TFIZ01: LOCAL EXPORTERS FACE LOSSES FROM

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 002231

SIPDIS

TREASURY FOR MILLS/CHANG
NSC/NEC FOR JASON SINGER
USUN FOR KONZET AND HILLMAN

E.O. 12958: DECL: 04/10/2013
TAGS: EFIN ETRD EAID IZ JO
SUBJECT: TFIZ01: LOCAL EXPORTERS FACE LOSSES FROM
SADDAM-ERA CONTRACTS

REF: A. AMMAN 2159

B. AMMAN 1955

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


1. (c) Summary: While the government meets with business
leaders to formulate a plan to mitigate the economic costs of
war in Iraq, local businesses are beginning to feel the
squeeze from the inability of the evaporating Saddam regime
to pay its bills. Local exporters worry that a new Iraqi
government will not honor Saddam-era contracts, leaving them
holding the bag. Balancing the need to offset real costs
incurred by Jordanian companies from the war against weaning
Jordan off of concessional trade relationships with its
neighbor will be a key consideration for the kingdom in a
post-war environment. End summary.

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Government Meets, Businesses Fret
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2. (u) King Abdullah has been meeting over the past two
weeks with senior representatives of all of Jordan's major
economic sectors, trade unions, and business associations to
gauge their losses from conflict in Iraq. On April 1, PM
Abul Ragheb formed a special commission to study the issue
and prepare recommendations for the government to offset
those losses.


3. (sbu) As the government formulates a response, we have
begun to hear from business groups that have already felt, or
expect soon to feel, the economic consequences of war in
Iraq. Irbid Chamber of Industry Chairman Maher al-Nasser
visited April 8 to voice concern over the exposure faced by
Jordanian companies trading under the Oil For Food program
and the bilateral oil and trade protocol with Iraq. Nasser
said a number of companies are facing difficulties receiving
payments for goods delivered to Saddam Hussein's government,
while others were unable to deliver contracted goods and thus
could not present a delivery receipt to claim payment from
Jordan's Central Bank under the terms of the protocol. This
second group of companies now has warehouses full of goods to
deliver, but no permission to make the trip to Baghdad and no
entity to receive the shipment in any case.

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GOJ Sticks to Its Legal Guns
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4. (sbu) Nasser gave a list of companies facing
difficulties along with contract numbers to the Trade
Ministry. This list estimates potential losses to 6
companies of over $27 million (including $25 million in OFF
contracts and $2 million in protocol contracts). In most of
these cases, the goods were contracted between Saddam's
government and the exporter, but applications to the OFF
program are either pending in committee or have not yet been
submitted. According to Nasser, these companies are facing
increasingly stern demands from creditors to repay debts for
inputs that they accrued to manufacture the contracted goods.
This creates a "double whammy" of company failures due to
inability to move the goods, and increasing bad debt owed by
these companies to a handful of local banks. We expect that
the Irbid-area companies listed by Nasser represent only a
fraction of companies country-wide facing similar losses.


5. (c) In an April 9 meeting with ECON Chief, Trade
Ministry Secretary General Farouk Hadidi said the GOJ is
ready to pay off any protocol contracts for which a receipt
can be produced as proof of delivery of goods to the
consignee in Iraq. Any exporters who cannot provide proof of
delivery, though, will not be paid, he said, even if they can
produce a signed contract or L/C for the goods. He said if
the GOJ started paying off these contracts for
undelivered/undeliverable goods, they would only open the
door to other abuses of the protocol and saddle the
government with a warehouse full of unsalable goods. He
thought the GOJ would need to find other ways and resources
to meet these companies' needs.

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A Plea for Assistance
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6. (c) Nasser said that, for OFF contracts, Jordanians
would like to see a commitment from the UN to a) accept
applications for goods for which contracts had already been
signed between Saddam's government and the exporters; and b)
process those applications and pending applications
expeditiously, since for some of the companies these
contracts represent an entire year's worth of business. For
protocol contracts, Nasser said the Chamber and individual
businesses will continue to try to work out a compensation
scheme with the GOJ. As an alternative, Nasser said the
business community would appreciate assurances from the USG
that Saddam-era contracts would be honored and transactions
finalized with Jordanian exporters. If that proved
impossible, Nasser hoped some other authority in Iraq would
honor these contracts instead.


7. (c) Echoing remarks by FM Muasher to the Ambassador
April 8, Hadidi welcomed the decision to position UN OFF
inspectors from COTECNA in Aqaba. He noted that Jordanian
OFF exporters would be incurring additional transportation
costs as a result of having to truck goods from northern
Jordan to Aqaba and back up to the Iraqi border (rather than
straight through as was previously the case),and asked if it
would be possible to put a "satellite" COTECNA office closer
to the Jordan-Iraq border to further facilitate the movement
of Jordanian goods into Iraq. We told Hadidi we would pass
this request to Washington, and encouraged him to be in
direct contact with the Office of the Iraq Program and
COTECNA, which has a support office in Amman.

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Comment
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8. (c) Nasser's questions raise the broader question of how
(or indeed, whether) a new government in Iraq will account
for obligations of Saddam's regime to Jordan and Jordanian
companies. This applies not just to commercial contracts, but
more importantly to the continuation of the oil and trade
protocols, acknowledgment of Iraqi debt to Jordan, and
similar issues. Several senior Jordanian officials have
raised their interest on the last point with the Ambassador.
They point out, for instance, that the current bilateral oil
and trade protocol expires at the end of December. The
Ambassador has in response noted our mutual interest in
ending Jordan's economic dependence on concessional economic
relationships with Iraq.
GNEHM