Identifier
Created
Classification
Origin
03AMMAN106
2003-01-07 09:01:00
CONFIDENTIAL
Embassy Amman
Cable title:  

IRAQ REVITALIZING DEPENDENCY DEBATE BY UPPING

Tags:  EFIN ETRD PREF ETTC JO IZ 
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C O N F I D E N T I A L SECTION 01 OF 03 AMMAN 000106 

SIPDIS

STATE FOR NEA/ARN AND EAP/BCLTV - LAWLESS
TREASURY FOR MILLS/PIPATANAGUL

E.O. 12958: DECL: 12/19/2012
TAGS: EFIN ETRD PREF ETTC JO IZ
SUBJECT: IRAQ REVITALIZING DEPENDENCY DEBATE BY UPPING
IMPORTS FROM JORDAN

Classified By: Ambassador Edward W. Gnehm, reasons 1.5 (b,d)

SUMMARY

C O N F I D E N T I A L SECTION 01 OF 03 AMMAN 000106

SIPDIS

STATE FOR NEA/ARN AND EAP/BCLTV - LAWLESS
TREASURY FOR MILLS/PIPATANAGUL

E.O. 12958: DECL: 12/19/2012
TAGS: EFIN ETRD PREF ETTC JO IZ
SUBJECT: IRAQ REVITALIZING DEPENDENCY DEBATE BY UPPING
IMPORTS FROM JORDAN

Classified By: Ambassador Edward W. Gnehm, reasons 1.5 (b,d)

SUMMARY


1. (c) New data provided by Jordan's Statistics department
shows a major shift in the pattern of Jordan's exports to
Iraq. What has been for half a decade a fairly static market
for vegetable oil, feed, and medicine expanded
comprehensively to include a wide array of additional
products. The shift shows how the GOJ capitalized on
preferential access to the Iraqi market, but also highlights
Jordan's continuing economic dependence on exports to Iraq.
End summary.

BACKGROUND


2. (sbu) Since the mid-1990's, Jordan has exported to Iraq
under two programs - the U.N.'s Oil-For-Food (OFF) program
and a bilateral protocol under which Jordan bartered goods in
return for free and discounted Iraqi oil. Since 1995, that
protocol has called for Jordanian exports ranging in value
from $250-$350 million. But Jordanian exporters rarely
reached the ceiling, typically exporting only around one-half
of their allotment in any given year. In fact, Jordan's
domestic exports to Iraq over this period averaged about $168
million per year - an amount that, while small, still made
Iraq a top-3 export market for the period. (Note: domestic
exports almost exclusively represent exports under the
protocol. OFF exports are primarily re-exports from third
countries, and are counted under a separate line-item. End
note.)

-------------- -------------- --------------
Year JO exports to Iraq, $mn Export rank
-------------- -------------- --------------
1995 269.0 1
1996 135.6 2
1997 200.4 1
1998 149.7 2
1999 113.4 3
2000 141.1 2


3. (c) The composition of these exports was fairly steady
over the period - about 90% of exports were composed of
animal feed, vegetable oil, and pharmaceuticals. GOJ

officials were careful to ensure that re-exports were not
exported under the protocol, so that preferential market
access was reserved for Jordanian-origin products.
(Authorities have consistently told us as well that export
contracts - whether under OFF or the protocol - are carefully
screened by customs and security officials to ensure that no
UN-prohibited goods are sent to Iraq.)

TURNAROUND 2001


4. (u) Preliminary 2001 statistics released by the GOJ in
March 2002 showed that the U.S., primarily due to textile
exports under the Qualifying Industrial Zones (QIZ)
initiative, had become Jordan's number one export market,
topping Iraq by about $4.5 million. These statistics were
trumpeted by the GOJ (and the Embassy) throughout the spring
and summer as more proof positive of the benefits of free
trade and of the re-orientation of Jordanian exports to the
west. By September 2002, though, the final figures as
released by the GOJ showed a starkly different picture:
Jordanian exports to Iraq were listed at $422 million, almost
twice the kingdom's exports to the U.S. that year of $232
million. These figures were a wholesale departure from the
trend of the last half of the 1990's, and the new trend has
continued in 2002: Jordanian exports to Iraq for the first
half of 2002 stand at $182.6 million.


5. (sbu) In addition, the composition of exports changed
dramatically in 2001: vegetable oil, pharmaceuticals and
animal feed together accounted for less than 30% of total
exports, compared with around 90% in previous years. The
balance of exported goods was all over the map - soaps,
plastics, electrical machinery, mechanical appliances,
textiles, and the like (Note: complete 9-digit HTS schedule
of exports from 1999-2001 e-mailed to NEA/ARN. End note.).

-- -------------- -------------- --------------
HS Description Volume ($mn) % total
'99 '00 '01 '99 '00 '01
-- -------------- -------------- --------------
15 veg oil 51.7 56.8 54.4 45.6 40.3 12.9
30 pharmaceuticals 39.9 58.5 40.5 35.2 41.5 9.6
39 plastics 35.8 8.5
34 soaps 34.8 8.2
85 elec machinery 32.8 7.8
84 mech appliances 30.9 7.3
87 vehicles 25.5 6.0
72 iron and steel 24.5 5.8
48 paper products 22.6 5.4
23 animal feed 11.0 17.3 21.7 9.7 12.3 5.1

total 102.6 132.6 323.5 90.5 94.1 76.6

THE CALCULUS OF TRADE


6. (u) Prior to the 1991 Gulf War, numerous small Jordanian
factories produced soaps, chemicals, solvents, paints,
machinery, and textiles for the Iraqi market. When sanctions
were imposed after the Gulf War, many of these small
companies either went under or went into hibernation, as Iraq
was the sole market for their products. Thus many of the
"new" products on the list in 2001 but absent in previous
years can be considered "traditional" Jordanian exports to
Iraq.


7. (c) GOJ officials have told us that two tendencies
combined to dry up the Iraqi market for these companies.
Some products, of course, were prohibited under UNSC
sanctions. But when Jordanian companies tried to export
permitted products under the oil and trade protocol, the
Iraqi government in many cases refused to accept the goods.
As one senior official said, "they won't take what we're
making, and we don't make what they're buying." A big part
of Iraq's decision not to import those goods, officials say,
was to "punish" Jordan for upholding UN sanctions.


8. (c) Jordan continues to have a commercial interest in
selling whatever it can into the Iraqi market, particularly
in sectors that are aligned solely to that market. At the
same time, many Jordanian trade experts believe that
Jordanian products would not be competitive in an open Iraqi
market. Thus, as the potential for military action in Iraq
looms, Jordan is keener than ever to exploit their
preferential market access under the protocol, in an effort
to help Jordanian companies secure market share and "brand
identification" before the Iraqi market opens to competition
from Turkey, China, and other relatively lower-cost,
higher-quality producers.


9. (c) Iraq's motives are equally apparent, if more
political. In the short term, Iraq has received positive PR
from being Jordan's number one trading partner and top-3
export market. Iraq has often played on this with Jordanian
industry in an effort to pressure the GOJ into closer
alignment with Iraqi interests. (The announcement in March
2002 that the U.S. had become Jordan's top export market no
doubt rankled Iraq and could partially explain the late surge
in export approvals that put Iraq firmly back on top.)


10. (c) In the longer term, by re-opening its market to
Jordanian industrial goods, Iraq no doubt hopes to revive the
ties between erstwhile defunct Jordanian industries and
increase Jordan's economic dependence on Iraq. The
high-profile visit of the Iraqi Trade Minister to the Amman
Chambers of Commerce and Industry in late 2002 was an obvious
attempt to underscore that dependence to both the private
sector and the GOJ. Flooding Jordan with new contract
approvals can thus be seen as an attempt to renew the
pressure Jordan's small industrialists once put on the GOJ -
pressure that has decreased as those companies grew
accustomed to lower levels of business and as some companies
started to re-orient toward western markets.

IMPACT, SOLUTIONS


11. (c) By re-opening its market to traditional Jordanian
industrial exports, Iraq has potentially opened an old wound
for the GOJ. Companies wholly reliant on the Iraqi market,
according to GOJ figures provided in August 2002, number
around 400 and employ somewhat less than 20,000 people. Add
to that the 2,000 truckers who according to the GOJ earn
their livelihood hauling goods to Iraq, and there is
potential for significant dislocations in a sector that is
just starting to regain its footing.


12. (c) After the loss of concessional oil deliveries from
Iraq, the second most important channel through which a
military confrontation with Iraq would impact Jordan's
economy would be the loss of its preferential export access
to Iraq. Although it is making some progress in increasing
its exports to countries outside Iraq (notably the U.S.,
Israel, and neighboring Arab markets),it will be some time
before Jordan has a truly diverse export base. A sudden
disruption in Iraq trade would mean loss of jobs and
government revenue. One way to help mitigate this disruption
would be to find ways to encourage a new Iraqi government, as
well as refugee and relief organizations, to continue to
procure needed equipment and supplies from Jordan to the
extent possible within price and quantity restraints.
GNEHM