs/others/tp_speech07_08.pdf [11 October 2007], p4).

Source: WTO Trade Policy Review of Pakistan, WT/TPR/S/193/Rev.1, Page 34
3.3. FACILITATING VALUE CHAINS IN ROZ ELIGIBLE AREAS
Enterprises in the Northwest are limited in number and small in scale. They employ very simple
production techniques and the outputs are at the low end of the value chain. If they are to become
competitive not just globally but even in the domestic market, they must address a number of
challenges including:
 Inefficient processing of inputs resulting in a large amount of wastage,

 Costly inbound logistics due to loss and damage of cargo ,
 Older production technologies which do not provide export quality consistency or
standard of quality in the goods produced,
 Limited technical skills and a complete absence of trained managers,
 Lack of knowledge about market requirements in terms of design and order cycle.
With the exception of the metal products and man-made yarns, all of these industries utilize local raw
materials supplemented in some cases with inputs from Afghanistan. There are a number of marble
quarries scattered throughout the Northwest clustered around Peshawar, Risalpur and Quetta. Precious
and semi precious stones are located further north with concentrations around, Malakand, Chitral and
Gilgit. Forest areas are scattered throughout the region with a significant concentration of hardwood
near Muzzafarabad. Leather is obtained from sheep and goats raised throughout the Northwest and
across the border in Afghanistan. Natural fibers are grown primarily in the Punjab and shipped into
the region as yarn. Fresh fruits, including grapes, apples, peaches and apricots that are grown in the
Northwest and distributed as fresh fruit to the surrounding area. Relatively little of this is processed
into juices or canned and dried fruit. The exceptions are the metal working sector which obtains the
basic metals from outside the region and the textile industry which utilizes cotton from Punjab and
imported man-made fibers.
The nature of the output of the target industries varies. The marble and gem industries produce
intermediary products that receive further processing elsewhere in Pakistan or overseas. This is
unlikely to change although the extent of local processing can be increased. Textiles, towels and
bedding, garments and carpets are final products but are consolidated elsewhere in Pakistan. This is
unlikely to change except for sales to niche markets. Shoes and other leather products are final
products but the Northwest produces for the domestic market. In order to export, it would have to
improve its processing and consider intermediate products such as shoe uppers. Fruits and vegetables
are sold in the markets are fresh produce or dried fruits. These would be processed so as to offer
output throughout the year. The metal products and furniture industries are expected to produce a mix
of final and intermediate goods with the latter being assembled into final goods near to the foreign
market. Processed fruits and juices would be a final product but with additional labeling and
packaging nearer to the production site.
The major destinations for the country’s exports remain North America and Europe but a growing
portion are being shipped to the Gulf and China. However, it is anticipated that the most important
market in the earlier stage of development of the ROZs will be the Gulf states. The product standards
required by consumers in the Gulf are increasing but are still lower than in the European market. Most
of the orders would be managed through traders, but with increasing involvement of large scale
retailers. The European market presents a bigger challenge because of the demand for greater product
consistency in sales to the organized retail sector. However, the producers could compete for smaller
orders. The greater shipping distance would manageable for all but the shortest order cycles. The US
market is the most challenging in this regard because of its well-organized retail sector, global supply
network, the greater shipping distance and the shorter order cycles.
The goal of the ROZ is to extend the amount of processing performed in the Northwest while
improving the quality and scale of this processing. In order to accomplish this, the ROZ hub would
provide support for local industry, especially in the form of a Hub for investment in the following:
 Cutting and polishing equipment for producing export quality marble and granite slabs,
 Advanced cutting and polishing facilities for gems and jewelry,
 Advanced, larger scale milling equipment for the metal processing industries,
 Facilities for freezing, drying or processing fruits, vegetables and nuts, large-scale processing of
juices and cold storage for shipments of fresh fruits and vegetable.
One of the challenges for the development of the ROZ is to decide on the level of processing that will
take place for each of the target industries. Currently they are involved in primary processing with
many of the intermediate goods produced being sent to the major urban centers for additional
processing prior to being sold into the domestic market or exported. It may be possible to introduce
additional processing activities in the Northwest industries but in the medium term the final
processing will continue to be performed at the major production centers within Pakistan for goods
sold to markets in Punjab and Sind and in overseas processing centers for goods sold that are
exported.
4 ROZ INSTITUTIONAL
ENVIRONMENT
The institutional structure of a modern zone regime – whether it comprises one or more single
enterprise zones or large multi-enterprise zones -- typically involves all five of the following
institutional roles:
1. Regulatory Authority: the governmental agency (regulator) responsible for planning and
administering the zone regime; designating sites as zones; licensing and permitting zone
developers, operators/managers and enterprises; coordinating inputs of public agencies;
monitoring performance; and ensuring compliance with zone rules and legislation;
2. Owner: the public or private sector entity with legal title to the site – including associated
transport infrastructure, i.e. port or airport – that has been designated as an zone;
3. Developer: the party licensed or permitted to physically develop the zone site – can either be
the Owner or a separate entity under a contractual arrangement with the Owner – including
financing, designing and constructing the zone infrastructure and facilities;
4. Operator/Facilities Manager: the party licensed or permitted to manage the zone – can be
the Owner or a separate entity under a contractual arrangement with the Owner – responsible
for the day to day management of zones, leasing/sub-leasing plots of land or buildings within
zones to enterprises, and provision of specialized support facilities and services.
5. Enterprise: the entity licensed/permitted to establish manufacturing, processing, services

provision or any other business operations at a location within the zone – can be the Owner,
Developer or Operator or a separate entity under contractual arrangement with the Operator to
lease/sub-lease an individual plot of land or building within the zone.
Figure 9 highlights the potential distinction between the ROZ Regulator, ROZ Developer and the
ROZ Operator. Currently in Pakistan, these functions are combined under a quasi public sector
authority. One of the objectives of the ROZ program is to promote private sector participation in the
development and operations of ROZs. Given that the Demonstration ROZs will be selected from
among the existing industrial estates, the focus during this stage will be on encouraging a public
private approach to the operational aspects of the ROZs. Once the potential of ROZs has been
established it will become possible for private developers to initiate new ROZs.
Figure 9. Distinguishing the Regulator from the Developer and Operator
Government Developer Operator

(ROZ Regulator) (Public or Private Sector) (Public or Private Sector)
•Project planning elements of •Update strategic planning or •Provision of support services
Strategic Planning produce a detailed feasibility •Mobilize security
•Review ROZ location proposals analysis measures/system to site
from developers •On‐site infrastructure & utilities •Maintenance and repair
•Coordinate preparation of land use •Secure financing and other •Prepare annual operating budget
master plan with developer resources and propose management fee
•Off‐site infrastructure and utilities •Select design firm and prepare •Collect management fee on behalf
•Approve developer’s plans for design of owner
construction •Launch construction contract •Coordinate with Regulator and
•Implement customs procedures tender other entities on provision of
•Monitor construction against •Select construction firm services to enterprises
building code standards and •Build first phase of project (off‐
agreed construction schedule site/on‐site build‐out)
•Ensure compliance with ROZ •Launch marketing effort
regulatory regime •Mobilize investment ‐ lease sites
•Facilitate provision of public to enterprises
services, e.g. vocational training
and health care
4.1. REGULATORY VS. OPERATIONAL ROLES

In the 1970s and 1980s, zone regimes often combined the first four roles into one government owned
and controlled monopolistic zone Authority. The only private participants were the enterprises that
leased space within the zone. Without separating regulatory from operational functions, this situation
gave rise to a perceived conflict of interest between the Authority’s regulatory role in fairly enforcing
the regime and providing incentives and its business role in seeking to maximize financial return from
the zone. While regulation of the regime was a clear mandate for government, governments funding
zone program began to permit initially private operation, and gradually came to allow private
development and then ownership of zones. This evolution placed increasing pressure on such
governments to establish independent, impartial zone regulatory agencies to ensure a level playing
field between private and publicly owned zones.
4.1.1 THE ROLE OF THE REGULATOR

The national zone regime regulator leads the government’s efforts to plan and regulate the zone
regime. The main functions of the regulator are:
1. Assess the demand and opportunities for different types of zones and plan their development,
2. Designate public and private land as an zone,
3. Facilitate business regulation within zones, i.e. issue operating licenses, building permits, etc.,
4. Coordinate roles of other public agencies operating within an zone, i.e. administration of
customs, taxation and environmental requirements,
5. Monitor developer and enterprise compliance with the zone legal framework,
6. Coordinate with zone developers and the national investment promotion organization to
market investment in the zones.
The regulator is typically the first institution to be created within a zone regime. International
experience suggests the following characteristics are important for an effective regulator:
 The most important contributing factor is that these bodies typically have powers over other
national and local governmental entities to provide all necessary approvals and services, in
particular land use, building permitting and business licensing, and to facilitate the provision of
external infrastructure—transportation and utility connections and services—to support zone
development under agreed standards of performance. For example, in the Philippines, the
Philippines Economic Zone Authority (PEZA) has the authority to regulate and undertake the
establishment, operation and maintenance of utilities, other services and infrastructure,
including power, water supply, telecommunications, transport, toll roads and bridges, and port
services.
 Autonomy from civil service, procurement and budgetary rules controlling government
agencies. In particular, regulatory bodies should have flexible compensation and hiring
practices to attract skilled individuals and encourage staff performance.
 The regulatory body should be responsible for all zone regimes throughout the country. Larger
countries which have decentralized zone regulation to the state and provincial levels often run
the risk of weak capacities at the local level which hampers effective regulation through a lack
of coordination and duplication of functions among local zone regulatory bodies.
 Regardless of the particular institutional structure adopted, the most successful zone regimes
are those that maximize private sector participation, not just in development and management,
but also in the formulation of zone policies and governance. More important than the mere
presence of private sector representatives on a board of directors is how those representatives
are selected and appointed. Appointment of private sector representatives by the government
should be avoided. In the Dominican Republic, zone enterprise associations appoint
representatives from two enterprises and two developers every two years to the board of the
zone regime regulator – forming the majority of board members.
There is no single institutional framework in use for zone regulators around the world and a variety of
approaches have been used, including:
Table 4. Traditional Zone Organization Structures
Ministries Government Zone-specific Investment Provincial/State

Authorities/ Management Promotion Governments
Corporations Boards Agencies
Mexico Jordan India Sri Lanka Malaysia
Taiwan Bangladesh Turkey Uganda China
Cape Verde South Korea Ukraine Ireland India
Senegal Thailand Poland
Slovakia Kenya Viet Nam
El Salvador Dubai China
Turkey Costa Rica
Dominican
Republic
As discussed above, state level agencies may lead to inconsistent zone policies and duplicate
functions. Although potentially effective in very large countries with significant regional variations,
investors prefer to see consistent policies and procedures across zones.
A downside to the single ministry approach is the lack of any direct private sector inputs, particularly
at the policy level. The other types of institutional structures are more adaptable in this respect,
allowing the establishment of a “Board of Directors” that includes private sector representatives,
together with key government agencies to provide inputs to policy making and ensuring that zone
development meets the interests of the private sector.
All public agencies can suffer from overly restrictive civil service and budget rules, however, more
countries are permitting regulatory authorities greater administrative freedoms. If the client country
has already established an effective and independent utility regulatory authority, e.g. a
telecommunication authority, then it is likely able to establish the zone regulator as such an
independent authority.
The experience of the Palestine Industrial Estate and Free Zone Authority provides an excellent lesson
for conflict affected states. Due to important security concerns over movement of goods and persons,
the initial planning and implementation of the regime was conducted by an inter-ministerial
committee. Such committees ensure relevant stakeholders and high-level decision makers remain
involved and coordinate delivery of key infrastructure and services to the zone. After the first zone
was developed the inter-ministerial committee evolved into the board of directors of the regulator.
The zone unit within the Ministry of Industry and Trade at the time evolved into PIEFZA – an
autonomous regulatory agency.
The proposed SEZ law in Pakistan presents a blending of the ideas from other countries and as
currently drafted may eventually subsume the ROZs so it is worth summarizing here. Similar to the
Jordan, Bangaladesh and Caribbean, the SEZ law would create a central “Approvals Committee” with
powers similar to those outlined for a zones regulator. However, following the China and India
models, Pakistan’s SEZ law would create Provincial level authorities which would be delegated the
authority to review applications for a zone designation and serve as the conduit for recommendations
to the Approvals Committee. Once the Approvals Committee approves a zone application, the
Provincial level authority would then enter negotiations with the zone developer regarding the terms
of the development agreement. The Provincial level authority would also have the power to acquire
land on behalf of the zone developer.
Key Provincial Industrial Estate Developers
Sarhad Development Authority (SDA)
SDA was established by the NWFP Ministry of Industries. According to its website, the SDA has invested Rs. 1.6
billion in 23 projects. These projects employ 33,000 workers which is about one third of the manufacturing
workforce according to the latest manufacturing census figures. The largest industrial estates in the NWFP are
at Gadoon, Hattar, Risalpur and Peshawar.

Sindh Industrial Trading Estates Ltd. (SITE)
SITE develops and manages industrial areas across Sindh Province. SITE is housed within the Sindh Ministry of
Industries and its current Managing Director is also an Additional Secretary at the Ministry. The Board of
Directors consists of 15 members, with eight members from the government and seven representatives from
tenant companies. SITE earns income from land sales and service fees for activities such as licensing,
conversion, non‐utilization, and water charges.

Punjab Industrial Estates Development and Management Company (PIEDMC)
PIE was incorporated in 2003 by the Ministry of Industries of the Punjab government to develop Industrial
Estates throughout the province. The organization is set up as a public‐private partnership (PPP) where the
Board of Directors consists of 19 private sector directors and six public sector directors. The organization’s
mission is to develop the infrastructure of industrial estates, bring in investors, and then eventually transfer
management to a management board. The Punjab government has provided PIE with a US$16.7 million
revolving loan facility to finance its projects. The main project of the PIE is the Sundar IE near Lahore on 1,600
acres (6.5 square km). Over 20 factories have already started production, 164 are under construction and 50
more are ready to start work.

Faisalabad Industrial Estate Development and Management Company (FIEDMC) is set up by the Government
of Punjab similarly to the PIE. FIEDMC has a 21 member Board of Directors, 16 of whom are from the private
sector. The organization received its start‐up capital through a loan of US$25 million from the provincial
government. FIEDMC’s premier project, M3 Industrial City, near Faisalabad is regarded as the largest Industrial
Estate in Pakistan at 4,800 acres (19.4 square km). The Zone is being developed as a large scale industrial zone,
targeting textile, pharmaceutical, food processing, and electronics industries. Facilities will include a private air
strip, country club, and a 400 acre (1.6 square km) adjacent residential development.

The National Industrial Parks Development and Management Company (NIP) was recently created by the
federal MoI to develop and operate zones. The first project in Korangi Creek is underway. The master plan calls
for clusters such as gems, garments, IT, light manufacturing, and white goods. The NIP has two other projects in
the planning phases and has a long term plan to develop a 5,000‐7,000 acre (20.2‐28.3 square km) Industrial
Estate outside of Karachi.

Other Public Agencies: In Sindh, the Ministry of Textiles has developed Textile City near Karachi to create an
industry cluster. The Sindh Ministry of Information Technology has acquired 200 acres (0.8 square km) outside
of Karachi that it is hoping to turn into a Technopark. It is looking for private partners and is trying to develop an
incentives package. The Union of Small and Medium Enterprises (SME) have been allocated 350 acres (1.4
square km) by the Sindh government to begin planning an SME focused industrial estate. The Trade
Development Authority of Pakistan (TDAP) is planning and proposing the development of a number of clusters
such as Carpet City, Furniture City, and an EPZ called Dazzle Park for gems and jewelry.

Source: summarized from Competitiveness Support Fund, SEZ Benchmarking and Policy Action Plan, May 2007, pp52‐57
4.1.2 INSTITUTIONAL EXPERIENCE IN PAKISTAN

The Export Processing Zone and industrial estate regimes in Pakistan have evolved separately, from
the federal and provincial levels respectively. The only purposefully created regulatory entity is the
Export Processing Zone Authority established in 1980 under its own law and headquartered in
Karachi. Industrial estates have been developed and managed by provincial governments since the
1950s. For example, in the NWFP, the Sarhad Development Authority, under the provincial Ministry
of Industries, has developed and manages four large industrial estates and the Small Industries
Development Board has developed and manages ten small industrial estates. Their Baluchistan
counterparts have developed seven large industrial estates and five small industrial estates – see a list
of them in ANNEX ONE. The SDA also jointly developed the Risalpur EPZ with the EPZA. Funding
is provided by the provincial government and nominal service fees paid by estate enterprises.
Intended to increase foreign exchange from export earnings, the EPZ regime permits duty-free
imports of capital equipment and raw materials, fiscal incentives, low cost access to land, and a
relaxation of foreign exchange and labor restrictions to exporters. The EPZA has developed and
operates three multi-use EPZs – the different phases of the Karachi EPZ, Risalpur EPZ (NWFP) and
Sialkot EPZ. The EPZA has entered into joint ventures to develop EPZs outside of Karachi. The
Risalpur EPZ is a joint venture between the EPZA and the SDA; Sialkot EPZ is a joint venture
between the EPZA and the Punjab Small Industries Corporation. In both cases the EPZA’s role is
limited to that of regulator. A large multi-use EPZ is being developed by the EPZA on 1,000 acres of
land provided by the provincial government of Baluchistan adjacent to Gwadar Port. The EPZA has
also designated five single factory free zones as EPZs – these are mining-related sites being developed
by foreign investors.
4.1.3 PRIVATE SECTOR PARTICIPATION

The private sector and provincial governments have increasingly sought a greater role for the private
sector in estate and zone development and management in Pakistan. Historically the formal
involvement of the private sector in estate development or management has been limited to
participation of representatives of the estate chamber of commerce on an estate management
committee. For example, SDA works with the Hattar Chamber of Commerce to manage the Hattar
industrial estate.
The most common method to increase private sector participation in the development and
management of estates and zones in Pakistan is for the provincial government to establish a company
with public funds to develop and manage estates but directed by a majority private sector board. The
National Industrial Parks Corporation is established with nine of its 12 directors and CEO from the
private sector. The PIEDMC and FIEDMC were also established in this manner. The private directors
of FIEDMC volunteer their time18. This is an effective way to introduce private sector oversight and
direction to estate planning and operation, however, it appears to excuse the private sector from
bearing any ownership or development risk. A better test of private sector participation is the extent
public seed capital has been leveraged to raise private funding of new estates. At the Sundar Industrial
Park near Lahore, the provincial government funded one-third of development costs with the rest
raised from land sales. Estate enterprises elect representatives to the Sundar estate management board
who have complete control over management. Management of the Multan industrial estate was
transferred to an enterprise led management board in 200419.
Further along the Public Private Partnership (PPP) spectrum, the Punjab provincial government has
entered into a joint venture to develop the Overseas Pakistani Zone by providing public land as its
25% equity contribution and the private partner funding infrastructure costs. This eases impediments
over the approval process for the private partner to acquire sufficiently large tracts of private land.
Other examples of private sector investment in industrial estates in Pakistan are:
 The Pakistan-China Economic Zone being developed near Lahore by the Chinese company,
Haier-Ruba. The 3,000 acre zone has been approved by the federal government for a special
incentives package, but investment is only open to Chinese firms.
18
FIEDMC Advertisement, DAWN Newspaper, 20 December 2008
19
Towards a Prosperous Pakistan – A Strategy for Rapid Industrial Growth, Ministry of Industries, Production and Special
Initiatives, 2005 – pp 104-105 for discussion of Sundar and Multan estates.
 A Kuwaiti company is in preliminary talks with Sindh to acquire 8,000 acres (32.4 square
km) to develop as industrial land to lease back to investors.
4.1.4 ESTATE AND ZONE CHALLENGES

Zones and estates in Pakistan suffer from a number of widely acknowledged weaknesses:
1. Although the majority of land within zones and estates has been allocated to enterprises
through sale or long term lease, those enterprises have either not built any facilities or have
ceased to be operational. An Asian Development Bank funded survey found that only 12% of
82 estates and zones surveyed were fully occupied in 2001. Today the Risalpur EPZ has only
four operational activities within the zone, down from 13 operational in the 1990s and a total
of 54 factories that have been approved to establish operations. Chambers have cited changes
in government policy, in particular, restricting local sales from 2004 to 20% of total output,
and removal of income tax incentives as among the reasons for their members to discontinue
operations20. Without effective penalties enforced by the developer, these enterprises have
chosen to leave their sites permanently idle. Public developers have not acted to require
construction despite standard provisions in their lease and sale agreements that enterprises
should construct within two years of being allocated a site21. Presumably, lack of new demand
for the sites has limited any secondary market in the sites.
Table 5. Summary of Industrial Estates and Small Industrial Estates
Status Zones Percentage
Fully allotted, full occupancy 10 12%
Fully allotted, low occupancy 13 16%
Sites available, high occupancy 1 1%
Sites available, low occupancy 42 51%
Under development 4 5%
Planned 12 15%
Total 82 100%
Source: Development of Industrial Zone Policy and Regulations, ADB TA Loan No. 1683-PAK, July 2001,
produced in Table 4.1, Competitiveness Support Fund Benchmarking and Policy Action Plan, May 2007
2. Like the EPZA, the Development Corporations and Boards undertake the two most important
functions in a zone regime – they both regulate and develop their industrial estates. While this
may have permitted a unified reporting structure, it blurs the transparent implementation of
each function. At its most basic level, local political interests and the availability of public
land may dictate the location of estates rather than economic and financial factors. Subject to
political restrictions on land use charges within estates, lack of access to alternative financing,
and lack of reward for maximizing financial returns, the developer agency invests sub-
20
The Special Industrial Zones (SIZ) and Rural Industrial Development Incorporation federal initiatives have
been discontinued. The SIZ program was started in 1993 in 12 locations with investors offered exemptions
from customs duties, capital gains tax and export taxes. The government decided to cancel the program and
its incentives in 1996. Competitiveness Support Fund Benchmarking and Policy Action Plan, May 2007, p 55
21
Development Corporations are seeking to remedy this result – the PIEDMC in the Sundar estate intends strictly enforcing against
enterprises the requirement to operate within two years, see Ministry of Industries, opp. cit. page 104.
optimally in infrastructure and in most cases provides minimal services. This discourages
greater economic activity within estates. Regulatory agencies are discouraged from ensuring
compliance with rules and regulations to give the general perception that this will lower zone
operating costs. Without an effective system of property and income taxation both public and
private land is not put to its most productive use.
The ROZ initiative presents an excellent opportunity for the EPZs to re-engineer themselves
through partnering with the private sector in public private partnerships (PPPs). This will
require the reclaiming of industrial plots that have not been developed or are abandoned. In
the future the Development Corporations can play a crucial role in providing underutilized
industrial land for inclusion in ROZ projects while playing a key strategic role leveraging
their local connections, knowledge and linkages to partner with local and international zone
developers and operators.
4.1.5 SPECIAL ECONOMIC ZONE (SEZ) INITIATIVE

With the support of the Competitiveness Support Fund (CSF), the Ministry of Investment has
proposed to rationalize existing zone and estate development and management by creating a special
economic zones regime throughout the country. The USAID Pakistan Trade team has reviewed and
commented on the Draft SEZ Act to the CSF. The draft law reflects good practice SEZ principles in
general and is able to provide a regime in which ROZs may operate.
At this time there is confusion in the sector since there are eight separate regimes in operation. A high
level federal Board of Approvals would be created to direct the program and, more specifically,
designate SEZs and enter into development agreements with corporate entities to develop and manage
an SEZ. Any existing zone or estate or any land owner may apply to the Board for their land to be
designated an SEZ. Designation criteria apply including maximum time for construction and
operation and a minimum SEZ area. Development agreements would enforce the SEZ development
plan and clarify the rights and obligations of each party. Most of the regulatory functions for the SE
regime would be undertaken by provincial level independent SEZ Authorities. The Authorities would
prepare and enforce SEZ regulations, coordinate infrastructure and other service delivery by public
agencies and monitor the developer performance.
This is a bold initiative that seeks to implement a number of reforms:

 Rationalize existing zones and estates under a common regulatory and incentive regime,
 Reach a balance between federal and provincial control of a zone and estate regulator,
 Separate regulation from zone and estate development and operation,
 Create a mechanism to enforce agreed SEZ development and operation targets.
The Draft SEZ Act has been "approved in concept" by the Ministry of Law, received inter-agency
comments, gone through 3 BOI readings, and been "presented in draft" to the Minister of Commerce.
Once he approves it, it will get finalized by the Ministry of Law and go to Cabinet, then to Parliament.
The USAID Pakistan Trade Project is available to support the implementation of the SEZ Act, for
example, by drafting regulations and administrative instructions.
4.1.6 RECOMMENDATIONS
The Ministry of Commerce is in the process of establishing a ROZ Working Group to direct the
establishment of the ROZ regime. The ROZ Working Group would bring together relevant federal
and provincial public agencies and private sector representatives to agree on a work plan and advise
Government on major decisions such as ROZ designation, funding and any incentives. The ROZ
Working Group would meet regularly, at least monthly in the first year. The Ministry of Commerce’s
Project Monitoring Unit would act as a secretariat to the ROZ Working Group. Following the logic of
the SEZ law and in conjunction with the establishment of the Ministerial level ROZ Working Group,
each province within the ROZ eligible area (Baluchistan, FATA, NWFP and Azad Jammu Kashmir)
is also establishing a PMU and a working group including both public and private sector
representatives.
It is recommended that the ROZ regulator is an independent entity with the authority to recruit and
retain qualified staff and prepare and enforce all necessary ROZ policies and procedures – even if
inconsistent with the rest of Pakistan. The regulator need not have the capacity to implement all
policies and procedures itself. In particular, customs, income tax and environmental monitoring
involve special skills that are best maintained in the nationally or provincially mandated counterparts.
However, a ROZ regulator should have the authority to set such rules and control their application and
enforcement within ROZs.
Secondly, an ROZ regulator needs to balance federal and provincial interests. A federal regulator can
ensure consistent application of ROZ policies and procedures across all three provinces, as well as
dealing with federal or national agencies and foreign investors. Moreover, a federal regulator can
balance the interests of each province so that one province does not attract a disproportionate share of
funding. The proposed SEZ regulatory structure of a senior level federal board and provincial
authorities to regulate the SEZ regime is one approach. An EPZA type entity with provincial branches
is another approach. An intermediate approach could be to transition core members of the Working
Group to be board members of the ROZ regulator.
Thirdly it is recommended that the ROZ regulator have strong private sector direction. The ideal way
to effect this is to have a majority of board members of the regulator represent the private sector –
even though the regulatory itself is a public agency with regulatory powers.
4.1.7 NEXT STEPS – ROZ INSTITUTIONAL FRAMEWORK WORK PLAN

The USAID Pakistan Trade Project has met with representatives of the Ministry of Commerce,
various chambers and provincial development authorities, the EPZA, TDAP and individual
enterprises and consultants over the past two months to understand current issues relating to zones and
estates.
 The Ministry of Commerce intends convening the ROZ Working Group early in 2010. It is
envisaged that the Project Management Unit and the Pakistan Trade Project will work with
the ROZ Working Group to prepare and agree a project work plan. Once the ROZ legislation
is in place the governments of Pakistan and the United States will need to agree on a process
for designation of ROZs. Such a process will likely include setting out the data and analysis
necessary to satisfy the designation criteria stated in the US ROZ legislation and the political
approval process.
 The ROZ Working Group along with the ROZ component of the Pakistan Trade Project
should also prepare an outreach and capacity building campaign to seek national and
provincial stakeholder input into the ROZ regime and to explain the regime to the general
public.
Table 6. Work Plan for ROZ Institutional Framework
Launch
2009 2010 First
ROZs
ACTIVITY Aug-Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
Establish Steering Group and PMU
Stakeholder outreach and Identify Potential members
Ministry of Commerce establishes steering group
TOR for steering group
Establish Subcommittees
Steering Group Meetings
Design/Agree ROZ Designation criteria and process with GoP/GoUS
Establish Regulator
Review existing regulatory stakeholder/organizations
Design/Redesign organization - structure, functions, strategy
Steering Group approval
Upon ROZ Law Approval
Confirm senior management and budget
Strategic planning workshop
Draft Standard Operating Procedures
Train Regulator and Concerned Agency officials
 The proposed institutional structure of the regulator within government and its relationship
with provincial stakeholders and the private sector will require a careful review of existing
organizations. Even before the US ROZ legislation is enacted, the Government of Pakistan
could establish the ROZ regulator by allocating funding and appointing senior managers. If
the ROZ regime is not enacted, the regulator could spearhead zone and estate reforms across
Pakistan along the lines contemplated in the SEZ law currently under review in Parliament.
 Once established the regulator will need to review the capacity of existing federal and local
agencies to execute regulatory functions delegated from the regulator and will also need to set
performance delivery standards through Memoranda of Agreements with these agencies.
 Considerable work is necessary internally within the ROZ Working Group and Provincial
PMUs, to develop a corporate strategic plan, agree a detailed functional description of the
organization with job descriptions and a staff recruitment and training plan. The Legal and
Regulatory work plan outlines work on ROZ standard operating procedures for the regulator
and the publication of ROZ rules.
 The regulator can assess the need for work force development (see legal and regulatory
below), and the need for social services within the ROZ, e.g. health and child care facilities.
4.1.8 NEXT STEPS – PROVINCIAL PMU CAPACITY BUILDING

Given the potential role of the Provincial PMUs in guiding the ROZ process it is important to
establish a common level of understanding among the PMUs. It is recommended that an extensive
program of communication and capacity building be prepared and carried out. The topics covered by
this program might include the following:
 Stakeholder consultation regarding needs,
 Develop PTP SOW for support,
 Define model PMU,
 Prepare TORs for the PMUs and local advisory groups,
 Establish Provincial level advisory groups,
 Define operating relationship between National and Provincial level,
 Prepare materials on ROZs and SEZs for presentations,
 Prioritize and schedule workshops,
 Conduct workshops/presentations,
 Review findings regarding physical/operational status of existing industrial estates,
 Establish mentoring relationships with other Pakistan development authorities.
The table below highlights the sequence of events associated with the implementation of the PMU
capacity building program. The consultation process with local officials and business leaders has
already started and will continue through the first quarter or 2010. Beginning in March, the input from
the consultation process will be translated into a set of workshop materials and the detailed materials
regarding the ROZ legal requirements, ROZ covered products and the zone development process will
be presented at workshops scheduled in each Province during the period of May through August.
2009 2010
PMU Assistance Program

Stakeholder consultation regarding needs
Prepare capacity building curriculum
Conduct w orkshops
5 ROZ LEGAL AND
REGULATORY
FRAMEWORK
Zones and estates do not only facilitate investment and employment by providing access to developed
land and good infrastructure. Zones can be used as a model for national economic reform, i.e. to
demonstrate best practice and to test the impact of economic reforms before introducing them
nationally. Chinese SEZs, for example, experimented with market-oriented FDI, land and tax policies
before extending them to all enterprises. Costa Rica used free zones as efficient mechanisms to attract
foreign investment prior to extending these approaches to enterprises more broadly.
Zones are small and self-contained administrative jurisdictions. Zone regulators can develop and
implement simplified and effective policies and procedures relating to land use and building
permitting, provision of utilities and public-private partnerships, business licensing, customs, income
tax, labor and environmental compliance. The Government of Pakistan has the opportunity to review
the gaps in its existing investment climate and seek workable solutions, initially implemented in the
ROZs. To the extent that foreign investors will locate in ROZs, a simple, low cost and effective
business climate can be just as attractive as duty exemption on its exports to the United States.
5.1 EXISTING REGULATIONS IN PAKISTAN

In the 2010 International Finance Corporation Doing Business Report, Pakistan ranks poorly in five
categories - exceeding a rank of 100 out of 183 economies: enforcing contracts (158 rank), employing
workers (146), paying taxes (143), registering property (119) and construction permitting (105). The
ROZ regime will take care of registering property and construction permits for individual enterprises.
Furthermore, additional ROZ regulations could seek to address the existing labor and taxation
impediments faced by entrepreneurs in Pakistan.
In general, the administrative “hassle factor” remains relatively high in Pakistan, with manufacturers
and Small and Medium sized Enterprises (SMEs) being the hardest hit as they bear the maximum
impact of the administrative barriers to investment (foreign-owned and larger firms are less hindered
in terms of time spent on regulatory and administrative procedures). According to FIAS,
administrative barriers cost a firm on average 10-15% of annual business income and in the range of
50-80% of start-up costs. These results are largely consistent with numbers cited by the Pakistan
Overseas Chamber of Commerce and Industry (OICCI), the Federation of Pakistan Chambers of
Commerce and Industry (FPCCI), ABC, ADB, KCCI and individual investors.
The GOP has been reforming the investment climate, for example, the Board of Investment worked
with relevant agencies to reduce the number of inspection units in Sindh that were required to visit
individual plants from 39 to nine. Setting up a zone or enterprise requires coordinating with a large
number of government authorities to get the proper approvals and logistics sorted out. To get around
these impediments to business, there have been a number of attempts at providing one-window
service at Industrial Estates. Furthermore, customs administration is continually improving. Customs
is being reformed and automated, with clearance times generally shortened from 7-10 days to 6-8
hours. Enhanced risk management has lowered physical inspection rates from 100% to 4% of imports
(2% of exports)22.
Deepening of reforms presents the potential for significant economic gains. The FIAS report
identified seven areas of the business regulatory environment that warrant particular attention –
specifically, by rank order of barrier to private investment:
 Land acquisition and site development regulatory interface,
 Financial regulation and administrative interface,
 Tax administration interface,
 Business registration and approval interface,
 Labour regulation interface,
 Trade facilitation regulatory interface,
 Enforcement of commercial rights interface.
Pakistan’s investment climate also varies by the province. Pakistan’s government is a federal system
that delegates substantial power to the provincial governments, which generates differences in the
quality of public services and in the degree of bureaucracy across the country; local governance has a
powerful influence on a location’s investment climate. A World Bank survey among firms in the
Provinces of Punjab, Sindh and NWFP on the perceived greatest obstacles to economic growth clearly
illustrates how perception of this situation varies according to each province.
Figure 10. Obstacles to Growth
Transportation
Punjab
Crime, theft and Sindh
disorder NWFP
Access to finance
Corruption
Electricity
Tax administration
Policy uncertainty
0% 20% 40% 60%

Share of respondents identifying factor as major or severe obstacles to growth
Source: FIAS’ unpublished 2007 Administrative and Regulatory Costs Survey; World Bank
Investment Climate Assessment (2003); FIAS ARCS (2007)
5.2 STRUCTURE OF ROZ LEGISLATION

The legal and regulatory framework of a zone regime should provide a consistent and transparent
mandate for the zone and the zone institutions. In almost all civil law and common law legal systems,
the zone legal regime consists of three levels of legal instruments – the zone law or laws issued by the
highest legislative body, a set of zone regulations issued by the cabinet or relevant minister, and a set
22
WTO Trade Policy Review of Pakistan, WT/TPR/S/193/Rev.1, p. xii
of zone operational procedures issued by the regulator, often in coordination with the developer.
If the government is able to successfully adopt a zone regime law then the law should show where the
regime law takes precedence over policies provided for in existing legislation. The law should
establish the zone regulator and provide for the rights and obligations of the regulator, developer and
zone enterprises. The Law can also provide for the cabinet, relevant minister or the regulator to issue
regulations setting less important but more detailed policies and procedures relating to specific zone
functions, e.g. business licensing, the building code, customs, income taxation, etc. It is important that
the detailed policies and procedures in the regulations can be amended quickly when necessary by the
regulator, ideally as a board-level decision rather than a cabinet level decision. Finally, standard
operating procedures issued by the regulator are necessary to standardize the workflow of zone
regulator staff eliminating unnecessary discretion.
As the review of the labor and customs compliance requirements of the ROZ HR 2410 in Section One
of this report indicates new legislative authority within ROZs will be necessary to enforce the new
requirements. The Ministry of Commerce has, for instance, come to the conclusion, in its assessment
of the US ROZ Bills before the US Congress Joint Committee, that Pakistan will (at least temporarily)
require a special labor regime to be compliant with US labor requirements, should they be included in
the final US ROZ Law. Full Pakistani compliance with ILO norms in these regards will need to be
established. Furthermore, issues of private property rights and investment disputes settlement seem
most apt to find legal solutions in a Pakistani statutory ROZ scheme. It is not clear how long the
Pakistani legislative process will take to pass the Draft SEZ Act, introducing new business climate
reforms.
An alternative, and much faster, approach to establish the regime is to use existing legislation and
institutions. In Pakistan the alternative track for passage of such measures (pending finalization of the
SEZ Act) resides in the authority of the Minister of Finance and Secretary of Commerce to issue
Statutory Regulatory Orders (SROs) to facilitate the implementation of decisions taken by the
Economic Committee of Cabinet (ECC). This was, for instance, the approach taken by the GOP in
order to fast-track special legal measures for the Gwadar EPZ, following Cabinet decisions dated June
3rd 2009 to approve a special incentives package for Gwadar. In that instance, which is instructive for
the ROZ program, the FBR, in exercise of the powers conferred to it under the Income Tax Ordinance
and Customs Act, enacted tax incentives under SRO 606(I)/2009 and SRO 600(I0/2009 within 3
weeks, while the Government of Baluchistan and the EPZA prepared draft notifications on the
demarcation of the area to be designated as an EPZ under the EPZ Act and sent them to the Ministry
of Industries within 5 weeks. The Action Plan to enact the various SROs was prepared by the
Secretary of the Cabinet Division, who then simply circulated the required action items to the various
concerned GOP parties (e.g., the Ministry of Commerce, Ministry of Industries, EPZA, FBR,
Provincial Government of Baluchistan, etc.). The same legislative approach could be taken as regards
an interim ROZ scheme.
Using the ECC/SRO fast-track legislative approach, we propose building an interim ROZ regime
around the core elements already present in the current EPZ Regime, with appropriate modifications
(as outlined above). Indeed, as is being proposed by USAID Pakistan Trade for the ROZ regime,
Pakistan’s EPZ regime has, for instance, already permitted the designation of EPZs which are subject
to no minimum export requirements (such as the Tuwairqi Steel Mills EPZ and the Khalifa Coastal
Oil Refinery EPZ), with special additional incentives (such as the Gwadar EPZ), developed by other
parties (such as the Risalpur EPZ developed by the SDA, or the Gujwarala EPZ and Sialkot EPZ both
developed by PISC), on land leased to foreign companies, and for large unfenced areas (such as the
3,700 acres Reko Diq EPZ in Baluchistan).
All Government interface with EPZ investors is provided by either Customs or the EPZA, and EPZ
investors effectively operate outside of the laws of Pakistan in most respects. It bears noting that the
EPZA has, as have the MoC and BOI, indicated its willingness to cooperate with the USAID Pakistan
Trade Project not only on the preparation of any required ROZ SROs, but also in any streamlining
and/or other improvements of existing EPZ regime procedures as may be deemed lacking by
international standards. Moreover, the ECC is already the GOP authority designated as responsible for
approving EPZs under Art. 2 of the EPZ Act and can thus immediately exercise those powers to
designate “Special ROZ EPZs.”
5.3 INVESTMENT INCENTIVES

No tax incentive has attracted investors to areas where no fundamental conditions for profitability
exist, such as the availability of natural resources, skilled workers, adequate infrastructure, or even
population density to support markets. As such, tax incentives that were targeted to regional
development have generally failed.23 Tax factors are placed within the bottom 10 among 20 critical
location factors evaluated by the multinational firms24.
The first best solution for any country is to impose one rate of income tax on all sources of business
income derived by an enterprise resident in that country, i.e. the flat rate, broad base approach. Loss
carry forward and accelerated depreciation are more efficient ways to encourage investment. Hong
Kong (China) and Ireland both illustrate the benefits of a simple and transparent tax structure. Both
economies are small and poor in natural resources, and both have adopted low flat company tax rates,
of 17.5 percent in Hong Kong and 12.5 percent in Ireland, for all business sectors with no
discretionary tax incentives. Both countries have excelled in attracting FDI.
Problems with Tax Holiday
 A tax exemption is of little benefit if the company is not making profits, which is usually the case in the initial years
of operation. Firms that are profitable from the outset might not have needed incentives in the first place.
 Tax holidays can facilitate income shifting from non tax exempt enterprises to tax‐exempt companies through
transfer pricing of inter‐company transactions.
 Tax holidays reduce the appeal of debt financing of capital investment by removing the benefits of interest
deductibility. This equity funding bias is accentuated if dividends of tax‐exempt firms are also exempt from
personal income tax.
 Tax exemptions tend to benefit investments with a short‐term time horizon. Longer‐term projects that generate
profits beyond the tax holiday period do not benefit, unless firms are permitted to accrue and defer asset
depreciation deductions beyond the tax holiday period.
 Tax exemptions do not benefit investors from many OECD countries that tax income on a global basis; unless a “tax
sparing” agreement is in place. Source: FIAS (2008)
5.4 INVESTMENT INCENTIVES IN PAKISTAN

The GOP has been actively rationalizing investment incentives applicable across industry and the
industrial estate regimes. A multitude of selective tariff and tax exemptions/concessions, mainly on
raw materials, intermediate inputs, plant, and equipment, are aimed at improving international
23
As stated in Shankar, Raja, and Anwar Shah (2003), “Bridging the Economic Divide Within Countries: A Scorecard on the
Performance of Regional Policies in Reducing Regional Income Disparities,” in World Development, Vol. 31, Issue 8, August
2003, pp. 1421-1441, “regional development policies have failed in almost all countries–federal and unitary alike–to reduce
regional inequalities.”
24
World Bank Multinational Investment Guarantee Agency, “Foreign Direct Investment Survey,” January 2002.
competitiveness, including of export-oriented firms (sections (2)(ii)(g) and (iv)). For example, in
2005/06 tariffs were removed and sales tax zero-rated on machinery and raw materials for priority
sectors with export potential, including marble and granite, poultry and meat, gems and jewellery,
horticulture, and pharmaceuticals; these concessions also apply to domestic sales25. The Government
zero-rated the sales tax on five major export categories in 2005/06 for imported inputs not made
domestically26. Cotton ginning is also zero-rated. Tariff concessions via repayment of tariffs up to
specified limits (expressed mainly as a percentage of the f.o.b. value of exports) were introduced or
extended in August 2006 on many raw materials for specified export products.
Pakistani cabinet can approve new incentives for individual cases. Enterprises locating in the
Pakistan-China Economic Zone being developed privately near Lahore will enjoy a five year tax
holiday and exemption of custom duties on the import of capital equipment. The zone developers are
establishing Workers Training Centers and a dry port facility.
Firms in EPZs receive certain benefits e.g. duty-free imports, and freedom from national import
restrictions. However, zone officials and the private sector have suggested that the requirement to
export at least 80% of production from 2004/05 (section 13(5), Import Policy Order 2006) and a
restriction on the number of products that can be sold domestically have discouraged production in
smaller EPZs. Moreover, the service charge of 0.5% of f.o.b. value paid by EPZ exporters to the
EPZA in addition to same income 1% withholding tax paid as other exporters is likely a burden for
most EPZ exporting firms. Exporters pay income withholding tax instead of income tax: the rates
ranged across products from 0.75% of f.o.b. sales to 1.5% until they were unified at 1% in the
2007/08 Budget (section (2)(iv)(a)).
Application of the NWFP Industrial Estates framework would also bring to the ROZ scheme an initial
set of incentives, under Customs Notification No. SRO 500(1)/84 (14th June, 1984), Customs
Notification No. SRO556(1)/82, Customs Notification No. SRO 647(1)/85, CBR Notification SRO
(1)/84, CBR Notification No. SRO (1)/87 (Income Tax), MoF Customs Notification No. SRO (1)/87,
MoF Customs Notification No. SRO 517(1)/89, and MoF Notification No. SRO (1)/89 which
provided an initially sufficiently attractive framework to draw in industrialists from Lahore and
Karachi in a broad variety of economic activities.
Further incentives were provided under the NWFP Industrial Policy (2005). Although some of these
incentives have now been repealed and should not necessarily be reintroduced without careful
analysis and consultation with industry stakeholders across the country, the NWFP incentives
experience is interesting in that (i) it was initially successful in drawing investment to the area; and
(ii) it provides an important legislative precedent and legal reference language for the FBR to draw
upon –a factor which could considerably expedite the passage of any ROZ SROs modeled to a degree
upon the experience of the prior NWFP incentives package. Moreover, KCCI, OICCI, FPCCI, SCCI
and other consulted chambers have formulated and expressed creative positions to the USAID
Pakistan Trade legal team as regards incentives packages, they would deem acceptable and
appropriate for the ROZ regime. This leads the USAID Pakistan Trade Team to believe that a
consensus-based package of ROZ incentives could be crafted relatively rapidly.
25
Exporters spend about 20% of their time dealing with sales tax refunds and most have felt it necessary to set up costly
dedicated refund departments (Ministry of Industries, Production and Special Initiatives, 2005, p. 52).
26
The 2007/08 Budget removed zero-rating on chemicals used in these industries that were also being used in other activities.
Reforming Customs within ROZs - In addition to streamlined logistics and Customs procedures, a
modern SEZ customs regime must also essentially provide the entire SEZ with a common duty-
deferral mechanism for raw and intermediate materials, finished products and capital equipment.
This mechanism enables a wide variety of transactions under a single customs regime. It may also
be necessary to allow ROZ enterprises serving the local market to opt out of the duty-deferral
mechanism - such a hybrid zone attract a wider variety of tenants and thus improve financial
feasibility.
Reliance on automated systems and customs technology - To manage this diversity of customs
transactions, SEZs rely on streamlined inspection procedures; automated risk profiling; electronic
container sealing and tracking; flexible record keeping and inventory controls; and EDI-based
integrated automation.
Post-audit control and enforcement - SEZs are too large to rely on physical fencing, guards, and
authenticated paper documents to ensure the integrity of the customs territory. Instead, enforcement
is based on post-audit of inventory records and declarations, often linked directly to an automated
customs system to identify and audit high-risk traders and users.
Tax administration compliance costs tend to be high in Pakistan. Despite the fact that 85% of sectors
formerly filing for refunds were zero-rated for GST under the Finance Bill 2005, GST refunds can
take up to six months, reportedly due to Government cash-flow constraints and poor information
management. Overdue tax refunds tie up capital which might otherwise be allocated to business
objectives and contribute to enterprise growth.
The withholding tax on exporters is a short-term solution to poor tax administration. It not only
foregoes potential tax revenue for the Government of Pakistan but is also an inefficient tax in that it
ignores the variation of gross margins across industry. Currently, large service firms are subject to the
standard net income tax rate of 35%. Should these firms also be taxed with a gross income tax in
order to maintain equity across different sectors within ROZs? Equity requires consistent taxation
across all forms of income. Table 7 shows the income tax rate as a percentage of gross sales for a
number of US industries based on their 2004 annual reports compiled by BizStats. The industries
listed are service and manufacturing sectors that could potentially locate in ROZs. The first
observation is that service industries (except wholesale traders) generally earn a higher return on sales
than manufacturing industries and so would benefit from extending the 1% withholding tax. Secondly,
among manufacturing firms, some industries already pay the equivalent of less than 1% of gross sales
as a net income tax, e.g. automobile and auto parts; agriculture, mining and construction machinery;
milling; meat and seafood processing; and non-ferrous metal products. These industries would be
adversely affected by the 1% withholding tax.
Table 7. Income Tax as a Share of Total Sales – Selected US Industries 2004

Return
Tax as % Proposed
Industry on Sales Difference
of Sales SEZ Rate
(%)*
Services
Warehousing and storage 5.64 3.31 1 2.31
Truck transport 3.99 3.87 1 2.87
Other transport & support services 6.54 2.88 1 1.88
Wholesale electronic markets, agents & 8.58 2.91 1 1.91
Return
Tax as % Proposed
Industry on Sales Difference
of Sales SEZ Rate
(%)*
Wholesale – motor vehicles 3.60 0.88 1 -0.12
Wholesale – electrical goods 2.62 0.72 1 -0.28
Average services
Manufacturing
Fruit and vegetable preserving 6.48 1.18 1 0.18
Meat and seafood processing 2.90 0.84 1 -0.16
Animal feed, grain & oil seed milling 3.46 0.75 1 -0.25
Textile mills 5.84 1.72 1 0.72
Cut and sew apparel 6.99 1.90 1 0.9
Apparel knitting mills 4.76 2.05 1 1.05
Pharmaceuticals 14.41 1.28 1 0.28
Soap, cleaning & toilet preps 8.81 1.10 1 0.1
Basic chemicals 6.79 1.36 1 0.36
Paint, coating & adhesives 7.65 2.06 1 1.06
Plastic products 6.09 1.75 1 0.75
Non-ferrous metal products 5.81 0.78 1 -0.22
Iron, steel mills and steel products 8.91 1.29 1 0.29
Pulp, paper, paperboard mills 5.21 1.37 1 0.37
Boiler, tanks & shipping containers 4.84 1.18 1 0.18
Hardware, wire, nuts, cutlery 8.16 2.18 1 1.18
Ag, mining & construction machinery 3.79 0.73 1 -0.27
Ventilation, heating, refrigeration equip 4.53 1.20 1 0.2
Ship and boat building 6.55 1.95 1 0.95
Motor vehicles and parts 1.92 0.78 1 -0.22
Furniture 5.25 2.28 1 1.28
Average Manufacturing
Total Average 5.93 1.64 1 0.64
Source: www.bizstats.com * return on sales is net profit after tax as a share of annual net sales
5.5 LABOR
In addition to protecting workers’ rights, as discussed in Section One of this report, flexible labour
regulation is an important factor influencing foreign investment, and is increasingly common around
the world. Employment flexibility (e.g., part-time, temporary, casual, on-call, fixed price, training,
seasonal, contracting out) is its first measure. Flexible working hours are spreading in both the
developed and developing world, where they were traditionally rigidly regulated by legislation. In
terms of flexibility in firing, heavily prescriptive “prior administrative authorisation” for dismissals
are being eliminated the world over, and the scope of unfair dismissal legislation broadened and
eased.
Pakistan does not provide a business-enabling environment when compared with the worldwide and
South Asian trends toward “legislated labour flexibility.” Moreover, from an administrative
standpoint, a large number of labour registration, record keeping, and notification requirements exist
and must be complied with in Pakistan. In the context of current reforms, Pakistan should thus
consider labour legislation more in the nature of “frameworks” and “parameters,” leaving specific
labour norms to be defined by the concerned parties themselves.
While, under the Labour Policy (2002), the government has committed to rationalising and
consolidating over 20 labour laws into just 5, this appears to represent only a partial solution, as
Pakistani labour legislation is scattered in over 70 largely obsolete laws, replete with onerous
implementation procedures conducive to abuse of discretionary administrative authority, which add
considerable costs to business operations. 30% of the 2007 FIAS study’s respondents reported
problems with Pakistani labour regulation, and 36% of those cited problems they characterised as
“severe” in nature. As a result, surveys and interviews also reveal that most Pakistani SMEs
circumvent labour regulations in one way or another. Expatriate management entry is an area of key
concern of foreign investors. Pakistan offers a number of extremely competitive, investor-oriented
facilities in its business visa policy. However, solicitors who deal in FDI matters note that Pakistani
work visas are somewhat slow to be issued and subject to numerous legal requirements.
5.6 NEXT STEPS: ROZ LEGAL AND REGULATORY FRAMEWORK WORK

PLAN
As part of the Road Map it will be necessary to review existing legislation and incentives and
carefully match these policies against any disadvantages of investing in ROZ eligible areas. In
general, any market failure should be addressed directly rather than through a broad fiscal incentive,
e.g. training grants to encourage training of local unskilled workers and transport/housing grants to
bring workers from distant towns27.
The timetable for establishing the ROZ Legal and Regulatory Framework, below, separates activities
into pre and post US ROZ legislation approval. Before the ROZ legislation is enacted, the first step
starts with the completion of the Ministry of Commerce’s Study of the ROZ Legal Environment and
PMU and USAID Pakistan Trade Project input into the review of the Study. The economic costs and
benefits of any special ROZ incentives will have to be analyzed and approved by the ROZ Working
Group. The Standard Rules and Orders necessary to implement any regulatory policy and procedural
reforms are expected be drafted and approved by the end of first quarter 2010. These will enable
establishment of the ROZ regulator and drafting of its internal administrative instructions on finance,
procurement and human resources. It is anticipated that the PMU, key Working Group members and
the USAID Pakistan Trade Project will coordinate over the incentive review process.
After the US ROZ legislation has been enacted, both governments can work together on preparing and
implementing the labor and customs compliance programs and the overall designation process. We
estimate this will take at least five months to complete in order to review existing procedures, adapt or
develop and approve new procedures.
It is also necessary for the ROZ regulator to review supply and demand conditions in the relevant
labor markets around each proposed ROZ, assess training needs and work with local vocational
training organizations to provide training.
Once the ROZ legislation is enacted and the necessary SROs and compliance process is known, the
ROZ regulator can draft detailed standard operating procedures for its staff, and agree them with other
public agencies, e.g. customs, the developer and operator. The regulator should design and establish a
one stop shop to streamline all regulatory processes with enterprises. All parties also need to draft,
approve and distribute ROZ rules to notify enterprises and the public.
27
FIAS has noted the high demand in Pakistan for development of the textile and apparel industry workforce.
According to unofficial estimates from 2006, about 500 textile and apparel technicians had graduated from
institutions of higher and vocational education, but demand in the value chain for 1,200 ginners, 450 spinners,
and thousands of garment workers is at least 10 times the existing supply (FIAS 18).
Finally, the ROZ regulator can develop policies and procedures to support longer term objectives,
such as business development services for ROZ enterprises and a backward and forward linkages
program between ROZ enterprises and SMEs located outside ROZs.
Table 8. Work Plan for ROZ Legal and Regulatory Framework
Launch
First
2009 2010 ROZs
ACTIVITY Aug-Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
Establishing Legal/Reg Framework
Ministry of Commerce Completes Legal Review
PTP Input to legal review
Draft essential HR, Finance and Procurement SROs for regulator
Draft Statutory Rules and Orders to incentivize investment
Design of ROZ Regulatory One Stop Shop
Workforce Development (WFD) Implementation plan
Recommendations to Increase SME Participation in ROZ Areas
Design/Agree ROZ Designation criteria and process with GoP/GoUS
Upon ROZ Law Approval
Draft Design for ROZ Environmental Compliance Monitoring System
Draft Design for ROZ Labor Monitoring System
Draft Design for ROZ Customs Monitoring System
Draft ROZ Policy and Procedures Manual
6 ESTABLISHING ROZS
6.1 ROZ DEVELOPMENT PROCESS
The ROZ development process is divided into three distinct phases. The first phase consists of the
field testing ideas and developing the process for selecting ROZs. The second stage consists of
providing technical assistance to potential ROZs, identifying financing sources and preparing the
designation recommendation for presentation to the ROZ ROZ Working Group. The third stage will
consist of putting in place the needed infrastructure improvements and establishing the management
entity. The end of the process will be achieved when the ROZ is fully operational. Parallel to the
physical development process will be the marketing and investment promotion activities to attract
investors and provided business planning services if needed.
6.2 IDENTIFYING THE 5

DEMONSTRATION ROZS Z
4
The success of the initial ROZs is essential to the o
n 3
success of the overall program. We propose that
e
selection process be divided into two stages: an s 2
initial Demonstration Stage and a Growth Stage.
During the Demonstration Stage, we recommend 1
that two ROZs be identified specifically for the

Yr 1 Yr 2 Yr 3 Yr 4
purpose of demonstrating the potential of the ROZ
concept and working out the details of the
development and operational process. Based on Demonstration Stage Growth Stage
input from the Ministry of Commerce, the data provided in the 2006 ROZ Assessment report and
additional data gathered by the PTP/ROZ Team, 7 existing industrial estates have been identified as
candidates for the initial two demonstration ROZs. We propose the use of a competitive request for
proposal process be used to select the 2 demonstration ROZs from among these 7 candidates.
In year 3, the Growth Stage begins and the process will be opened up to any location within the ROZ
eligible area. Ideally these future ROZs will be led by an active partnership between industry and the
public sector. The proposal and selection process established during the Demonstration Stage will
provide the regulatory body with the framework for new zones going forward.
Table 9 highlights the steps needed to establish the 2 demonstration stage ROZs. The first step in the
process will be to conduct an initial evaluation of the condition of the existing infrastructure in each
estate and recommend improvements. The second step will be to conduct an outreach campaign to
both ROZ designated industries and to the Provincial PMUs and the management of the industrial
estates to explain the process and gather input. Once the Minister of Commerce designates the ROZ in
each Province (currently anticipated to occur mid-Summer in concert with passage of the ROZ bill in
the the US Congress) the next step will be to finalize the selection criteria and prepare the formal
Request for Proposals (RFP) for the 2 Demonstration ROZs. With the issuance of the RFP the ROZ
Team along with the ROZ Engineer will provide technical assistance to the potential applicants to
help prepare the proposals. However, the leadership for the proposal must come from the partnership
between industry and the estate management organization as will be discussed below. The last step in
the process will be the presentation of the recommendation to the ROZ Working Group current
scheduled for the latter half of 2010.
Table 9. Timeline for Selection of Demonstration ROZs
2009 2010
Select Demonstration ROZs

Conduct due diligence review of existing industrial estates
Present findings to Working Group and Provincial PMUs
Ministry of Commerce Announce Designated ROZs
Conduct process for selecting 2 demonstration ROZs
ROZ Public-Private Financing

Review and Analysis of Potential ROZ Funding Resources
Prepare funding applications
6.3 REVIEW OF EXISTING INDUSTRIAL ESTATE SITES
Table 10 summarizes the key features of the 8 existing industrial estates initially reviewed by the
ROZ team of PTP. Note that the process of gathering data on each of the zones is still under way but a
general pattern is beginning to emerge. With the exception of Muzaffarabad all of the candidate
industrial estates were established in the 1970 and 1980s and to varying degrees are occupied by
industry. In these established industrial estates the infrastructure has been partially built out but is
beginning to show signs of deterioration. In the case of Muzaffarabad the existing industrial estate is
fully allocated and occupied so what is proposed is a green field development of a new 125 acres
ROZ approximately 15 miles west of the city.
One of the key factors in selecting the two demonstration ROZs will be the availability of land for
new industrial units. As shown in Table 10 much of the land in these existing industrial estates has
been either been allocated or has been developed. However, many of the allocated plots remain
vacant and some of the industrial units have been abandoned so there may in fact be more land
available than is suggested by the available data.
Table 10. Summary of Potential ROZs

E
) I
IE
d
i &2 IE
ru
za 1 d
am
a Z h a
Am EP P P Z ar ab
(J
IE
r IE on pur pur ta IE ta E
ar
f
af
w
ta o l l t t z
a
t d a a e e
sh
s s u
Ha Ga Ri Ri Qu Qu M
Pe
Total Area 868 Ac. 1,300 Ac. 1,116 Ac. 108 Ac 92 Ac. 274 Ac. 186 Ac. 125 Ac

Industrial Establishment Operating 193 177 60 32 3 39 0 0
Total Number of Plots 360 379 623 80 137 607 tbd tbd
Plots Allotted 360 379 530 80 54 597 0 0
Plots Developed 178 200 70 31 3 0 0
Plots Under Construction tbd 89 3 10 1 60 0 0
Plots Available 0 90 93 0 83 181 ac 186 Ac. tbd
The industrial mix in the existing industrial estates is shown in Table 11. As suggested earlier in this
report the current industrial mix in the ROZ eligible areas is focused primarily on the local market
with food and beverage, plastic products and metal products being the leading industries. However the
presence of the textiles, chemicals and pharmaceutical companies in several of the industrial estates
does suggest the potential for more complex industrial processes. Gadoon is the only industrial estate
that has a concentration of textile producers. Although most of these current spinning and fabric
operations will not directly benefit from the ROZ duty incentive they might provide a base from
which to add ROZ covered products lines. In general the existing industrial mix provides a solid base
to build on for the ROZs. Many of these industrial units may in fact become suppliers to the ROZ
benefited industries.
Table 11. Current Industry Mix in Potential ROZs
Peshawar IE Hattar IE Gadoon IE Risalpur IE Risalpur EPZ Quetta IE

Chemicals
2 1% 17 10% 9 15% 0% 0% 1 3%
Construction Materials
7 4% 17 10% 2 3% 2 6% 0% 1 3%
Electrical and Electronics
1 1% 2 1% 0% 1 3% 1 33% 0%
Food and Beverage
22 14% 28 17% 3 5% 2 6% 0% 20 51%
Furniture
7 4% 0% 0% 0% 0% 0%
General Manufacturing
7 4% 24 15% 2 3% 1 3% 0% 0%
Marble
16 10% 1 1% 1 2% 16 50% 0% 1 3%
Metal and Metal Products
13 8% 9 5% 3 5% 0% 0% 5 13%
Paper and Packaging
14 9% 8 5% 10 16% 1 3% 1 33% 2 5%
Pharma
27 17% 8 5% 3 5% 3 9% 0% 0%
Plastic Products
10 6% 10 6% 12 20% 3 9% 1 33% 1 3%
Printing
5 3% 13 8% 1 2% 0% 0% 0%
Rubber Products
4 3% 0% 0% 0% 0% 0%
Services and Other
1 1% 17 10% 3 5% 0% 0% 7 18%
Textile
7 4% 3 2% 12 20% 1 3% 0% 1 3%
Wood Products
15 9% 7 4% 0% 2 6% 0% 0%
6.4 CRITERIA FOR SELECTION OF ROZS.

Given the present security situation in Pakistan, ROZs while need to be carefully differentiated from
other industrial estate products in order to improve their attractiveness to investors. Existing investors
in the zones that were surveyed complained about “location disadvantages” and in some cases
indicated that these represented up to 8% of their production costs. Some of the ROZ incentives such
as preferential access to the US market are intended to offset these costs. However, in most cases, the
disadvantages and the advantages merely cancel each other out.
For the ROZs to be competitive and successful, the ROZ “product” has to be designed and
implemented with the following factors in mind:
 A broad representation and participation in the equity and management of each ROZ that
incorporates all levels of government, the private sector and key local stakeholders,
 Donor participation in providing funding for key infrastructure that provides an enabling
environment for business and also reduces upfront investment requirements and risk both for
developers as well as tenants. This will include central backup generation, waste water
treatment plants, water recycling facilities, shared capital intensive machinery and equipment,
etc.,
 Participation from Federal, Provincial and Municipal government in the provision of land,
security, concessions and support services. An additional plus will be “one stop shop”
services and expedited approvals and procedures,
 Implementation of a hub concept that leverages technology, logistics infrastructure and
services to assist tenants to achieve greater competitiveness and sustainability,
 Fiscal and non fiscal incentives to attract foreign and local investors and tenants. These
should include training subsidies, access to sell in the local market, etc.
 While certain sectors such as textiles and garments will be core sectors in the ROZs, the true
impact and linkages to the local economy will be achieved through marble and stone, gems
and jewelry, agro industry, furniture making and leather garments. Therefore the ROZs need
to be designed to provide enabling infrastructure and facilities to grow these value added
sectors,
 The ROZ tenants and therefore the zones feasibility and sustainability can be substantially
improved through the joint assistance of the USAID funded Economic Growth projects.
USAID Pakistan Trade will assist the zones in developing high quality internationally
competitive ROZs and helping to populate them with anchor tenants and tenants. The FIRMS
project can assist these tenant firms (particularly local firms) in strengthening their value
chains and linkages with the local market. The JOBS project will assist in recruiting and
training the workers while the ENTREPRENEURS project will assist local SMEs to link to
larger companies as suppliers of goods and services. All of these services will make the ROZs
more attractive and assist in making them more sustainable.
Therefore, the selection criteria for the ROZ have been developed to reflect these factors outlined
above. As mentioned above, the intent is to establish an open and transparent process that encourages
creative approaches and collaboration between industry and the estate management.
It is recommended that the entity responsible for designating the ROZs will incorporate the above
conditions in the evaluation process. This document will be included in the tendering process to
ensure that each group proposing a ROZ incorporates these factors and concepts in their design,
master planning and feasibility analysis and proposals. The detailed Quantitative and Qualitative
Evaluation Matrix outlines the evaluation factors for each of the major areas such as: zone ownership
and management, business environment, labor availability, etc.
Table 12 presents the preliminary criteria for selection of the ROZ. This information is further
developed in the attached ROZ Quantitative and Qualitative Selection Matrix. This matrix also
indicates which factors are required for designation, those that are highly desirable and those that are
optional. These criteria will be refined during the outreach process; however the basic principals will
remain the same. The key criteria for selecting the ROZ have been developed to ensure a zones
product that is attractive to both local and foreign investors by offsetting location disadvantages and
empowering tenant firms to operate more effectively and cost efficiently in a sustainable manner, and
should include a public-private approach to estate management, the quality and availability of
infrastructure, the availability of adequate land for new industry. Applicants for an ROZ will be
requested to submit information on each of these items in their proposals and a due diligence process
will be conducted but the ROZ Team to evaluate the relative merits of each proposal. The outcome of
that evaluation will serve as the basis for the final recommendation to the ROZ Working Group.
Table 12. ROZ Selection Criteria
Zone Ownership Structure and Composition

Zone Management International experience, private sector participation, financial viability and
Capability sustainability
Strategic ROZ priority area, employment generation, viability, donor support,
Considerations compatibility with other USAID projects
Business Environment Security: perimeter walls, access control, vehicle inspection, personnel and
visitor control
Labor quality, costs and availability, shared transportation, training facilities
and services, recreation areas
Gender Friendliness
Human Resources quality and quantity
Environmental Environmental friendliness, water treatment, water recycling, “Green
Considerations Certification”
Land and Buildings Availability, cost, type of buildings, flexible design, competitive cost
Utilities Origin of electric power
Reliability
Cost
Water
Nat. gas and LPG
Telecommunications
Infrastructure and Access and internal roads, curbs and drainage, on site customs, shared
Common Facilities machinery, training center, innovation and incubation center
Zone Services and Standard Factory Shells available in inventory, labor housing, child day care
Facilities center, built to green area ratio
Logistics Time, Distance and Costs to major markets, Dry Port, where houses
Multi use / sectoral Priority sectors
integration
Sector viability / resource endowments
Sectoral linkages in existing firms
Sector mix
Sectoral Shared machinery, services, certification an testing center
Competitiveness
Services and Facilities
6.5 MARKETING AND INVESTMENT PROMOTION

The marketing plan is divided into two phases. The first phase is focused on the research of the ROZ
covered products and informal consultation with the representatives of the textile and garment
industry.
The second phase scheduled to begin in June in concert with the passage of the ROZ Bill will focus
on the the ROZ Road Show. The intended audience will be potential investors and zone operators and
Road Show will be tailored to respond to the concerns and questions received. Although the audience
of this initial Road Show is local investors, it will also provide the foundation for the on-going
investment promotion campaign that is scheduled to begin with the selection of the first two zones.
Once the ROZ legislation is approved and the ROZs have been selected ROZ specific demand studies
will be conducted and the investment promotion plan will be implemented. In concert with these
activities, work will begin in the business assistance program to be launched with opening of the
demonstration ROZs.
Table 13. Marketing and Investment Promotion Work Plan

2009 2010
ROZ Marketing Plan

Conduct market research on ROZ covered products
Prepare Investor Road Show
Implementing marketing and investment promotion plan
6.6 POTENTIAL DEVELOPMENT COSTS

Although it is premature to conduct a detailed analysis of the potential development cost for the
selected ROZs, Table 14 presents a development scenario for a prototype 100 acre ROZ. The
prototype analysis is intended to give an indicative sense of the potential development costs for an
ROZ.
Table 14. Prototype ROZ: 100 Acres

Land Use Description Acres Percentage
Industria l plots 65 65%
Roa ds a nd Infra structure 20 20%

Are a unde r public
buildings/common se rvice s 6 6%
Comme rcia l/re ta il use s 2 2%
Ope n spa ce a nd pa rks 7 7%

Tota l 100
Based on Pakistan industrial development norms and experience with zones elsewhere in the world,
the prototype is assumed to be 100 acres in area with 65.5 acres available for industrial development.
Areas would be set aside for non-industrial commercial uses, administration buildings, and open
space.
Based on historical development costs for existing industrial estates two cost scenarios have been
prepared and presented in Table 15. The first scenario assumes the green field development of an
entirely new ROZ. The estimated cost for this is $10.7m USD. The second scenario assumes that the
ROZ would be established within one of the existing industrial estates and would build upon the
existing infrastructure. In this scenario there would be no additional land costs and although
improvements would be needed to the existing infrastructure the cost would be significantly less than
in the Green Field scenario. The total cost of scenario two is estimated at $5.9m USD or about 60% of
the cost of a green field development.
Table 15. Potential Development Costs based on Proto-type Scenario
Green Field Scenario Within Existing Zone Scenario

Cost/Acre Cost/Acre
Cost Item (Rs.) Total Area Total Cost (Rs.) (Rs.) Total Area Total Cost (Rs.)
Land cost 350,000 100 35,000,000 140,550 100 14,055,000
Site Grading and Preparation 200,000 100 20,000,000 28,050 100 2,805,000
Roads and Streets 937,000 100 93,700,000 197,250 100 19,725,000
Tube wells,water system 187,000 100 18,700,000 46,750 100 4,675,000
Sewerage improvements 789,000 100 78,900,000 789,000 100 78,900,000
Electrical distribution 204,000 100 20,400,000 102,000 100 10,200,000
Electrical substation 2,190,000 100 219,000,000 657,000 100 65,700,000
Electrical Generator 7 MW 1,820,000 100 182,000,000 1,820,000 100 182,000,000
Gas Distribution System 289,000 100 28,900,000 86,700 100 8,670,000
Boundary wall and gate 96,000 100 9,600,000 24,000 100 2,400,000
Engineering and Permits 6% 423,720 100 42,372,000 233,478 100 23,347,800
Contingency & Misc. 15% 1,122,858 100 112,285,800 618,717 100 61,871,670
Total Budget Rs Rs860,857,800 Rs474,349,470
Rs/acre Rs8,608,578 Rs4,743,495
Total Budget US$ $10,760,723 $5,929,368
US$/acre $107,607 $59,294
ANNEX ONE: RULES OF
ORIGIN
Rules of Origin in ROZ Legislation28
1. Introduction
To stimulate economic activity in Afghanistan and the border regions of Pakistan, current legislation
before the US Congress proposes the establishment of Reconstruction Opportunity Zones (ROZs)
which would permit duty free access to the US market for certain goods produced within the zones.
Duty free access for covered is conditional on Rules of Origin (ROO) requirements, the establishment
and implementation of strict mechanisms to prevent illegal transshipment of goods through the ROZ,
compliance with core labor standards and several reporting requirements related to the establishment
and maintenance of the ROZ zones.
There has been much discussion in Pakistan’s government and private sector circles on the proposed
ROZ legislation. This debate has focused not only on the product coverage but also on the feasibility
of meeting the ROO requirements. The purpose of this note is to:
 Provide a summary and interpretation of the ROO specified in the proposed legislation.
 Highlight the impact of the ROO on those covered products that are likely to be produced in
the ROZ zones.
 Compare the ROZ legislation ROO with those granted under other US preferential trade
agreements.
The proposed legislation grants duty free access to US markets for two general groups of products –
Non-Textile/Non-Apparel and Textile/Non-Apparel. In general, the ROO should be familiar to
producers/exporters in Pakistan as they are based on current ROO which are already being met by
Pakistan exports or those currently applied by the US. For non-textile/non-apparel products, the ROO
are essentially identical to those required under the current US Generalized System of Preferences
(GSP) program.29 For textile/apparel products, the ROO are based on those used by US customs to
determine country of origin for non-preferential trade and encompass both “wholly obtained” and
“substantial transformation” criteria. The main article of concern arises with textiles and apparel –
specifically whether the ROO would require a capital investment that would be too large to be
economically justifiable in the border regions.
Section 2 provides an overview of the ROZ legislation currently in process in the US congress.
Sections 3 and 4 provide summaries of the ROO for non-textile/non-apparel and textile/apparel
products respectively. Section 4 compares the ROZ legislation ROO with those granted under other
US preferential trade agreements. Section 5 identifies the applicable ROO for covered products
identified as likely to be produced in the ROZ zones. Finally, Section 6 provides overall conclusions.
2. Overview of Legislation
In the current session of the US congress, there are two versions of the ROZ legislation in process:
 H.R. 2410: The House of Representatives version of the ROZ legislation, H.R. 2410, passed
on June 11, 2009. The full House bill additionally includes unrelated appropriations with the
relevant section for ROZs contained in Title IV –Duty-Free Treatment for Certain Goods
28
Prepared by Kathleen Trask Montgomery, December 2009.
29
Pakistan is currently eligible for GSP preferences and so current exports under this program already meet these ROO.
from Reconstruction Opportunity Zones in Afghanistan and Pakistan or the “Afghanistan-
Pakistan Security and Prosperity Enhancement Act”.
 S. 496: The corresponding Senate bill, S. 496, or the “Afghanistan and Pakistan
Reconstruction Opportunity Zones Act of 2009” is currently with the Senate Finance
Committee. Prior to passage, the bill with have to be approved the Senate committee and be
passed by the full Senate.
o Following passage by the Senate, the House and Senate versions will have to be
reconciled and then signed into law by the President.
o The two bills are identical with respect to product coverage and ROO. For clarity, the
remainder of this note will adopt the following conventions:
 All references to specific sections of the legislation will refer to the House version, H.R.
2410.
 The product coverage for non-textiles/non-apparel and textile/apparel products is specified in
detail in the legislation. For the purposes of this note, “covered products” will refer to those
products eligible for duty-free treatment as delineated in the relevant sections of the
legislation.
o In reviewing the ROO, this note focuses only the conditions relevant to products
exported from a ROZ in Pakistan. For Afghanistan ROZs, the conditions differ in two
respects:
 Afghanistan benefits from more generous product coverage both with respect to
Textile/Apparel and Non-Textile/Non-Apparel. For Non-Textile/Non-Apparel, the difference
results from additional preferences granted to Afghanistan as a Least Developed Country
(LDC) under the GSP preference program. Afghanistan also receives more generous coverage
in the legislation for textile/apparel products with several additional categories eligible for
duty free treatment.
 While both countries are allowed to cumulate production over 1 or more ROZ zones in either
Afghanistan or Pakistan, Afghanistan is additionally allowed to cumulate production over
South Asian Association for Regional Cooperation (SAARC) members.30
o Appendix 1 provides a reference which contains both the full text of the ROO in the
ROZ legislation and the interpretation of the requirements.
3. ROO for Covered Non-Textile/Non-Apparel Products
For Non-Textile/Non-Apparel products, the legislation permits two groups of products to be eligible
for duty-free treatment from ROZs located in Pakistan:
1. Products that are currently eligible for GSP treatment from Pakistan (Sec. 404 (a) (1) )
2. Any non-textile/non-apparel product that the President determines to be eligible – after
consultation with the United States Trade Representative (USTR) and a determination that the
product is non-import sensitive. (Sec. 404 (a) (3) )
Pakistan is currently eligible for GSP preferences so this does not offer any additional tariff benefits.
However, for those products which may have exceeded the competitive needs limitation, the
legislation makes no note of such restrictions being placed on ROZ products.
For all covered non-textile/non-apparel products, the ROO are straightforward. To be eligible for
duty-free treatment under the ROZ legislation, a covered non-textile/non-apparel product from a
Pakistan ROZ must meet the following requirements from Section 404 (c)-(f).
1. The product must be imported directly from a ROZ zone into the customs territory of the US.
2. The product must meet a value-added requirement in that the sum of:
30
SAARC member states include Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.
a. The cost/value of materials produced in one or more ROZ zones.
b. The direct costs of processing performed in one or more ROZ zones.
c. The cost/value of materials produced in the United States (subject to restrictions).
Is not less than 35% of the appraised value of the article at the time it enters into the US.31
 These costs may be cumulative across one or more ROZs in Pakistan or
Afghanistan.
 The cost/value of US inputs is restricted to 15% of the appraised value of the
article.
3. Some material transformation must occur – simple packaging/combining operations or

dilution with water or other materials does not suffice for meeting the ROO.
The direct costs of processing INCLUDE but are not limited to:
 All labor costs including fringe benefits, on-the-job training and costs of
engineering, supervisory, quality control, and similar personnel.
 Dies, molds, tooling, and depreciation on machinery and equipment which are
allocable to the product.
The processing costs EXCLUDES items not directly allocable to the product including:
 Profits
 General expenses of doing business which are either not allocable to the product
or are not related to its growth, production, manufacture or assembly.
These ROO are essentially identical to those under the current GSP system. Eligibility under the GSP
program requires that:
“Whenever an eligible article which is the growth, product, or manufacture of a designated
beneficiary developing country … is imported into the customs territory of the United States
directly from such country or territory, such article shall be eligible for duty-free treatment
…; provided that, …: the sum of (1) the cost or value of the materials produced in the
beneficiary developing country or any 2 or more countries which are members of the same
association of countries which is treated as one country under section 507(2) of the Trade
Act of 1974, plus (2) the direct costs of processing operations performed in such beneficiary
developing country or such member countries is not less than 35 percent of the appraised
value of such article at the time of its entry into the customs territory of the United States.
No article or material of a beneficiary developing country shall be eligible for such
treatment by virtue of having merely undergone simple combining or packing operations, or
mere dilution with water or mere dilution with another substance that does not materially
alter the characteristics of the article”32
The principles of the ROO in the ROZ legislation and the GSP program and have very few differences
in their specifics – these differences include:
 The GSP preference program allows cumulation over associations of countries
which is not allowable under the ROZ legislation for Pakistan. The relevant
grouping for Pakistan would include SAARC.
 The ROZ legislation allows for US inputs up to 15% of the appraised value of the
product.
31
35% of the appraised value rule is applicable only on “Non-Textile/Non- Apparel) and not on Textile/Apparel Group.
32
From General Notes of the Harmonized Tariff System of the US (2009) – Supp 1 (Rev. 1) available at http://hts.usitc.gov/
The cumulation of production over SAARC countries is allowed under the GSP program but not
under the ROZ legislation is the only significant restriction. However, absent any indication in the
legislation to the contrary, Pakistan’s exporters will presumably have access to both programs and
should the cumulation over SAARC member states be more advantageous, exporters should have the
option of applying for GSP preferences.
4. ROO for Covered Textile/Apparel Products
For Textile/Apparel products, Section 405 (a) and (b) of H.R. 2410 specifies the categories of
products to be eligible for duty-free treatment from a Pakistan ROZ. The ROO for covered
textile/apparel products are delineated in Subsections (c) through (f) of Section 405 and are
significantly more detailed than those for non-textile/non-apparel products including both “wholly
obtained” and “substantial transformation” criteria.
These ROO should not be entirely unfamiliar to Pakistan’s exporters as they are based on those
applied by the US for determining country of origin under the Multi-Fibre Agreement and its
successor the Agreement of Textiles and Clothing. Although these agreements expired in 2005, the
ROO for textiles and apparel are still employed for identifying country of origin for both US non-
preferential and preferential trade agreements. There are some significant differences in the ROZ
legislation regarding the rules of processing which are highlighted below. 33
4.1 Summary of ROO for Covered Textile/Apparel Products
For a covered textile/apparel article to be eligible for duty-free treatment it must first be imported
directly to the US from a ROZ in Pakistan34 AND meet one or more of the following conditions which
are separated into General Rules and Special Rules with the latter taking precedence:
General Rules (Section 405 (c))
(A) The article is wholly the growth, product or manufacture of 1 or more ROZs OR
(B) The article is a yarn, thread, twine, cordage, rope, cable or braiding, AND
(i) The constituent staple fibers are spun in OR
(ii) The continuous filament fiber is extruded in 1 or more ROZs. OR
(C) The article is a fabric, including those fabrics included in Chapter 59 of the HTS35 AND the
constituent fibers, filaments or yarns are transformed by a fabric-making process in 1 or more
ROZs OR.36
(D) The article is any other textile or apparel that is cut (or knit-to-shape) AND sewn or otherwise
assembled in 1 or more ROZs.
Special Rules (Section 405 (d))

(A) If the article is a covered textile/apparel article in Group A listed in the table below, except as
denoted in the special rules below, Sections (A), (B) and (C) of the General Rules above will
determine the appropriate rule of origin and not the provisions of General Rule (D).
33
The ROO for Textile and Apparel employed generally by US Customs can be found in Title 19, Chapter 22, Subchapter 3,
Part B, 2593 of the US Code “Rules of Origin for Textile and Apparel Products”. Appendix 1 of this note provides the relevant
text for comparison. http://www.law.cornell.edu/uscode/19/usc_sec_19_00003592----000-.html
34
“Directly to the US from a ROZ in Pakistan” means “Goods held in transit at a third port are okay as
long as don’t enter into customs in that third place/country under monitoring mechanism formulated by
Pakistan & US Customs”.
35
Chapter 59 of the HTS includes “Impregnated, coated, covered or laminated textile fabrics. Textile articles of a kind suitable
for industrial use.”
36
These processes include weaving, knitting, tufting, felting, entangling or any other fabric-making process.
Also the yarns have to be transformed in a ROZ not necessarily made in a ROZ and no blend ratio is specified.
Table 1: Group A – Description and HTS Codes
HTS Description
5609 Wadding, felt and nonwovens..: Articles of yarn, strip or the like of specified
dimensions (heading 5404 and 5405), twine, cordage, rope or cables, NESOI
5807 Special Woven fabrics…:Labels, badges and similar articles of textile materials, in
the piece, in strips or cut to shape or size, not embroidered
5811 Special Woven fabrics…:Quilted textile products in the piece (one or more layers
assembled with adding by stitching etc.), other than embroidery
6209.20.50.40 Articles of Apparel…, not knitted/crocheted: Cotton diapers
6213 Articles of Apparel…, not knitted/crocheted: Handkerchiefs
6214 Articles of Apparel…, not knitted/crocheted: Shawls, scarves, mufflers, mantillas,
veils and similar articles, not knitted or crocheted
6301 Other made up textile articles…: Blankets and Traveling Rugs
6302 Other made up textile articles…: Bed Linen, Table Linen, Toilet Linen and Kitchen
Linen
6303 Other made up textile articles…: Curtains (including drapes) and interior blinds;
curtain or bed valances
6304 Other made up textile articles…: Furnishing articles of textile materials NESOI
6305 Other made up textile articles…: Sacks and bags, of textile materials used for the
packing of goods
6306 Other made up textile articles…: Tarpaulins, sails for boats, sailboards or
landcraft, awnings, sunblinds, tents and camping goods, of textile materials
6307.10 Other made up articles, including dress patterns: Floorcloths, dishcloths, dusters
and similar cleaning cloths:
6307.90 Other made up articles, including dress patterns: Other:
6308 Other made up textile articles…: Bed Linen, Table Linen, Toilet Linen and Kitchen
Linen
9404.90 Misc. Manufactured Articles: Mattress supports; articles of bedding and similar
furnishing (for example, mattresses, quilts, eiderdowns, cushions, pouffes and
pillows) fitted with springs or stuffed or internally fitted with any material or of
cellular rubber or plastics, whether or: Other (includes pillows and quilts)
(B) A textile or apparel article that is wholly formed on seamless knitting machines or by hand-
knitting in 1 or more ROZs will meet the ROO. This takes precedence over General Rule (D).
(C) For articles in Group C listed in the Table below excluding those articles classified as “of cotton”
or “of wool” or consisting of fiber blends containing 16% or more by weight of cotton37, will
meet the ROO if the article is:
 Dyed AND printed in one or more ROZ AND
37
It means fiber blends is 85% Non Cotton/15% Cotton.
 Accompanied by 2 or more of the following finishing operations: bleaching, shrinking,
fulling, napping, decating, permanent stiffening, weighting, permanent embossing, or
moireing.
Table 3: Group C – HTS Codes and Descriptions

HTS Description
Codes
6117.10 Articles of apparel, knitted/crocheted: Shawls, scarves, mufflers, mantillas, veils and
the like:
6213.00 Articles of apparel, not knitted/crocheted: Handkerchiefs
6214.00 Articles of apparel, not knitted/crocheted: Shawls, scarves, mufflers, mantillas, veils
and the like:
6302.22 Other made up textile articles;…: Bed linen, table linen, toilet linen and kitchen linen:
Other bed linen , printed: Of man-made fibers
Other bed linen, printed: Of other textile materials
6302.52 Not in current HTS
Other table linen: Of man-made fibers
Other table linen: Of other textile materials
6302.92 Not in current HTS
Other: Of man-made fibers
Other: Of other textile materials
6303.92 Other made up textile articles;…: Curtains (including drapes) and interior blinds;
curtain or bed valances: Other: Of synthetic fibers
6303.99 Other made up textile articles;…: Curtains (including drapes) and interior blinds;
curtain or bed valances: Other: Of other textile materials
6304.19 Other made up textile articles;…: Other furnishing articles, excluding those of
heading 9404: Bedspreads: Other
heading 9404: Other: Not knitted or crocheted, of cotton
heading 9404: Other: Not knitted or crocheted, of other textile materials
9404.90.85 Furniture; bedding, mattresses, mattress supports, cushions…: Mattress supports;
articles of bedding and similar furnishings…: Other: Quilts, eiderdowns, comforters
and similar articles.
9404.90.95 Furniture; bedding, mattresses, mattress supports, cushions…: Mattress supports;
articles of bedding and similar furnishings…: Other: Other
(D) A fabric classifiable under the HTS as of silk, cotton, man-made fiber, or vegetable fiber will
meet the ROO if the fabric is:
 Dyed AND printed in one or more ROZ AND
 Accompanied by 2 or more of the following finishing operations: bleaching,
shrinking, fulling, napping, decating, permanent stiffening, weighting, permanent
embossing, or moireing.
4.2 Interpretation and Examples

The purpose of the ROO is to ensure that a minimal level of processing takes place within the ROZ
zone. This standard is determined by the general and special ROO. Figure 1 below provides a flow
chart which highlights the precedence and requirements of the ROO for covered textile/apparel
products.
General Rules of Origin
These rules are fairly straightforward. First, any article which is wholly the growth, product or
manufacture of a ROZ zone will satisfy the ROO. For yarn and fabrics, the minimum qualifications
relate to the majority of the manufacturing process. For yarns and related products, the fibers must be
spun or extruded in the ROZ according to the relevant manufacturing technology.
Part (D) of the General Rules requires that any other textile/apparel be cut (knit-to-shape) AND sewn
or otherwise assembled in the ROZ zone. This represents a significant difference from the ROO
generally applied under US Code, Title 19, 3592 Section (b)(1)(D) which requires:
“The product is any other textile or apparel product that is wholly assembled in that country,
territory, or possession from its component pieces.”
Figure 1: ROO for Covered Textile/Apparel Products imported
directly into the Customs Territory of the US
Yes
Is article wholly the growth, product, or manufacture of one or more Eligible.
ROZ?
No
Is article a Group C Product or Yes Both Dyed AND Printed Yes Accompanied by 2 or more Yes Eligible.
Fabric of Silk, Cotton, man-made in one or more ROZ? finishing operations
fiber or vegetable fiber? performed in 1 or more
No No ROZ? No
Not eligible.
Is article a textile or apparel article wholly formed on Yes

seamless knitting machines or by hand-knitting in one or Eligible.
more ROZ?
No
Yes Yes
Is article a yarn, thread, twine, Are constituent staple fibers spun in one or more Eligible.
cordage, rope, cable or ROZ?
braiding? No Yes
Is the continuous filament fiber extruded in one or more Eligible.
ROZ? No
Is the article a fabric, including Not eligible.
those classifiable under Chapter 59 Yes Have the constituent fibers, filaments, or yarns Yes
of the HTS? been transformed by fabric-making process in Eligible.
one or more ROZ?
No
No
Not eligible.
Is the article any other textile or Yes Cut (knit-to-shape) and sewn or otherwise Ye
apparel article? assembled in one or more ROZ? Eligible.
No No
Not eligible.
Thus, under the ROZ legislation, assembly is insufficient to meet ROO and in addition require that
the component pieces be cut in the ROZ zone. The example 1 below illustrates the difference
between the calculations.
Example:38 An article is a long-sleeve dress shirt made of woven cotton fabric. The fabric is
woven in Lahore where the finished fabric is cut into 35 component parts. These component parts
are shipped to a ROZ zone in Pakistan where they are sewn together to form the shirt, buttonholed,
and packaged for export to the US.
This article is not eligible for duty free access under the ROZ legislation as the cutting of the fabric
into the component pieces was not completed in a ROZ zone.
Special Rules
The special rules delineate the exceptions to the general rules and require stricter ROO for the
specified products.
Special Rule (A)
The 16 HTS classifications in Group A include textile and apparel products of fabric and yarn for
which the majority of the production of the article is in the making of the yarn or fabric. The tariff
change which classifies the products into Group A requires only minor finishing. As the products
are not classified as a fabric or yarn, General Rule (D) would apply. This exception to the General
Rules assigns the origin of the product to the place of origin of the fabric or yarn. The examples
below illustrate the principle.
Example: The imported article is a terry cloth bar mop (Heading 6307.10). In Karachi, the yarn is
woven into fabric and cut to size. These parts are then shipped to a ROZ zone in Pakistan, hemmed
to form the finished product and packaged for export to the US.
This article is not eligible for duty free access by Special Rule (A) under the ROZ legislation as the
component fabric is made outside the ROZ zone.
Example: The article is a three-piece woven bed sheet set, which includes one flat sheet, one fitted
sheet, and one pillowcase (Heading 6302). The fabric is woven, dyed and printed in Lahore, and
then shipped to a ROZ zone in Pakistan. In the ROZ zone, the fabric will be cute into various
lengths and hemmed.
This article is not eligible for duty free access by Special Rule (A) under the ROZ legislation as the
component fabric was formed outside of the ROZ.
Special Rule (B)
General Rule (D) requires textile/apparel articles to be cut (knit-to-shape) AND sewn in a ROZ
zone, Special Rule (B) provides an exception to this rules for articles which are wholly formed on
seamless knitting machines or by hand-knitting in a ROZ zone. This differs from the ROO
encompassed in generally applied under US Code, Title 19, 3592 Section (b)(1)(D) which specifies
only knit-to-shape qualifications.
38
The examples are drawn from “Rules of Origin under the U.S. –Jordan Free Trade Agreement. Final Report”
Special Rule (C)
The 18 HTS classifications in Group C include articles some of which are a subset of Group A for
which substantial additional processing occurs after the fabric has been formed. The ROO for
Articles in Group C specify the extent of additional processing that must occur for the origin of the
article to be designated as the ROZ zone. Provided the product in Group C is not classified as “of
cotton” or “of wool” or containing 16% or more by weight of cotton must be Dyed AND Printed
AND Accompanied by 2 or more of the specified finishing processes in the ROZ zone.
Example: An article is a comforter composed of other textile materials (HTS 9404.90.85). The
fabric is woven in Faisalabad and shipped to a ROZ zone within Pakistan. Within the ROZ zone,
the fabric is dyed and printed, undergoes a permanent stiffening process and is embossed.
Despite the fact that the fabric comes from outside of the ROZ zone, the article is eligible for duty
free treatment under the ROZ legislation as it was dyed, printed and underwent 2 finishing
processes within the ROZ zone.
Special Rule (D)
As with Special Rule (C), (D) applies to articles which undergo substantial additional processing
after the fabric has been formed. For articles classified as of silk, cotton, man-made fiber, or
vegetable fiber, Special Rule (D) specifies the extent of processing the must occur. The article must
be Dyed AND Printed AND Accompanied by 2 or more of the specified finishing processes in the
ROZ zone.
Example: An article is a silk scarf. The fabric is woven in Faisalabad and shipped to a ROZ zone
within Pakistan. Within the ROZ zone, the fabric is dyed, printed and hemmed to form a finished
scarf that is exported to the US.
The article is not eligible for duty free treatment under the ROZ legislation as it did not undergo
the required finishing processes with the ROZ.
Other Considerations
The ROO in the ROZ legislation are based on ROO which have been or have currently been met by
Pakistani exporters to the US. The most significant difference with existing or recent ROO applied
to Pakistan’s products is the requirement that articles must be both cut AND sewn in the ROZ
zone. While the technologies and skill sets exist in Pakistan to meet these ROO, the central area of
concern is whether the more capital-intensive processes can be economically feasible in the
designated ROZ zone.
5. Comparison with ROO in other US Trading Arrangements
The US participates in nearly 20 bilateral preferential trading agreements and Free Trade Areas (FTAs)
including:
 African Growth and Opportunity Act (AGOA)

 Andean Trade Preference Act (ATPA)
 Andean Trade Promotion and Drug Eradication Act (ATPDEA)
 Automotive Products Trade Act
 Caribbean Basin Economic Recovery Act (CBERA)
 Caribbean Basin Trade Partnership Act (CBTPA)
 Compact of Free Association Act
 Generalized System of Preferences (GSP)
 Insular possessions of the US
 NAFTA
 Products of the West Bank, the Gaza Strip, or a Qualifying Industrial Zone (QIZ)
 US-Chile FTA
 US-Israel FTA
 US-Jordan FTA
 US-Singapore FTA
 US-Australia FTA
 US-Morocco FTA
 US-Bahrain FTA
 US-Dominican Republic-Central American FTA (DR-CAFTA)
Product coverage and ROO vary across these agreements depending on the scopes of the negotiations and
the goals of the agreements. However, the basic principles for ROO remain in general consistent across
these varied arrangements.
The ROZ legislation proposes a unilateral tariff preference program which is somewhat unique in its
focus on the sub-national level for Pakistan. The most relevant comparisons for the ROZ legislation are:
 The GSP Preference program.
 AGOA
 Qualified Industrial Zones (QIZs)
The GSP program offers duty free access on a wide range of products from designated developing and
least developed countries. As already noted above, for the non-textile/non-apparel products covered by
the ROZ legislation, the ROO are essentially identical to the program. The value added requirements in
the GSP ROO also form the basis for numerous US agreements and can also be found in the AGOA and
QIZ programs.
AGOA was enacted in 2000 to provide tariff preferences to Sub-Saharan African beneficiary countries. In
addition to an expanded GSP-style program, preferences are also granted on apparel products. The ROO
for AGOA are less strict than those provided for in the ROZ legislation in that apparel products are
eligible for duty free treatment under AGOA is they are assembled from fabrics wholly formed and cut in
the US or from regional fabrics and yarns. These ROO are subject to caps and other limitations. As
described in the previous section, the ROZ ROO are significantly stricter in that the fabrics must be both
cut and sewn or otherwise assembled in the ROZ zone.
The closest comparison to the ROZ legislation are the QIZ programs currently operating in Jordan and
Egypt. QIZs are a product of the US-Israeli FTA and permit duty free access for products produced in the
QIZs subject to minimum content requirements from Israel. While the product coverage is substantially
more generous than that proposed under the ROZ legislation, the ROO are similar. Currently, QIZs are
operating in both Jordan and Egypt and the ROO for textile/apparel products in the protocols for both
agreement are those contained in US Code, Title 19, 3592 Section (b)(1)(D). Except for the differences
noted in the sections above, the ROO are essentially equivalent.
6. Impact on Likely ROZ Products
Based on the products eligible for duty free treatment in the ROZ legislation, Table 4 below provides a
list of the top 30 ROZ eligible products based on 6 digit HTS codes. These products were selected on a
variety of criteria including current exports and growth products. All are textile/apparel products – most
are apparel - with each 6 digit code containing multiple 8 digit codes for which different rules may apply.
However, five headings may be particularly impacted:
The products under Headings 6117.10, 6303.99 and 6304.99 fall into Group C. For all covered products
in these categories except for those classified as “of cotton” or “of wool” or consisting of fiber blends
containing 16% or more by weight of cotton, the articles must be: Dyed AND printed AND accompanied
by 2 or more of the specified finishing processes within the ROZ zones.
Headings 6213.90 and 6302.21 fall into Group A, the rules of origin thus the origin of the component
yarn or fabric will determine the origin of the article and its eligibility for duty free treatment.
Table 4: Top 30 ROZ Eligible Products

6 Digit HTS Description
420212 Trunks, suitcases and similar container w/outer surface of plastics/textiles
420222 Handbags w outer surface of sheeting of plastics or of textile materials
420232 Articles carried in pocket/handbag,w/outer surface sheeting of plas/tex
420292 Containers, with outer surface of sheeting of plas or tex materials,nes
610120 Mens/boys overcoats, anoraks etc, of cotton, knitted
610130 Mens/boys overcoats, anoraks etc, of man-made fibres, knitted
610220 Womens/girls overcoats, anoraks etc, of cotton, knitted
610230 Womens/girls overcoats, anoraks etc, of man-made fibres, knitted
610343 Mens/boys trousers and shorts, of synthetic fibres, knitted
610453 Womens/girls skirts, of synthetic fibres, knitted
610462 Womens/girls trousers and shorts, of cotton, knitted
610463 Womens/girls trousers and shorts, of synthetic fibres, knitted
610469 Womens/girls trousers and shorts, of other textile materials, knitted
610520 Mens/boys shirts, of man-made fibres, knitted
610799 Mens/boys bathrobes,dressg gowns,etc of oth textile materials,knitted
610832 Womens/girls nightdresses and pyjamas, of man-made fibres, knitted
610892 Womens/girls bathrobes,dressing gowns,etc,of man-made fibres,knitted
611030 Pullovers, cardigans and similar articles of man-made fibres, knitted
611610 Gloves impregnated, coated or covered with plastics or rubber, knitted
611692 Gloves, mittens and mitts, nes, of cotton, knitted
611693 Gloves, mittens and mitts, nes, of synthetic fibres, knitted
611710 Shawls, scarves, veils and the like, of textile materials, knitted
620342 Mens/boys trousers and shorts, of cotton, not knitted
620343 Mens/boys trousers and shorts, of synthetic fibres, not knitted
620462 Womens/girls trousers and shorts, of cotton, not knitted
620799 Mens/boys bathrobes,dressg gowns,etc of oth textile materials,not knit
621390 Handkerchiefs, of other textile materials, not knitted
630221 Bed linen, of cotton, printed, not knitted
630399 Curtain/drape/interior blind curtain/bd valance,of oth tex mat,nt knit
630419 Bedspreads of textile materials, nes, not knitted or crocheted
APPENDIX 1: Text and Interpretation of ROO requirements in ROZ Legislation (H.R. 2410)
TEXT EXPLANATION
Section 404. Duty-Free Treatment for Certain Nontextile and
Nonapparel Articles.
(c) GENERAL RULES OF ORIGIN.--
(1) IN GENERAL. – The duty-free treatment proclaimed with respect to A covered non-textile/non-apparel product which is the
an article described in paragraph (1) or (3) of subsection (a) shall apply to growth, product, or manufacture of 1 or more ROZs will
any article subject to such proclamation which is the growth, product, or be eligible for duty-free treatment from a Pakistan ROZ if:
manufacture of 1 or more Reconstruction Opportunity Zones if ---
(A) that article is imported directly from a Reconstruction The article is imported directly from a ROZ AND
Opportunity Zone into the customs territory of the United
States; and
(B)(i) with respect to an article that is an article of a ROZ in For a non-textile/non-apparel covered product from a
Pakistan, the sum of--- Pakistan ROZ, the sum of the following must be at least
35% of the appraised value of the article when it enters into
(I) the cost or value of the materials produced in 1 or
the US:
more ROZs in Pakistan or Afghanistan;
(I) Cost/value of materials produced in 1 or more
(II) the direct costs of processing operations performed in
ROZs where this cost/value is allowed to be
1 or more ROZs in Pakistan or Afghanistan; and
cumulative over 1 or more ROZs in Pakistan OR
(III) the cost or value of materials produced in the United Afghanistan.
States, determined in accordance with paragraph (2) (II) Direct costs of processing operations which are
is not less than 35 percent of the appraised value of the article at allowed to be cumulative over 1 or more ROZs in
the time it is entered into the United States; Pakistan OR Afghanistan.
(III) Cost/value of materials produced in the US subject
to restrictions outlined below.
(B) (ii) AFGHANISTAN This section refers only to products produced in an Afghanistan
ROZ.
(2) DETERMINATION OF THE 35 PERCENT FOR ARTICLES FROM For covered non-textile/non-apparel products from a
RECONSTRUCTION OPPORTUNITY ZONES IN PAKISTAN AND Pakistan ROZ, if the cost/value of materials produced in the
AFGHANISTAN. – If the cost or value of materials produced in the US is being counted towards the 35% requirement outlined
customs territory of the United States is included with respect to an above, not more than 15% of the appraised value of the
article described in paragraph (1) (B), for purposes of determining the 35- product can be attributable to US materials.
percent appraised value requirement under clause (i) or (ii) of paragraph
(1)(B), not more than 15 percent of the appraised value of the article at
the time the article is entered into the United States may be attributable
to the cost or value of such United States materials.
(d) AFGHANISTAN This section is relevant only for Afghanistan ROZ.
(e) EXCLUSIONS. – An article shall not be treated as the growth, product, or A covered non-textile/non-apparel product from a Pakistan
manufacture of 1 or more Reconstruction Opportunity Zones, and no material ROZ must have undergone some material transformation –
shall be included for purposes of determining the 35-percent appraised value simply combining/packaging or dilution will not suffice.
requirement under subsection (c)(1) or (d)(1), by virtue of having merely
undergone---
(1) simple combining or packaging operations; or
(1) mere dilution with water or with another substance that does not
materially alter the characteristics of the article or material.
(f) DIRECT COSTS OF PROCESSING OPERATIONS.---
(1) IN GENERAL.—As used in subsections (c)(1)(B)(i)(II), (c)(1)(B)(i)(III) For a covered non-textile/non-apparel product from a
and (d)(1)(B)(iii), the term “direct costs of processing operations” Pakistan ROZ, the “direct costs of processing operations”
includes, but is not limited to--- INCLUDES but is not limited to:
(A) all actual labor costs involved in the growth, production,  All actual labor costs
manufacture, or assembly of the article, including—  Dies, molds, tooling, and depreciation on the machinery
(i) fringe benefits; and equipment allocable to the article.
The “direct costs of processing operations” EXCLUDES
(ii) on-the-job training; and costs not directly attributable to the product or not costs
(iii) costs of engineering, supervisory, quality control and of manufacturing the article such as:
similar personnel; and  Profits
(B) dies, molds, tooling, and depreciation on machinery and  General expenses of doing business not allocable to the
equipment which are allocable to the article. article or not related to its manufacture.
(2) EXCLUDED COSTS.—As used in subsections (c)(1)(B)(i)(II),
(c)(1)(B)(i)(III) and (d)(1)(B)(iii), the term “direct costs of processing
operations” does not include costs which are not directly attributable to
the article or are not costs of manufacturing the article, such as---
(A) profit; and
(B) general expenses of doing business which are either not
allocable to the article or are not related to the growth,
production, manufacture, or assembly of the article, such as
administrative salaries, casualty and liability insurance,
advertising, and salesmen’s salaries, commissions or expenses.
(g) REGULATIONS. – The Secretary of the Treasury, after consultation with the The Secretary of the Treasury will make regulations to
United States Trade Representative, shall prescribe such regulations as may be ensure that the ROO are satisfied in consultation with the
necessary to carry out this section. The regulations may provide that, in order for USTR. The regulations may require that for a covered non-
an article to be eligible for duty-free treatment under this section, the article--- textile/non-apparel product to be eligible for duty-free
treatment, it must be
(1) shall be wholly the growth, product, or manufacture of 1 or more
Reconstruction Opportunity Zones; or  Wholly growth, product, or manufacture of 1 or
(2) shall be a new or different article of commerce which has been grown, more ROZ or
produced, or manufactured in 1 or more Reconstruction Opportunity  A new/different article which has been grown,
Zones. produced or manufactured in 1 or more ROZ – i.e.
some material transformation of materials must
have taken place.
SECTION 405. DUTY-FREE TREATMENT FOR CERTAIN TEXTILE
AND APPAREL ARTICLES.
(c) RULES OF ORIGIN FOR CERTAIN COVERED ARTICLES.--
(1) GENERAL RULES. – Except with respect to an article listed in A covered textile/apparel product from a Pakistan ROZ
paragraph (2) of subsection (b), duty-free treatment may be proclaimed must be imported directly into US customs territory from a
for an article listed in subsection (b) only if the article is imported directly ROZ AND subject to one of the following categories for
into the customs territory of the United States from a Reconstruction duty free treatment to apply:
Opportunity Zones and ---
 Wholly the growth of 1 or more ROZs OR
 A yarn, thread, twine, cordage, rope, cable or braiding
(A) the article is wholly the growth, product, or manufacture of 1 for which 1 of the following processes are performed in
or more Reconstruction Opportunity Zones; 1 or more ROZs:
(B) the article is a yarn, thread, twine, cordage, rope, cable, or o The staple fibers are spun OR
braiding, and--- o The continuous filament fiber is extruded
(i) the constituent staple fibers are spun in; or  The article is a fabric including those in Chapter 59 of
(ii) the continuous filament fiber is extruded in, the HTS (Chapter 59: Impregnated, coated, covered or
laminated textile fabrics. Textile articles of a kind
1 or more ROZs suitable for industrial use) where the fibers, filaments
(C) the article is a fabric, including a fabric classifiable under or yarns are transformed by the specified fabric-making
chapter 59 of the HTS, and the constituent fibers, filaments, process in 1 or more ROZs. OR
or yarns are woven, knitted, needled, tufted, felted, entangled,  Any other textile/apparel article that is cut or knit-to-
or transformed by any other fabric-making process in 1 or shape AND sewn or otherwise assembled in 1 or more
more Reconstruction Opportunity Zones; or ROZs. OR
(D) the article is any other textile or apparel article that is cut (or
knit-to-shape) and sewn or otherwise assembled in 1 or more
Reconstruction Opportunity Zones from its component
pieces.
(2) SPECIAL RULES. --- These special rules take precedence over the general rules:
(A) CERTAIN MADE-UP ARTICLES, TEXTILE ARTICLES IN THE Disregarding the general rule in (1) (D) and except as
PIECE, AND CERTAIN OTHER TEXTILES AND TEXTILE specified in the rules below, an article classified in the
ARTICLES.--- Notwithstanding paragraph (1) (D) and except as specified subheadings will be eligible for duty free treatment
provided for in subparagraphs (C) and (D) of this paragraph, if:
subparagraph (A), (B), or (C) of paragraph (1), as appropriate,
shall determine whether a good that is classifiable under 1 of the
following headings or subheadings of the HTS shall be considered  Wholly the growth of 1 or more ROZs
to meet the rules of origin of this subsection: 5609, 5807, 5811,  A yarn, thread, twine, cordage, rope, cable or braiding
6209.20.50.40, 6213, 6214, 6301, 6302, 6303, 6304, 6306, for which 1 of the following processes are performed in
6307.10, 6307.90, 6308 and 9404.90. 1 or more ROZs:
o The staple fibers are spun OR
o The continuous filament fiber is extruded
 The article is a fabric including those in Chapter 59 of
the HTS (Chapter 59: Impregnated, coated, covered or
laminated textile fabrics. Textile articles of a kind
suitable for industrial use) where the fibers, filaments
or yarns are transformed by the specified fabric-making
process in 1 or more ROZs.
The specified products in this list will be referenced as

“Group A”, the principle is that the origin is determined by
the component yarn or fabric.
(B) CERTAIN KNIT-TO-SHAPE TEXTILES AND TEXTILE Disregarding the General Rule in (1) (D) and except as
ARTICLES.--- Notwithstanding paragraph (1)(D) and except as provided for in the special rules below, a textile/apparel
provided for in subparagraphs (C) and (D) of this paragraph, a article that is wholly formed on seamless knitting machines
textile or apparel article that is wholly formed on seamless or by hand-knitting in one or more ROZ will meet the
knitting machines or by hand-knitting in 1 or more Reconstruction rules of origin and be eligible for duty free treatment.
Opportunity Zones shall be considered to meet the rules of origin
of this subsection.
(C) CERTAIN DYED AND PRINTED TEXTILES AND TEXTILE Disregarding the General Rule in (1) (D), an article in the
ARTICLES. -- Notwithstanding paragraph (1)(D), an article specified sub-headings that is NOT classifiable under 1 or
classifiable under subheading 6117.10, 6213.00, 6214.00, 6302.22, more of the subheadings as “of cotton” or “of wool” or
6302.29, 6302.52, 6302.52, 6302.53, 6302.59, 6302.92, 6302.93, consisting of fiber blends with 16% or more by weight of
6302.99, 6303.92, 6303.99, 6304.19, 6304.93, 6304.99, 9404.90.85, cotton will meet the rules of origin if:
or 9404.90.95 of the HTS, except for an article classifiable under 1
of such subheadings as of cotton or of wool or consisting of fiber
blends containing 16 percent or more by weight of cotton, shall (1) The article is both dyed AND printed in 1 or more
be considered to meet the rules of origin of this subsection if the ROZ AND
fabric in the article is both dyed and printed in 1 or more (2) 2 or more of the following finishing operations are
Reconstruction Opportunity Zones, and such dyeing and printing also performed in 1 or more ROZ: bleaching,
is accompanied by 2 or more of the following finishing operations: shrinking, fulling, napping, decating, permanent
bleaching, shrinking, fulling, napping, decating, permanent stiffening, stiffening, weighting, permanent embossing or
weighting, permanent embossing, or moireing. moireing.
The specified products in this list will be referenced as

“Group C”.
(D) FABRICS OF SILK, COTTON, MAN-MADE FIBER, OR Disregarding the General Rule in (1) (C), a fabric classifiable
VEGETABLE FIBER. – Notwithstanding paragraph (1)(C) a fabric under the HTS as of silk, cotton, man-made fiber or
classifiable under the HTS as of silk, cotton, man-made fiber or vegetable fiber will meet the rules of origin if:
vegetable fiber shall be considered to meet the rules of origin of
this subsection if the fabric is both dyed and printed in 1 or more
Reconstruction Opportunity Zones, and such dyeing and printing (1) The fabric is both dyed AND printed in 1 or more
is accompanied by 2 or more of the following finishing operations: ROZ AND
bleaching, shrinking, fulling, napping, decating, permanent stiffening, (2) 2 or more of the following finishing operations are
weighting, permanent embossing, or moireing. also performed in 1 or more ROZ: bleaching,
shrinking, fulling, napping, decating, permanent
stiffening, weighting, permanent embossing or
moireing.
(d) AFGHANISTAN
(e) REGULATIONS.—The Secretary of the Treasury after consultation with the The Secretary of the Treasury will implement regulations
United States Trade Representative, shall prescribe such regulations as may be to ensure that these rules of origin are satisfied.
necessary to carry out this section.
Appendix 2: US Code: Title 19, 3592 “Rules of Origin for Textile and Apparel Products”
(a) Regulatory authority
The Secretary of the Treasury shall prescribe rules implementing the principles contained in
subsection (b) of this section for determining the origin of textiles and apparel products. Such rules
shall be promulgated in final form not later than July 1, 1995.
(b) Principles
(1) In general Except as otherwise provided for by statute, a textile or apparel product, for
purposes of the customs laws and the administration of quantitative restrictions, originates in
a country, territory, or insular possession, and is the growth, product, or manufacture of that
country, territory, or insular possession, if—
(A) the product is wholly obtained or produced in that country, territory, or

possession;
(B) the product is a yarn, thread, twine, cordage, rope, cable, or braiding and—
(i) the constituent staple fibers are spun in that country, territory, or
possession, or
(ii) the continuous filament is extruded in that country, territory, or

possession;
(C) the product is a fabric, including a fabric classified under chapter 59 of the HTS,
and the constituent fibers, filaments, or yarns are woven, knitted, needled, tufted,
felted, entangled, or transformed by any other fabric-making process in that country,
territory, or possession; or
(D) the product is any other textile or apparel product that is wholly assembled in that
country, territory, or possession from its component pieces.
(2) Special rules
(A) Notwithstanding paragraph (1)(D) and except as provided in subparagraphs (B)

and (C)—
(i) the origin of a good that is classified under one of the following HTS
headings or subheadings shall be determined under subparagraph (A), (B), or
(C) of paragraph (1), as appropriate: 5609, 5807, 5811, 6209.20.50.40, 6213,
6214, 6301, 6302, 6303, 6304, 6305, 6306, 6307.10, 6307.90, 6308, or
9404.90; and
(ii) a textile or apparel product which is knit to shape shall be considered to

originate in, and be the growth, product, or manufacture of, the country,
territory, or possession in which it is knit.
(B) Notwithstanding paragraph (1)(C), fabric classified under the HTS as of silk,
cotton, man-made fiber, or vegetable fiber shall be considered to originate in, and be
the growth, product, or manufacture of, the country, territory, or possession in which
the fabric is both dyed and printed when accompanied by two or more of the
following finishing operations: bleaching, shrinking, fulling, napping, decating,
permanent stiffening, weighting, permanent embossing, or moireing.
(C) Notwithstanding paragraph (1)(D), goods classified under HTS heading 6117.10,
6213.00, 6214.00, 6302.22, 6302.29, 6302.52, 6302.53, 6302.59, 6302.92, 6302.93,
6302.99, 6303.92, 6303.99, 6304.19, 6304.93, 6304.99, 9404.90.85, or 9404.90.95,
except for goods classified under such headings as of cotton or of wool or consisting
of fiber blends containing 16 percent or more by weight of cotton, shall be considered
to originate in, and be the growth, product, or manufacture of, the country, territory,
or possession in which the fabric is both dyed and printed when accompanied by two
or more of the following finishing operations: bleaching, shrinking, fulling, napping,
decating, permanent stiffening, weighting, permanent embossing, or moireing.
ANNEX TWO: Industrial
Estates in NWFP and
Baluchistan
A. Industrial Estates in NWFP Province
1. Industrial Estate Peshawar.
2. Special Industrial Zone Risalpur, Nowshera.
3. Export Processing Zone Risalpur, Nowshera.
4. Industrial Estate Haripur.
5. Industrial Estate Gadoon Amazai.
B. Industrial Estates of Balochistan Province

1. Quetta Industrial and Trading Estate (Phase – I).
2. Industrial Estate at Dera Murad Jamali.
3. Lasbella Industrial Estate at Hub.
4. Uthal Industrial Estate.
5. Uthal Industrial Estate (Phase – II).
6. Marble City Gaddani.
7. Winder Industrial and Trading Estate.
8. Saindak Export Processing Zone.
9. Duddar Export Processing Zone.
10. Export Processing Zone Gawadar.
11. Khalifa Coastal Oil Refinery Export Processing Zone.
12. Export Processing Zone Reko Dig.
A. Small Industrial Estates in NWFP.

1. Small Industrial Estate Peshawar – I.
2. Small Industrial Estate Peshawar – II.
3. Small Industrial Estate Mardan.
4. Small Industrial Estate Khalabat, Haripur.
5. Small Industrial Estate Abbottabad.
6. Small Industrial Estate Mansehra.
7. Small Industrial Estate Kohat.
8. Small Industrial Estate Bannu.
9. Small Industrial Estate D. I. Khan.
10. Small Industrial Estate Charsadda.
B. Small Industrial Estates in Balochistan.

1. SMALL INDUSTRIAL ESTATE SIRKI ROAD, QUETTA.
2. Mini Industrial Estate Loralai.
3. Mini Industrial Estate Khuzdar.
4. Mini Industrial Estate Bostan.
5. Mini Industrial Estate Kalat.
PAKISTAN TRADE PROJECT
SITE SELECTION CRITERIA
1
15 2
RECONSTRUCTION 14 3
OPPORTUNITY ZONES (ROZ)

13 4
ROZs
Establishment
Site Selection
ESTABLISHMENT 12 Criteria 5
11 6
10 7
9 8
PAKISTAN TRADE PROJECT PAKISTAN TRADE PROJECT
SITE SELECTION CRITERIA (Continued) SITE SELECTION CRITERIA (Continued)

1. Availability of Sufficient Flat Land. 10. Climatic Conditions, minimum and maximum
2. Existing Road, Rail and Air Links to Karachi and temperatures and annual rainfall.
Gwadar seaports. 11. Availability of raw material for ROZ.
3. Road link with corresponding province in Afghanistan. 12. Per capita income of population.
4 Availability of potable water and electricity
4. electricity. 13 Telecom facility available.
13. available
5. Availability of working labor force. 14. Availability of environment for the establishment of
6. Location of seat of administration. ROZ.
7. Total population in the ROZ area of influence. 15. List of investors in the ROZ area of influence.
8. Security measures available.
9. Availability of cheap construction material for ROZs
establishment.
DELIVERABLES DELIVERABLES (Continued)

1. Formulation of national framework for ROZs. 9. Feasibility studies for proposed sites, proposed GDAs
2. To formulate marketing strategy to maximize ROZ approaches to infrastructure and utilities provision and
tenants. workforce development initiatives.
3. Constitution of ROZ steering group. 10. To recommend and strengthen SEZs, free zones and
pp
industrial estates located in EPF supported districts.
4 Constitution of local sub committees
4. committees.
5. To collect data about existing industrial estates and
existing factories related to ROZ.
6. Policy analysis and implementation support for fast
track ROZ designation of existing factories and estates.
7. Formulation of draft legislation tailored to Pakistan.
8. Capacity building of ROZ regulator in administering,
enforcing and promoting the ROZ program.
1
LIST OF ATTACHED DEPARTMENTS MINISTRY OF COMMERCE – PUBLICATIONS

1. TDAP (Trade Development Authority of Pakistan) 1. Year Book 2007 – 08
2. TCP (Trading Corporation of Pakistan) 2. National Trade Facilitation Strategy
3. NTC (National Tariff Commission) 3. Trade Organizations Ordinance 2007
4. State Life Insurance of Pakistan
5 Foreign
5. F i T Trade
d IInstitute
tit t off Pakistan
P ki t
6. Pakistan Reinsurance Company
7. National Insurance Company
8. Pakistan Tobacco Board
9. Federation of Chambers and Industry
10. Pakistan Horticulture Development and Export Board
LIST OF INDUSTRIAL ESTATES LIST OF INDUSTRIAL ESTATES (Continued)

PUNJAB PROVINCE: 11. Muridke Industrial Zone # 1 along Sialkot-Lahore
1. Industrial Estate Multan Motorway
2. Cottage/Small Industrial Cluster Complex at Multan 12. Gujranwala Industrial Zone # 2 along Sialkot-Lahore
Motorway
3. Industrial Estate Faisalabad
4 Sunder
4. S d Industrial
I d t i l Estate
E t t Lahore
L h 13 Sambrial Industrial Zone # 2 along Sialkot-Lahore
13. Sialkot Lahore
Motorway
5. Quaid-e-Azam Industrial Estate, Kot Lakhpat, Lahore
14. Small Industrial Estate Bahawalpur
6. Industrial Estate Gujranwala
15. Small Industrial Estate Kot Adu
7. Industrial Estate Gujrat
16. Duty Free Zone Dera Ghazi Khan
8. Industrial Estate Wazirabad
17. Industrial Estate Rawalpindi
9. Industrial Estate Sialkot
18. Industrial Estate Taxila
10. Industrial Estate Bahawalpur
LIST OF INDUSTRIAL ESTATES (Continued) LIST OF INDUSTRIAL ESTATES (Continued)

19. Industrial Estate Kamra BALOCHISTAN PROVINCE:
20. Industrial Estate Attock 1. Industrial Estate Quetta
21. Industrial Estate Rahim Yar Khan 2. Industrial Estate Dera Murad Jamali
22. Small Industrial Estate at Jhang 3. Industrial Estate Khuzdar
4 Industrial
4. I d t i l Estate
E t t Uthal
Uth l
5. Industrial Estate Wander
6. Industrial Estate Hub
7. Industrial Estate Gaddani
8. Industrial Estate Gwadar
9. Industrial Estate Loralai
2

SINDH PROVINCE: 11. Industrial Estate Mirpurkhas
1. Industrial Estate Sukkur 12. Industrial Estate Rohri
2. Industrial Estate Khairpur Mirs 13. Industrial Estate Karachi # 1
3. Industrial Estate Nawabshah 14. Industrial Estate Karachi # 2
4 Industrial
4. I d t i l Estate
E t t Larkana
L k
5. Industrial Estate Shikarpur
6. Industrial Estate Jacobabad
7. Industrial Estate Mirpur Mathelo
8. Industrial Estate Daherki
9. Industrial Estate Ghotki
10. Industrial Estate Hyderabad

NWFP PROVINCE: 11. Small Industrial Estate Jamrud Road (Hayatabad)
1. Industrial Estate Nowshera Peshawar # 2
2. Industrial Estate Akora Khattak 12. Small Industrial Estate Mardan
3. Industrial Estate Hattar (Haripur) 13. Small Industrial Estate Mansehera
4 Industrial
4. I d t i l Estate
E t t Jamrud
J d Road,
R d Peshawar
P h 14 Small Industrial Estate Kohat
14.
5. Industrial Estate Gadoon Amazai (Swabi) 15. Small Industrial Estate Bannu
6. Industrial Estate Malakand 16. Small Industrial Estate Dera Ismail Khan
7. Industrial Estate Lucky Marwat 17. Small Industrial Estate Charsadda
8. Small Industrial Estate Khalabat (Haripur)
9. Small Industrial Estate Abbottabad
10. Small Industrial Estate Kohat Road Peshawar # 1
THANK YOU
17
3
USAID Pakistan Trade Project
Deloitte Consulting, LLP
Tel: (051) 843 8280 - 83
Fax: (051) 835 0150
http://www.pakistantrade.org

Reconstruction Opportunity Zones: Road Map

Caricato da

Informazioni sul documento

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

Reconstruction Opportunity Zones: Road Map

Caricato da

Copyright:

Formati disponibili

USAID/PAKISTAN: TRADE

 USAID/Pakistan: Trade Project

ROZ Road Map

Establish ROZ Working Group and PMUs

PMU Assistance Program

Establishing Legal/Reg Framework

ROZ Marketing Plan

Select Demonstration ROZs

ROZ Public-Private Financing

1.1 DEFINITION OF ROZ

Figure 1: Areas of Afghanistan and Pakistan Eligible for Designation as

1.1.2. DESIGNATION OF ROZS

1.1.3. LABOR STANDARD COMPLIANCE

1) Established a program, in cooperation with an entity designated by the US Department of

Successful monitoring and enforcement of labor standards involves a multi-stakeholder effort to

1.1.4. RULES OF ORIGIN COMPLIANCE

1.2. REVIEW OF QIZ PROGRAMS IN JORDAN AND EGYPT

1.2.1. QIZ LESSONS

2.1. PREFERENCES FOR NON-TEXTILE/NON-APPAREL ITEMS

2.2. Preferences for Textile/Apparel Articles

Figure 3. 10-Digit Garment and Textile Products

WOMEN'S OR GIRLS' SUITS, NOT KNITTED/CROCHETED

0 20 40 60 80 100 120 140

TRACK SUITS, SKI-SUITS AND SWIMWEAR, KNITTED OR CROCHETED 703

0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

2.3. COVERED PRODUCTS SUBJECT TO US TARIFFS GREATER

3.1. ROZS AS HUBS FOR LOCAL VALUE CHAINS

 Support for financial transactions,

3.2. THE US GENERALIZED SYSTEM OF PREFERENCES

Table 3: Pakistan 2008 Exports to US under GSP – Key Categories

Figure 8, Pakistan Exports to US Gold and Platinum Manicure

 Inefficient processing of inputs resulting in a large amount of wastage,

5. Enterprise: the entity licensed/permitted to establish manufacturing, processing, services

Government Developer Operator

4.1. REGULATORY VS. OPERATIONAL ROLES

4.1.1 THE ROLE OF THE REGULATOR

Ministries Government Zone-specific Investment Provincial/State

4.1.2 INSTITUTIONAL EXPERIENCE IN PAKISTAN

4.1.3 PRIVATE SECTOR PARTICIPATION

4.1.4 ESTATE AND ZONE CHALLENGES

Table 5. Summary of Industrial Estates and Small Industrial Estates

Status Zones Percentage

Fully allotted, full occupancy 10 12%

Fully allotted, low occupancy 13 16%

Sites available, high occupancy 1 1%

Sites available, low occupancy 42 51%

4.1.5 SPECIAL ECONOMIC ZONE (SEZ) INITIATIVE

This is a bold initiative that seeks to implement a number of reforms:

4.1.7 NEXT STEPS – ROZ INSTITUTIONAL FRAMEWORK WORK PLAN

4.1.8 NEXT STEPS – PROVINCIAL PMU CAPACITY BUILDING

PMU Assistance Program

5.1 EXISTING REGULATIONS IN PAKISTAN

0% 20% 40% 60%

5.2 STRUCTURE OF ROZ LEGISLATION

5.3 INVESTMENT INCENTIVES

5.4 INVESTMENT INCENTIVES IN PAKISTAN

Table 7. Income Tax as a Share of Total Sales – Selected US Industries 2004

5.6 NEXT STEPS: ROZ LEGAL AND REGULATORY FRAMEWORK WORK

6.2 IDENTIFYING THE 5

that two ROZs be identified specifically for the

Table 9. Timeline for Selection of Demonstration ROZs

Select Demonstration ROZs

ROZ Public-Private Financing

Table 10. Summary of Potential ROZs