By Susan Cornwell
WASHINGTON (Reuters) - Six months ago, President Barack Obama asked the U.S. Congress to give him two tools -- aid and trade -- to fight Islamic extremism in Afghanistan and neighboring Pakistan.
Congress met Obama's request for aid on Wednesday by approving legislation to triple nonmilitary assistance to Pakistan. But a bill sought by Obama to offer trade advantages in certain areas of Pakistan and Afghanistan is stalled.
"They've sort of reached an impasse," said Edward Gresser, trade policy director at the Democratic Leadership Council.
Progress has been slowed by feuding over labor standards and duty-free provisions in the legislation. Having the bill assigned to the same Senate panel bogged down with healthcare reform -- the Finance Committee -- also has not helped.
The chief sponsor of the so-called Reconstruction Opportunity Zones legislation in the Senate, Maria Cantwell, said the cause of the latest delay was not Capitol Hill but the office of the U.S. Trade Representative which had "held up" work on a possible compromise.
"If the president said it was important to get the bill, I would think USTR would hurry to get the job done," Cantwell told Reuters.
Obama called for the economic zones in March when he set out his strategy for the war in Afghanistan, saying a campaign against extremism could not be solved "with bullets or bombs alone."
The intended zones across Afghanistan and in Pakistan's border and tribal areas, where Taliban and al Qaeda militants have taken sanctuary, would produce some clothing and textile items for export to the United States duty-free.
Pakistan is already an exporter of these items. The idea was to create jobs that would lure people from poverty-stricken border areas where militants hire them to fight with small amounts of money -- what some call the "Ten-dollar Taliban."
The House of Representatives approved the zones in June. But in July, four Republicans who were co-sponsors of the legislation in the Senate said they opposed clauses in the House version that gave labor protections for workers.
"The tribal areas are just desperately poor. You're not helping them by imposing labor standards that nobody is going to be willing to comply with," Senator Lindsey Graham, one of the four Republicans, told Reuters.
Cantwell said senators thought they had found a possible compromise to the labor issues by patterning the zones after a trade deal the United States struck with Cambodia, linking trade privileges to labor conditions.
But the senators were waiting for input from the U.S. Trade Representative's office on this idea, Cantwell said. USTR spokeswoman Carol Guthrie said work on the matter was ongoing and "we very much want to move the process forward."
"We fully intend to continue to work with Senator Cantwell, Finance Committee leadership and colleagues in the Senate and the House to bring stakeholders together behind a pathway forward," Guthrie, Assistant U.S. Trade Representative for public and media affairs, told Reuters.
Another Obama administration official said it was still committed to setting up the zones, calling them a "critical aspect" of U.S. strategy in Afghanistan and Pakistan.
"Creating sustaining employment opportunities as an alternative to the militancy is an integral component of our counter-insurgency efforts," the official said.
Meanwhile, Gresser said Pakistan is being hit "fairly severely" by tariffs on textiles and clothes that it exports to the United States, even as the administration and Congress say it is important to create jobs there.
"Why are we doing that? It seems the trade system clashes with national security policy."
(Additional reporting by Sue Pleming; Editing by Cynthia Osterman and Chris Wilson)