Optimizing QIZ Opportunities in Egypt

Optimizing QIZ Opportunities in Egypt Gail Strickler Assistant United States Trade Representative

QIZOverview Section 7 of the U.S. – Israel Free Trade Area Implementation Act Presidential Proclamation 6955 Protocols between Egypt and Israel • Increase employment opportunities in Egypt • Stimulate participating economies • Promote collaboration between • Egypt and Israel

US Requirements The article is a “new and different article of commerce” produced in QIZ It is “imported directly” into the United States The sum of the cost or value and the direct cost of processing in Egyptian QIZ and Israel is not less than 35%of the article’s US entered value Up to 15% of the article’s value may be U.S inputs that contribute to the total 35% requirement.

Egypt – Israel Protocol Requirements • The Egyptian manufacturer in the QIZ must contribute one third (11.7%) of the 35% content requirement • The Israeli components must contribute 10.5% • The remainder of the 35% can come from West Bank, Gaza Strip, Israel, the QIZ, or as mentioned, the U.S.

Participating Factories QIZ joint committees, comprised of representatives from Egypt and Israel. Provide lists of QIZ companies whose products are eligible for QIZ treatment Current lists can be viewed at: http://www.qizegypt.gov.eg/images/attachment.ashx.pdf • Accurate factory directories can be significant marketing tools…

How Brands and Retailers Find Appropriate Sourcing Partners

A Good Example • View by Categories • View by Country • Search by Name

An Effective Directory • By Category

An Effective Directory • By Company or Factory Name

An Effective Directory • Can the customer filter the information? • Is there a good search function? • Did I find what I am looking for? • Is the information reliable and up to date? • How can I make my product more accessible to my customers? ….

Successful Suppliers Reliability Price Quality • What else do you have to do to grow business with US importers?...

Global Interests Environment Labor Customs • … common interests

… “there are cases of labor exploitation and unfair treatment everywhere" the head of Dignity Returns, Boosaba Meechai. Child Labor Advocates Call Wal-Mart Settlement Disastrous… Activists Outraged at Paltry Fines and Potential for Future Violations by Nation’s Largest Retailer Villagers had complained that the factory.. owned by Fountain Set, had turned their river water dark red. Authorities discovered a pipe buried underneath the factory floor that was dumping roughly 22,000 tons of water contaminated from its dyeing operations each day into a nearby river, according to local environmental-protection officials. A leading labor rights activist accused Wal-Mart, Kmart and J.C. Penney of subcontracting to a Nicaraguan "sweatshop" despite efforts to end exploitation of workers. A Call to Arms: How We Must Take the Fight to Nike …NOW is the time for Nike's Indonesian workers to hit Nike hard. Remember, Nike said that they would never pay out severance to workers, that it was not their responsibility. In the news… …Pangrim Neotex, a Korean textile company, [was] caught discharging around 1,000cu.m of untreated waste water into the Hong (Red) River in Viet Tri City on Sunday, according to Phu Tho Province's Environ- ment Police Bureau head

… “provide practical and compassionate support to women and children in need around the globe [offering] Free medical, dental and optometric care to children and the elderly in Vietnam..” “Our greatest responsibility as a global company is to play a role in bringing about positive systemic change for workers within our own supply chain, and in the industry.” “Respect for human rights and fair labor conditions for the people who manufacture our products around the world is the foundation of our company…” Gap Inc. was recognized by Maclean’s Magazine as one of the Top 50 Most Socially Responsible Corporations based on an analysis by Jantzi Research Company. Also in the news…

Global Interests Environment Labor • Best Practices

Global Interests Environment Labor Customs • … common interests

Opportunities and Challenges “The industry adage that ‘companies chase the lowest-cost needle’ is changing, sourcing experts said. In its place, companies are developing more nuanced strategies that include both enhanced factory productivity and diversified sourcing bases to mitigate rising costs” “Raw material prices and transportation rates have also soared, and the floundering world economy has further challenged apparel firms by making price increases nearly impossible to pass on. More than moving from country to country, smart manufacturing and sourcing will be the most effective way to combat the rising price of manufacturing.” - Source: Women’s Wear Daily

Enforcement • Egypt and Israel monitor and enforce the protocol rules • US Customs & Border Protection (CBP) monitors and enforces the US Harmonized Tariff Schedule (HTS) rules • CBP relies on assurances from the QIZ committees

Recordkeeping & Documentation • Assurances that the factory is designated as a QIZ factory • Bill of materials or other worksheet showing satisfaction of the 35% value requirement • Description of all manufacturing processes, particularly where double substantial transformation will be claimed • Standardized Documents

Recordkeeping & Documentation • Invoices and bills of lading showing cost and movement of materials produced in West Bank, Gaza Strip, QIZ and Israel and foreign materials • Yarn or fabric affidavits as needed to support 35% value requirement • Production (cutting and sewing) records • All documents should be in English or be prepared to furnish English translations

Document Flow

Production Records • Local Value Content Sheet • Timeline • Order to Supplier • Supplier Internal Work Order • Yarn Purchase Records • Knitting Records • Fabric Purchase Records • Accessories Records • Cutting Records • Sewing Records • Ironing & Packing Records • Inspection Records

Tracking Local Values • Timeline • Local Value Content • Direct Labor Cost • Direct Processing Cost • Final Summary Content Calculation

Gail Strickler Assistant United States Trade Representative www.ustr.gov gail_strickler@ustr.eop.gov (202) 395-7391 Thank You

Example… • Chinese cotton knit fabric with a cost of $4000 is imported into Israel where it is cut at a cost of $1000 • The cut components are sent to an Egyptian QIZ where they are assembled by sewing into men’s knit polo-style shirts at a cost of $2000 with US buttons and thread with a cost of $200. • The finished shirts are exported directly to the United States where they are entered with a value of $10,000

…As a Result • Without double substantial transformation, the shirt would not meet the 35 percent value requirement, because the sum of the Israel processing plus the Egypt QIZ processing plus the US buttons and thread is only 32 percent • But the Chinese fabric is substantially transformed into cut parts in Israel and transformed again into shirts in the QIZ • With the Chinese fabric, the cost of Israeli materials is $5000, and the relevant percentage becomes 72 percent, well above the required percentage

Another Example • In a 2007 CBP ruling (HQ HO12418), zippers assembled in Israel for use in QIZ garments were not considered substantially transformed and their cost could not be counted toward the 35 percent • The zipper assembly cost, however, could be counted toward the 35 percent as a cost of processing the garment • But the packing and freight to move the assembled zippers to the QIZ were not counted because they did not relate to materials produced in the QIZ or Israel

Optimizing QIZ Opportunities in Egypt