Identifier
Created
Classification
Origin
02AMMAN2371
2002-05-14 07:28:00
CONFIDENTIAL
Embassy Amman
Cable title:  

EU ASSOCIATION AGREEMENT DOES LITTLE FOR JORDAN'S

Tags:  ETRD EINV JO WTRO EUN 
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C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 002371 

SIPDIS

USTR FOR NED SAUMS
COMMERCE FOR 4520/ITA/MAC/ONE/PTHANOS
USAID FOR MSCOVILL

E.O. 12958: DECL: 05/13/2012
TAGS: ETRD EINV JO WTRO EUN
SUBJECT: EU ASSOCIATION AGREEMENT DOES LITTLE FOR JORDAN'S
ECONOMY


Classified By: DCM Greg Berry, reasons 1.5 (b,d)

SUMMARY

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 002371

SIPDIS

USTR FOR NED SAUMS
COMMERCE FOR 4520/ITA/MAC/ONE/PTHANOS
USAID FOR MSCOVILL

E.O. 12958: DECL: 05/13/2012
TAGS: ETRD EINV JO WTRO EUN
SUBJECT: EU ASSOCIATION AGREEMENT DOES LITTLE FOR JORDAN'S
ECONOMY


Classified By: DCM Greg Berry, reasons 1.5 (b,d)

SUMMARY


1. (sbu) Jordan's Association Agreement with the EU entered
into force May 1 after a five-year ratification process that
had frustrated Jordan and embarrassed EU diplomats here.
While both sides have publicly lauded the agreement as a
catalyst for investment and trade, privately the GOJ, EU and
business community are far less enthusiastic about the
agreement's potential for boosting Jordanian economic
development. Instead, the most likely effect of the
agreement will be a stronger push by the EU to bring Jordan
into conformity with European positions on WTO regulatory
issues like GMO labeling and technical standards and
certifications. End summary.

ASSOCIATION AGREEMENT (FINALLY) LAUNCHED


2. (u) On May 1, an Association Agreement between the EU
and Jordan, signed in 1997, entered into force. The
agreement, which is part of the broader "Euro-Mediterranean
Partnership" that also includes political, security and
cultural elements, will eliminate tariffs on most traded
goods over a twelve-year phase-in period. Ratification of
the agreement was quick on the Jordanian side, but was held
up for five years in the EU due to delays and quibbles from a
number of EU member parliaments (Belgium alone held up the
agreement for roughly a year). The EU mission here plans a
low-key launching event, noting with chagrin that they prefer
not to highlight the fact that it took so long to finalize
the agreement. They added that future Association
Agreements, such as the one recently signed by Algeria, will
not require ratification by all member state parliaments.

PUBLIC PLAUDITS


3. (u) Jordanian Trade Minister Salah al Bashir welcomed
the agreement, expressing hope that it would help attract
foreign investment into the kingdom and increase the
competitiveness of Jordanian businesses through competition
and technology transfer. European Commissioner for External
Affairs Chris Patten added his enthusiasm for the agreement
in a half-page feature in the English-language Jordan Times

on May 9. Patten's comments put the advantages under the
agreement in the broader context of the "Euro-Mediterranean
Partnership," joining free trade with human rights, migration
issues, and security cooperation. Patten's statement
envisaged a free trade area where "a fabric could be produced
in France or Egypt, dyed in Hungary and made into a dress in
Jordan for export to Ireland without paying any duty."


4. (u) The agreement undoubtedly offers some initial
benefits to Jordan. It opens to Jordanian goods a large,
developed market that is much closer than the US, and hence
allows for lower shipping costs. In addition, the agreement
immediately opens the European market to select Jordanian
agricultural exports, including oranges, grapefruit, and
dried vegetables - though none of these is a major Jordanian
export. And the promise of a free trade area probably helped
spur Jordanian pharmaceutical companies to expand into the
European market. Europe is now a major growth market for
Jordanian pharmaceuticals, with five different Jordanian
firms obtaining European health authority approval to market
specific products in the EU in 2001. That said, total
Jordanian exports to the EU have fallen in three of the last
four years, and in 2001 were less than JD 50 million ($70
million),or three percent of Jordan's exports. In contrast,
Jordanian exports to the US in 2001 were over JD 164 million
($231 million),up from JD 44.8 million ($63 million) in 2000.

PRIVATE RESERVATIONS


5. (c) Whatever was said in public, contacts in the Trade
Ministry, the EU mission, and the business community all
concur that the agreement has some serious shortcomings that
will keep it from having a measurable impact on bilateral
trade or Jordanian economic development. First, because
trade benefits are tied into a broader political and security
dialogue, those benefits can be held up at the whim of any EU
member country that has a human rights or immigration dispute
with Jordan. They note that while this might not affect
Jordan directly, it could affect other Euromed partners like
Egypt, which could in turn affect Jordan's ability to secure
inputs for products to be sold to EU countries. Our EU
mission contacts admitted this could be a stumbling block
down the road.


6. (sbu) Second, the rules of origin provisions of the
agreement are too restrictive to be of much benefit. Trade
Ministry Secretary General Samer Tawil provided an
illustrative example: under US textile rules of origin (and
hence under the QIZ and FTA),fabric from a third country
that is doubly substantially transformed can count as
Jordanian for the purposes of country of origin
determination. Europe has no such provision for double
substantial transformation. Thus any garment made in Jordan
for export under the Association Agreement must be made of
cloth from Jordan or another Euromed country. Since Jordan
has no cotton crop and produces little cloth, it would have
to buy from Egypt or France, making production
cost-prohibitive. Since Jordan has little in the way of
natural resources, it would have to source most of its inputs
from Europe, eliminating any comparative advantage it had in
labor cost.


7. (c) Third, market access is restricted on those products
that Jordan might reasonably have a shot at exporting
competitively. In agriculture, most products are subject to
"gradual liberalisation" following a "reciprocal approach,"
according to Patten. The agreement provides for quota
restrictions on many agricultural products, with access to
the EU market restricted to certain times of the year.
According to our EU contacts, a number of EU members have
already blocked access for sensitive agricultural products
from Mediterranean countries, notably Spain's action to
restrict olive oil imports. With Jordan's few key
agricultural exports directly competitive with sensitive EU
sectors, the opportunites for greater trade are limited.

COMMENT


8. (c) While the trade and investment opportunities created
by the Association Agreement are limited, there is likely to
be more movement on institution-building issues. As our EU
contact noted, this agreement is more about regulatory
capacity building than anything else. Patten's statement
emphasized "a process of alignment of policies and
regulations...with a view to create a single
Euro-Mediterranean market, for example in the fields of
technical standards, conformity assessments and
certifications." In short, we can expect the EU to use this
agreement to try to mold partner countries in their own image
on issues of trade policy. This could have significant
downstream impacts on positions with regard to labeling,
GMO's, SPS, and similar issues in the WTO. We will continue
to monitor these efforts, and to work closely with the GOJ to
ensure it maintains its close partnership with the US on
central WTO issues.
Gnehm