ASSISTANT SECRETARY WAYNE'S MEETINGS WITH

C O N F I D E N T I A L SECTION 01 OF 04 AMMAN 004440

SIPDIS

STATE PASS TO USTR
STATE FOR EB; NEA FRONT OFFICE; NEA/ELA
NSC FOR ABRAMS

E.O. 12958: DECL: 06/05/2015
TAGS: PREL ETRD ENRG EAID ECON JO
SUBJECT: ASSISTANT SECRETARY WAYNE'S MEETINGS WITH
JORDANIAN TRADE MINISTER ZU'BI AND PLANNING MINISTER AL-ALI

REF: A. AMMAN 4297


B. AMMAN 0013

Classified By: CHARGE DAVID HALE FOR REASONS 1.4(B) AND (D)


1. (C) SUMMARY: EB Assistant Secretary E. Anthony Wayne met
with two new reformist Jordanian ministers from the
Ministries of Trade and Planning on the margins of the BMENA
Trade and Investment Finance Conference held in Amman May 18.
Both laid out the GOJ's aggressive plans for fiscal reform,
including by privatization, a possible new flat tax and
enhanced collections on the revenue side, and streamlined
government and reduced spending on the expenditures side.
Both also signaled the GOJ's commitment to reducing oil
subsidies over the next few years; however, Minister of
Planning and International Cooperation Suhair al-Ali stressed
that Jordan is now facing a severe budget shortfall due to
the effect increased oil prices have on Jordan's fuel subsidy
program, noting the current Saudi contribution was only 30
percent of last year's. She repeated the GOJ's appeal for
further U.S. help in securing increased oil assistance from
its neighbors.


2. (C) SUMMARY CONTINUED: al-Ali also made the GOJ's case
for the largest portion of the $100 million in supplemental
assistance to be given in cash. On external debt, al-Ali
said that debt service was high, and the overall fiscal
picture was "very tough." She noted Jordan's desire to be a
model of reform in the region and asked once again that the
U.S. provide "moral support" for Jordan's effort to persuade
the Paris Club to raise the ceiling on debt swaps from 30 to
50 percent. Minister of Industry and Trade Sharif Zu'bi said
that debt swaps and privatization were interlinked in order
to reduce economic burdens while attracting strategic
investors. Zu'bi outlined plans for greater trade with the
EU through pan-Euro-Med cumulation rules, noting similar
plans for the U.S. He sought treatment for Jordan's QIZ
product audits equivalent to those in Egypt.


3. (C) SUMMARY CONTINUED: A/S Wayne reiterated strong USG
support for economic development in Jordan, noting USTR's
commitment to enhanced trade and our multiple high-level
efforts to secure oil assistance. He also urged the GOJ to
provide its proposal for supplemental expenditures as soon as
possible. A/S Wayne repeated USG demands to end the DAMAN
pre-shipment program as it is currently practiced, noting
that it was a barrier to trade not in keeping with our
bilateral free trade agreement. Zu'bi promised to finalize
plans to revamp DAMAN saying the GOJ must be "finished with
it." END SUMMARY.


4. (U) Accompanying A/S Wayne in the meeting with Zu'bi were
Charge David Hale, Econ/C Richard Eason and Econoff Greg
Lawless (notetaker). Acting DCM Chris Henzel was present for
the meeting with al-Ali, along with Econ/C and Econoff.

Trade Minister Zu'bi : Lean Government, Export-Led Growth
-------------- --------------


5. (C) Minister of Industry and Trade Sharif Zu'bi led off
by saying the new government he had joined was "reformist,"
although it had not been formally declared as such. He was
dedicated to "getting the government out" of areas where it
had no business, including by privatization of assets in
telecommunications, minerals and tourism. He outlined a path
for fiscal reform that included an overhaul of the tax system
to increase revenues while reducing spending on fuel
subsidies and the GOJ's debt service. This represented quite
a lot of work and would require assistance, he said.


6. (C) On fuel subsidies, Zu'bi said that the reduction
would be gradual so as to soften the blow at the gas pumps
and to keep attracting investors. On privatization, he noted
that the program was "very much interlinked" with the GOJ's
proposed debt swaps. He cited the sell-off by Royal
Jordanian Airlines of the Queen Alia Airport duty free shop
to Spain's Aldeasa and possibly more deals between France
Telecom and Jordan Telecom, as well as potential interest by
Japan in telecomms operations. The GOJ tries to mix its use
of debt and equity, he said, not only to reduce its burden,
but also to attract strategic investors.

Trade: A Blend of Export Policies
--------------


7. (C) Zu'bi said Jordanian economic growth depended on
liberalizing trade. Barriers had to go down, just as key
industries needed to be upgraded and other sectors might have
to go. Capacity building was key; he acknowledged USAID
assistance in identifying and strengthening major export
sectors such as pharmaceuticals, Dead Sea health and cosmetic
products, garments, jewelry and olive oil. He proudly
pointed to Jordanian stone and marble as a big seller
worldwide, noting Chinese fascination with yellow marble.


8. (C) Jordan was a member in the Agadir trade agreement
with Morocco, Tunisia, and Egypt, which was likely to come
into effect in June. Through this and an enhanced trade
agreement with the EU, he expected Jordan to cumulate more
content with its neighbors and to significantly increase
exports to the EU. Jordan would also cumulate content with
Israel in a new QIZ-like trade arrangement with the EU (Ref
B),but the GOJ needed to continue pressing physical access
issues with Israel if it were to use more Israeli inputs, he
said. (NOTE: A reference to the continued lack of
door-to-door access called for in a bilateral transportation
agreement but hindered by Israeli security concerns. END
NOTE.)


9. (C) A/S Wayne took note of outstanding GOJ requests for
tariff reduction acceleration and other trade-related issues,
saying that the United States Trade Representative was
looking at these issues.

U.S. Invited to Look at Rules of Origin, Cumulation in FTA
-------------- --------------


10. (C) Referring to new U.S. Free Trade Agreements with
Morocco and Bahrain, Zu'bi said that Jordan was intensively
investigating cumulation of content with those countries for
exports to the U.S. It would add to the competitiveness of
Jordanian industries, he said. Charge Hale expressed the
hope that the USG could receive a concept paper on FTA-based
cumulation that the GOJ had promised at last June's bilateral
FTA Joint Committee (JC) meeting. When Zu'bi also raised
joint projects with FTA partner Singapore possibly including
an Integrated Sourcing Initiative (ISI),A/S Wayne reiterated
USG hopes to receive a concept paper.

Jordan Wants QIZ Equivalence with Egypt
--------------


11. (C) Turning to Israel's streamlined system for auditing
the required Israeli inputs in duty-free products from
Egyptian Qualifying Industrial Zones (QIZs),Zu'bi noted that
Israeli officials had so far been less than enthusiastic in
their reaction to repeated GOJ requests for a similar system.
(Jordan's seven-year-old QIZ system requires pre-approval of
inputs on a product-by-product basis; the Israel-Egypt-U.S.
arrangement provides for a quarterly, factory-based
post-audit system.) A/S Wayne urged the GOJ to continue
pursuing this request and then, once there was an opening,
the USG would see what it could do.

USG Asks for Progress on DAMAN Trade Barrier
--------------


12. (C) Regarding Jordan's DAMAN product conformity and
pre-shipment inspection program, A/S Wayne noted USG concerns
about lowering barriers which could in any event negatively
affect economic growth. He asked for an update on GOJ
promises to initiate a risk-based vetting system with
Suppliers' Documentation of Conformity (SDOC). A/S Wayne
expressed the hope that an American product, such as a
personal computer, could enter Jordan without facing
barriers, especially given the bilateral trade agreement.
Minister Zu'bi responded that he did not have a problem with
the SDOC approach. Furthermore, new cars would be removed
from the DAMAN program, he said. A/S Wayne replied that he
was looking forward to the proposed changes to DAMAN. At a
later point in the meeting, Zu'bi said that he would finalize
plans to change DAMAN procedures, saying that the GOJ must be
"finished with it" very soon. (NOTE: Zu'bi later scheduled
a meeting for the following week with an interagency Embassy
team and the Jordan Institute of Standards and Metrology to
review solutions to the DAMAN-related trade barriers (Ref A).
END NOTE.)

Reform in the Region
--------------


13. (C) Reflecting on trade liberalization in the region,
Zu'bi said there was no stopping a process that had begun
already, which he likened to a train leaving the station.
The next important step was to bring along the populace in
other contexts -- political, social and educational. While
these steps would take time, for Jordan time was of the
essence, he said. He thought that other countries in the
region were "jealous" of Jordan. While traditional elements
had to be considered (as a potential hindrance to the reform
process),the people were listening, he said. The GOJ had to
improve the standard of living of the man in the street, and
Jordanians could see the light at the end of the tunnel.
Though some were concerned about falling behind, he liked to
think that the GOJ was acting to achieve its goals, he said.

Planning Minister al-Ali: Challenges Ahead
--------------


14. (C) Referring to the skyrocketing price of oil,
Minister of Planning and International Cooperation Suhair
al-Ali said that Jordan faced a significant challenge in the
near term with a deficit in the budget amounting to $225
million more than anticipated to accommodate oil subsidies
alone. She noted plans to have simplified personal and
corporate taxes with more efficient collections backed by
enforced criminal penalties. But belt tightening would be
required, including 20 percent across-the-board cuts in
government expenditures for salaries through streamlining and
reduced staffing. Eliminating travel and reducing use of
government cars were among the steps the GOJ would be taking
to cut expenses. As the GOJ cut oil subsidies, it would
increase the social safety net for the poor, she added.

Need for More Oil Assistance to "Fill the Hole"
-------------- --


15. (C) While the plan for reducing oil subsidies
continued, said al-Ali, Jordan would need more oil assistance
in the short term. The current monetary contribution by
Saudi Arabia for example, was only 30 percent of last year's
levels, she noted, given today's oil prices. The assistance
was much appreciated, she said, but it "doesn't fill the
hole."


16. (C) A/S Wayne noted that the USG had responded to GOJ
requests by weighing in directly with the governments of
Saudi Arabia, the United Arab Emirates, and Kuwait.
President Bush had also requested assistance from the Saudis,
he noted. He expressed his hope that Jordan's neighbors
would respond to these appeals; it appeared that the Saudis
were already responding, he added.

Debt Swaps
--------------


17. (C) Jordan was seeking additional assistance grants to
continue its social, health and educational programs in the
face of the budget deficit, but it also was requesting more
relief from the external debt burden, she said. She noted
that Jordan continued to request raising its debt swap
ceiling from 30 to 50 percent in the Paris Club and was
seeking U.S. political and moral support in this effort. A/S
Wayne noted that while the USG political support for Jordan's
economic growth was strong, it was difficult to support debt
swaps above the current ceiling, especially since Jordan had
gone through four debt treatments already. Even if the U.S.
did not participate in the swaps, supporting them could set
an unwanted precedent with other debtor nations. A/S Wayne
encouraged the minister to make a straightforward,
understandable case regarding its added short-term debt
burden and then the USG would try to work with the GOJ and
our G-7 and Paris Club partners on this problem.

Supplemental Assistance
--------------


18. (C) The planning minister provided background on
ongoing discussions with the USAID mission to allocate the
$100 million supplemental assistance package between cash and
programs. She noted the GOJ's continuing needs in its
current budget crisis for as much cash as possible. A/DCM
Henzel added details concerning the current understanding
about possible next steps. A/S Wayne noted that the decision
had not yet been taken in Washington on the relative
allocations in that supplemental and urged the GOJ to present
any relevant information as soon as possible, as the decision
would need to be taken soon and in a transparent and
accountable manner. Key Congressional players would need to
agree with any shift.


19. (U) This message was cleared by Assistant Secretary
Wayne.
HALE