JORDAN'S EXPORTS TO IRAQ ARE STRONG AND GROWING

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 006581

SIPDIS

STATE FOR NEA/LEA

E.O. 12958: DECL: 08/05/2014
TAGS: ETRD PREL EFIN IZ JO
SUBJECT: JORDAN'S EXPORTS TO IRAQ ARE STRONG AND GROWING

REF: 03 AMMAN 106

Classified By: Charge D'Affaires DAVID Hale. Reasons 1.5 (B, D)


1. (C) SUMMARY: Bilateral Jordan-Iraq trade is
flourishing, even without considering the strong transit
trade. Domestic exports to Iraq took off in 2003 in
unexpected sectors. Iraqis' pent-up demand for tobacco and
alcohol are keeping Jordanian manufacturers and truckers
busy. Soaps, animal feed, and electrical machinery are three
other growing domestic exports to Iraq from Jordan. With
total domestic exports of USD 315.8 million to Iraq in 2003,
Jordan is laying down its marker as a major trading partner
in the more competitive post-war atmosphere. Iraq is still
Jordan's number two export market after the U.S. While
Jordanian companies may not claim as large a share of the
Iraqi market as before, they are climbing up near their best
pre-war domestic export numbers. Re-exports from Jordan to
Iraq are also doing well, at USD 111 million in the first
five months, but improvements to Aqaba port are needed to
make the most of this transit trade. END SUMMARY.


2. (C) We reported earlier (Ref) that Iraq under the Saddam
regime of the 1990s would not buy goods from Jordan deemed
acceptable under the United Nations sanctions regime; Iraq
turned elsewhere for many products. Jordan's Iraq-bound
exports were mainly in traditional regional exports,
especially vegetable oils and pharmaceuticals. By the
mid-1990s, Jordan was reaping the benefits from being the
transit point through which the UN's Oil-For-Food (OFF) goods
were shipped. (NOTE: These are deemed "re-exports" in
Jordanian trade parlance. END NOTE.) A parallel regime also
developed, a bilateral trade protocol, which by 1995 provided
for barter of Jordanian goods for free or discounted Iraqi
oil valued up to USD 250-300 million. In the early years,
the Jordanians did not reach that ceiling, averaging only
about USD 168 million annually (Ref).


3. (C) The Jordan-Iraq bilateral trade protocol, however,
grew into a sizable export market for Jordan, standing at an
average of USD 430 million in 2001 and 2002. Many at the
time believed this bilateral trade protocol was an attempt by
the Saddam regime to influence Jordanians, having provided
large contracts to as many as 400 factories employing some
20,000 workers. The war and the fall of Saddam changed the
trade arrangements overnight; throughout the summer and fall
of 2003, some Iraq-protocol-oriented Jordanian factory owners
and the banks that financed them were complaining to Embassy
officers that they were not just "hurting" but "crushed" and
non-performing loans were an all-too-familiar norm. But
after a miserable first three quarters in 2003, Jordan sprang
back to achieve USD 315.8 million in domestic exports to Iraq
for the year. As a result, Iraq remains Jordan's
second-largest market after the U.S., which has jumped to
first based mainly on the meteoric rise of Qualifying
Industrial Zone (QIZ) garment exports.

-------------- -------------- --------------
Year JO Exports to Iraq, $mn JO Exports to US, $mn
-------------- -------------- --------------
2000 141.1 63.3
2001 422.2 232.1
2002 439.6 429.2
2003 315.8 660.7


Strong Growth and Greater Variety of Domestic Exports
-------------- --------------


4. (U) 2004 Jordanian domestic exports to Iraq are likely
to total over USD 360 million, if current trends hold. For
the first five months of 2004, domestic exports to Iraq came
to USD 150.2 million. Given that the month-by-month growth
rates are increasing, Jordan this year could well be back to
the exports achieved in banner years. The greater variety in
composition of domestic products exported to Iraq, first
achieved in 2001, seems to be remaining. Where before
pharmaceuticals and vegetable oils accounted for over 90
percent of Jordanian domestic exports to Iraq (Ref),in 2003
they accounted for only 18 percent of all such exports. Two
big new domestic exports are spirits and tobacco.
Dramatically, over 90 percent of the domestic export output
by Jordan's five distilleries, and 97 percent of its tobacco
exports, were exported to Iraq in 2003. Soaps were another
big domestic export to Iraq, accounting for USD 54.3 million,
or 17 percent, of all Jordanian domestic exports to Iraq last
year. Electrical machinery exports of USD 18.1 million
accounted for six percent of Jordan's exports to Iraq; but
this represented about half of all electrical machinery
exports nationwide. (Post is emailing to NEA/LEA a table with
a break-out of exports to Iraq by major HS codes.)
Re-Exports: The Transit Trade is Thriving, Too
-------------- -


5. (SBU) The transit trade -- what the GOJ calls
"re-exports" of goods through Jordan to Iraq -- were reported
to total USD 111 million in the first five months of 2004 and
will likely reach USD 250 million by the end of the year.
(NOTE: This major source of revenue for traders and the
transportation industry could grow even faster if bottlenecks
at Aqaba port could be solved more quickly by APM, the new
management company contracted by the GOJ. However, APM is
constrained by the rate at which the GOJ wants to invest in
capital improvements at the port.)


6. (C) COMMENT: That Jordan could hold onto the Iraqi
market was not a foregone conclusion after the war. Many of
the old trade arrangements have fallen by the wayside;
factories in Irbid with monopoly deals were closed in
mid-2003 for example. But a new breed of Jordanian trader is
rising and thriving, providing soaps, electrical machinery
and other goods to the Iraqi market. We expect this trading
relationship to grow, as Jordan firms up its ties to the
Interim Iraqi Government with an eye to a close, long-term
relationship with a strategic trade partner, and as the GOJ
concentrates on policies and infrastructure projects to
facilitate bilateral trade.


7. (U) BAGHDAD MINIMIZE CONSIDERED.
HALE