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CGD Notes

Stimulating Pakistani Exports and Job Creation: Special Zones Won’t Help Nearly as Much as Cutting Tariffs across the Board

April 15, 2010
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Some U.S. Congress members are promoting bipartisan legislation to expand access for certain U.S. imports from Pakistan. The initiative designates certain textile and apparel items that could be imported duty-free if they are produced in “reconstruction opportunity zones” located in the Federally Administered Tribal Areas, other areas along Pakistan’s border with Afghanistan, or areas affected by the October 2005 earthquake.

Expanding economic opportunities and job creation in Pakistan is an important goal, and further opening the U.S. market is a logical tool for doing so. Because Pakistan’s exports are concentrated in the high-tariff textile and apparel sectors, they are taxed at an average of 11.4 percent, nearly three times the average U.S. rate of 4.0 percent.

However, in its current form, the proposed legislation would do relatively little to address the discrimination against Pakistan’s exports because of restrictions designed to avoid opposition from the U.S. textile industry. In this note, CGD senior fellow outlines two key changes to expand the benefits of the legislation:

  1. Expand product coverage to all potential exports from Pakistan.
  2. Expand geographic coverage to all of Pakistan.

There is little plausible evidence that relaxing the restrictions in the bills would harm U.S. domestic producers. Increased Pakistani exports would likely displace Chinese or other Asian exports, not U.S. production.

 

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