VZCZCXRO3790
RR RUEHLH RUEHPW
DE RUEHIL #1917/01 2290131
ZNR UUUUU ZZH
R 170131Z AUG 09
FM AMEMBASSY ISLAMABAD
TO RUEHC/SECSTATE WASHDC 4389
INFO RUEHBUL/AMEMBASSY KABUL 0771
RUEHLO/AMEMBASSY LONDON 1140
RUEHNE/AMEMBASSY NEW DELHI 5378
RUEHLH/AMCONSUL LAHORE 7755
RUEHPW/AMCONSUL PESHAWAR 6746
RUEHKP/AMCONSUL KARACHI 2151
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC
RHEHNSC/NSC WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEKJCS/JOINT STAFF WASHINGTON DC

UNCLAS SECTION 01 OF 03 ISLAMABAD 001917 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EAID ETRD PGOV PREL PK
SUBJ: RECONSTRUCTION OPPORTUNITY ZONE PREP - GAINING SOME TRACTION? 
 
¶1. (SBU) Summary: The GOP has begun to take some nascent steps at 
the federal and provincial level to prepare for the creation of 
Reconstruction Opportunity Zones, even though the U.S. Congress has 
yet to pass the ROZ legislation.  The Ministry of Commerce continues 
its role as champion of GOP efforts in identifying ROZ sites, 
ensuring proper ROZ regulation, and informing potential investors. 
However, many Pakistani businesses complain that the ROZ financial 
incentives will not match the increased labor, security, 
infrastructure, and transport costs of doing business in the 
designated areas of NWFP, Balochistan and Azad Jammu Kashmir.  USAID 
will provide technical support to the federal and provincial 
authorities to put the proper regulatory structures in place for 
ROZs and can also weigh in to some extent to address physical 
infrastructure needs.  Ultimately the ROZs' success will depend on 
whether the ROZ "package" - to include both U.S. and domestic GOP 
incentives - is sufficient and timely enough to overcome the 
challenges and woo domestic and international investors.  End 
Summary. 
 
Marrying Action to Talk? 
------------------------ 
 
¶2. (SBU) After much talk about GOP plans to prepare for ROZs both at 
the federal and provincial levels, signs that concrete action is at 
last getting under way are beginning to emerge.  Secretary Commerce 
Suleiman Ghani told Econ Counselor and visiting Senior Economist 
(Pakistan) on August 3 that the GOP is moving forward with planning 
and that he had, on the margins of introducing the 2009-2012 Trade 
Policy on August 2 (septel) and since the two are closely linked, 
taken the opportunity to brief the Prime Minister on Commerce 
actions and plans for ROZs: 
 
 -- Commerce has initiated a dialogue with provincial governments in 
Balochistan, NWFP and Azad Jammu Kashmir to finalize a list of 
possible sites, institutional requirements and to develop an 
incentive package. 
 
 -- A campaign to inform potential investors has been launched. 
 
 -- A total of $37.5 million for ROZs has been allocated from the 
Public Sector Development Program. 
 
 -- A study has been initiated to identify possible changes required 
in the regulatory framework. 
 
 -- A joint study group has been established with the United States 
to discuss and finalize (among other issues) details of setting up 
the ROZs; to develop a roadmap for a Free Trade Agreement; and to 
discuss the possibility of earlier, additional market access. 
 
¶3. (SBU) In his presentation to the Prime Minister, Ghani also 
highlighted what he called necessary institutional arrangements, the 
first of which was the formation of a body to coordinate all 
activity on ROZs at the federal level and attached to the Ministry 
of Commerce.  Commerce prefers that this be a statutory body set up 
under a specific legal authority.  Commerce also foresees 
establishing a project implementation unit to develop the concept, 
institutional framework and other essential underlying tasks. 
According to the Commerce model, the provinces would be empowered to 
establish and operate ROZs; provinces would also take the lead in 
certifying compliance.  The Federal Board of Revenue (FBR) will also 
establish units inside each individual ROZ. 
 
¶4. (SBU) In a recent meeting with Peshawar PolOff and USAID, 
Additional Secretary Commerce (and USAID POC at the Commerce 
Ministry) Qamar Zaman and Joint Secretary Najeeb Awan said that an 
inter-provincial meeting would be held "soon" to designate the areas 
where ROZs would be built.  Zaman also indicated that Commerce was 
in contract talks with a legal consultant to help with ROZ 
preparations.  Awan subsequently confirmed that the GOP was 
considering the main industrial estates in the areas designated thus 
far for ROZs, adding that Hattar, Gadoon, Risalpur (export 
processing zone), Peshawar and Jalozai were the prime areas of focus 
in NWFP, as were Chaman and Quetta in Balochistan.  On August 3, 
Ghani indicated that the GOP intends to have seven (unnamed) ROZs 
operational within the next three years, beginning with at least one 
in each of the targeted geographical areas. 
 
Provincial-Level Action Too 
--------------------------- 
 
ISLAMABAD 00001917  002 OF 003 
 
 
 
¶5. (SBU) At the provincial level there is also some modest progress. 
 Staff from the USAID-funded FATA Capacity Building Project (CBP), 
assisting provincial efforts to prepare for ROZs, report that the 
governor and chief minister of the NWFP created a provincial level 
committee led by the NWFP Ministry of Industry to spearhead efforts. 
 
 
¶6. (SBU) In another positive development, at the behest of Shakeel 
Qadir, the former chief economist of the NWFP and current Director 
General of Provincial Reconstruction Rehabilitation Settlement 
Authority (PaRRSA) and Provincial Disaster Management Authority 
(PDMA), FATA-CBP has engaged a labor consultant to assist NWFP 
officials to meet the labor requirements likely to be embedded in 
the final ROZ legislation.  The consultant has held one stakeholder 
meeting thus far, and is planning to examine existing laws with a 
particular eye toward identifying the prerogatives of the federal 
government in relation to the provincial authorities.  The resulting 
recommendations will facilitate federal government and provincial 
government coordination in monitoring labor compliance specifically 
related to ROZs. 
 
¶7. (SBU) Finally, an "ROZ cell" is being created in the Sarhad 
Chamber of Commerce in Peshawar to coordinate with the NWFP 
provincial government on ROZ implementation.  Funding for the cell 
was recently included in the NWFP budget.  According to FATA-CBP 
staff, the ROZ cell is hiring a director and two managers.  The cell 
will focus on investment promotion as well as regulatory matters. 
 
But Concerns Remain 
------------------- 
 
¶8. (SBU) Post hears consistently concerns from Pakistani businesses 
that financial incentives are insufficient for them to establish 
production centers in the areas designated for ROZs.  Industrialists 
from the Sarhad Chamber of Commerce have practically made it their 
mantra that the increased cost of production in the NWFP (where 
workers will have to be trained or imported from other parts of the 
country initially and infrastructure is currently quite limited), as 
well as increased costs for security and transporting goods to ports 
for export will outweigh any incentive the GOP or the USG can 
provide - barring significant expansion of the textile categories. 
If the number of letters received at Post is any guide, Pakistani 
business is focusing its efforts on enacting changes to the U.S. 
legislation rather than lobbying the Pakistani government to augment 
its own incentives. 
 
¶9. (SBU) In an August 6 meeting with Treasury Attach and Consulate 
General Econ Officer, S. Ali Raza, President of National Bank of 
Pakistan, stated his customers were expressing concern about setting 
up business in the ROZs due to security conditions and access to 
trade.  More troubling, Raza also admitted he had instructed his 
loan officers to steer clients away from the ROZs because the 
security and financial risks were too great. 
 
¶10. (SBU) Ghani acknowledged that the GOP must take concrete steps 
to make ROZs attractive to business, particularly as he said he 
agreed privately that the product mix being offered is not optimal. 
Among other ideas, Commerce is advocating establishment of a 
dedicated infrastructure and energy development fund; improving 
transportation corridor efficiency; building institutional capacity 
at Customs and the Ministry of Labor, and for security; developing a 
special incentive package; establishing dedicated manpower 
development institutions; establishing "social infrastructure" to 
address the housing health and educational needs in ROZ areas. 
Although he admitted to being "a little behind schedule," Ghani said 
that the GOP was aiming to have an in-depth study of ROZs submitted 
by 15 September and to have a plan for the institutional set-up 
sometime in October.  An assessment of infrastructure and other 
requirements is due by the end of the year and work is to begin on 
at least one ROZ per area/province by March 2010. 
¶11. (SBU) Comment: Ghani, the engine behind the GOP ROZ effort, was 
both pragmatic and explicit in his comment that the GOP is 
determined to "make a go" of the ROZs even if changes in product or 
geographic coverage are not forthcoming.  While Ghani states that 
the GOP is not waiting for U.S. legislation to be passed in its 
preparations for ROZs, signs point otherwise.  Despite rosy 
presentations at the federal level, action is harder to find.  For 
instance, at the federal level no date has been set for the 
interprovincial meeting and in the NWFP, the provincial level 
 
ISLAMABAD 00001917  003 OF 003 
 
 
committee led by the NWFP Ministry of Industry has only met once 
since its creation three months ago.  However, the GOP is eager to 
work with the United States on ROZs; Commerce officials are looking 
forward to convening soon the Joint Study Group to which both sides 
committed at the TIFA talks in April, although Ghani offered no 
specific dates. 
 
¶12. (SBU) Comment cont'd: The progress at the national and 
provincial levels is modest and reflects the slow pace of action to 
date.  The years of waiting for ROZ legislation to pass Congress has 
affected our ability negatively to push for urgent GOP actions. 
Fortunately, the arrival on the scene of USAID's "Empower Pakistan: 
Trade" program brings to bear a greater array of technical 
assistance, to augment that already being provided by the FATA-CBP 
program at the provincial level: ROZ implementation is one of the 
new program's highest priorities.  With that additional leverage, 
Post will be able to support more closely and encourage GOP efforts 
that, despite these steps, remain for the most part very 
preliminary.  Unless the GOP picks up the pace, ROZ implementation, 
if finally approved in Congress, will be slowed while the GOP plays 
catch-up to meet ROZ requirements. 
 
PATTERSON