Identifier
Created
Classification
Origin
02AMMAN3394
2002-06-24 06:52:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Amman
Cable title:  

SYRIAN SOFT DRINKS SWAMP U.S. PRODUCTS

Tags:  ECON ETRD EINV BEXP JO 
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UNCLAS SECTION 01 OF 02 AMMAN 003394 

SIPDIS

SENSITIVE

USDOC FOR 4520/ITA/MAC/ONE/PAUL THANOS
USTR FOR SAUMS
TREASURY FOR PIPATANAGUL

E.O. 12958: N/A
TAGS: ECON ETRD EINV BEXP JO
SUBJECT: SYRIAN SOFT DRINKS SWAMP U.S. PRODUCTS

REF: A) AMMAN 2093 B) AMMAN 2039

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SUMMARY
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UNCLAS SECTION 01 OF 02 AMMAN 003394

SIPDIS

SENSITIVE

USDOC FOR 4520/ITA/MAC/ONE/PAUL THANOS
USTR FOR SAUMS
TREASURY FOR PIPATANAGUL

E.O. 12958: N/A
TAGS: ECON ETRD EINV BEXP JO
SUBJECT: SYRIAN SOFT DRINKS SWAMP U.S. PRODUCTS

REF: A) AMMAN 2093 B) AMMAN 2039

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SUMMARY
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1. (SBU) The local subsidiaries of Pepsi and Coca Cola say
that their soft drink sales are off by up to 40 percent from
2001 due to a new bilateral trade agreement between Jordan
and Syria that has led to an influx of Syrian soft drink
products concurrent with the continuing boycott of American
products (REF A). They also allege that the Syrian goods are
in clear violation of trademark regulations. The companies
say their combined USD 200 million investment in Jordan is in
jeopardy. They are requesting trade protection from the
Jordanian government and judicial system, but are drawing up
plans to lay off hundreds of employees should sales not pick
up. End Summary

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THE CHICKEN OR THE EGG
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2. (SBU) In separate meetings with local Pepsi and Coke
officials, EmbOffs were informed about a major decline in
soft drink sales for both major brands, which together
control the Jordanian market. While the decrease in sales
had begun late spring at a time when calls for a boycott of
American goods in the region peaked, the companies have
recently seen a sharp upsurge of lower-priced Syrian soft
drink products in Jordan, some of which are clear copies of
American beverages. This follows the entry into force of a
bilateral trade agreement between Jordan and Syria, and
suggests that Syrian producers are exploiting the boycott to
get a foothold in the Jordanian market.

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THE REAL THING?
--------------


3. (SBU) We met with Azem Yousef, General Manager of Coca
Cola Bottling LTD. of Jordan. Yousef told us that business
was off by 30 percent for the year so far. While he allowed
that the boycott was certainly having an impact, he pointed
to the sudden appearance of low-priced Syrian soft drinks on
the market. Yousef said that the new Jordanian-Syrian trade
agreement allows Syrian soft drink manufacturers to export
their product to Jordan tariff-free. He added that, although
Jordanian brands could enter Syria without tariffs under the
agreement, Pepsi and Coke were not allowed to register their

trademarks or sell their products in Syria. Even at
wholesale prices, Yousef said, Coke cannot compete.


4. (SBU) Yousef brought out some examples of the Syrian
products. Master Cola is packaged in an indented plastic
bottle and is labeled in a manner, both in color and in
script, that is identical to Coke. Similarly, flavored soft
drinks, such as "Master Orange", bear a striking resemblance
to Fanta, another Coca Cola product. However, according to
Yousef, the similarity stops there; the Syrian flavors are
not even close approximations, and the plastic bottle is
milky, distorting the soda's true color.


5. (SBU) Yousef also shared with us the results of a survey
commissioned by Coke to assess Jordanian attitudes toward the
boycott and his company's products. The survey, which polled
1200 Jordanians across the country and was conducted by an
independent polling organization, showed that the primary
targets of the boycott are Jordanian companies with an
American brand name, over American companies and the USG. In
addition, respondents were evenly split on the question of
whether or not the boycott should continue even if it hurt
the Jordanian work force. On the positive side, the survey
suggested that less than 17 percent of those asked were
firmly committed to the boycott.

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CHEER UP
--------------


6. (SBU) PepsiCo Jordan Managing Director Khaled al-Bakri
told us a similar story. He said that Pepsi's current
numbers are "just like winter's", despite having "many more
throats" in Jordan this time of year, a reference to the
200,000 or so Saudis and Gulf residents that spend their
summers in cooler Amman. He said that business was down 40
percent from last year, and attributed the decline to the
Syrian products. He echoed Yousef's view that Syrian
producers were using the trade agreement to take advantage of
the boycott and pry their way into the Jordanian market,
saying "the flood of Syrian soft drinks encourages the
sustainment of the boycott".

7. (SBU) Al-Bakri showed us a study done by Pepsi in
collaboration with Coke on the economic impact of the
imported soft drinks on both American brands. In addition to
a USD25 million loss in revenue to the two companies, the GOJ
would see a USD 13 million shortfall in sales tax revenue
since the Syrian product is being under-invoiced at the
border. More importantly, he said, if sales don't pick up,
as many as 900 employees from both companies would have to be
laid off by the end of the year. He stressed the point by
telling us that the company's HR Director was preparing
contingency plans for a layoff of up to 400 employees, out of
a 1200 person workforce, by the end of the summer if sales
did not pick up. Al-Bakri added that, due to continued
losses by its Jordanian subsidiary, Pepsi had begun "to write
down" the operation in Jordan as a five year amortization
rather than 20 years.


8. (SBU) Courtesy of Al-Bakri, we saw another example of
copycat Syrian beverages. Cheer Up, produced by the Udarit
Trading Company of Damascus, is packaged identically to
PepsiCo's Seven Up, right down to the background shading of
the can and even the logo itself. He said that there are no
intellectual property rights concerns in Syria, hence the
ability of Syrian companies to produce whatever they want
without regard to trademark considerations. Al-Bakri said
that he had recently seen other products, such as candies,
pirated by Syrian companies in similar fashion.

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COMPETITORS JOIN FORCES
--------------


9. (SBU) Yousef and al-Bakri met jointly with Minister of
Industry and Trade Bashir June 17. They told us the Minister
was very supportive, and encouraged them to apply to the
Ministry for trade protection. Al-Bakri said the criterion
the companies had to demonstrate was that an increase in
Syrian imports was followed by a significant decline in the
production and sales of the Jordanian-produced soft drinks.
Following the application, there would be a 200 day temporary
injunction on Syrian imports while the application was
reviewed. Yousef added that the Minister suggested they file
trademark infringement cases in Jordanian court. (Note:
Al-Bakri told us that PepsiCo Regional Director Sa'ad
Abdul-Latif was coming to Jordan June 19-20 to meet with GOJ
officials in an effort to heighten government awareness of
the problem. Ambassador and Embassy staff will meet with
Abdul-Latif to follow up).

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COMMENT
--------------


10. (SBU) Despite this combined USD 200 million invested in
Jordan, USD 60 million in salaries and benefits, USD 50
million in capital expenditures, and USD 150 million in sales
tax, Pepsi and Coke have suffered combined net losses of USD
55 million since 1997. Executives are growing increasingly
frustrated. In addition, confiscatory sales taxes and
unfounded quality control issues with the Ministry of Health
(REF B),coming as they have during an already costly
boycott, have soured the investments for the American
companies.


11. (SBU) The influx of Syrian product, with its attendant
IPR problems, exacerbation of the boycott, and impact on
sales, is another example of the difficulties of doing
business in Jordan despite the economic reforms of the past
several years. Significant layoffs and the potential
abandonment of the Jordanian market by PepsiCo would be even
more troubling. Embassy staff will continue working with
Pepsi, Coke, and GOJ officials to sort through the issues
raised by the Jordan-Syrian FTA and its impact on American
business. END COMMENT
Gnehm