JORDAN-ISRAEL TRADE AND RESEARCH INITIATIVES

C O N F I D E N T I A L SECTION 01 OF 03 AMMAN 005130 SIPDIS STATE FOR NEA FRONT OFFICE; NEA/ELA STATE ALSO FOR NEA/RA LAWSON, OES/PCI SHAW NSC FOR ABRAMS/DANIN/MUSTAFA COMMERCE FOR 4520/ITA/MAC/AMESA/OME/CLOUSTAUNAU STATE PASS TO USTR E.O. 12958: DECL: 06/27/2015 TAGS: ETRD PREL KTIA SENV ECON PGOV KDEM EG IS JO SUBJECT: JORDAN-ISRAEL TRADE AND RESEARCH INITIATIVES REF: A. AMMAN 4440 ¶B. AMMAN 1515 ¶C. 04 AMMAN 1971 Classified By: CHARGE DAVID HALE FOR REASONS 1.4 (B) AND (D). ¶1. (C) SUMMARY: The Government of Jordan (GOJ) has pursued trade discussions with Israel and Egypt related to Qualifying Industrial Zones (QIZs). The GOJ seeks USG support of Jordanian positions to lower Israeli content to five percent in QIZ products and to use the simpler Egyptian QIZ product audit system, should the Israelis prove receptive. The Jordanians are also seeking to advance two trilateral research efforts: Bridging the Rift (BTR) project, a new life sciences research institution to be constructed on the Israel-Jordan border and involving Stanford and Cornell Universities (Ref C); and the U.S.-Israel-Jordan TRIDE research program, which some are proposing should be expanded from its current base of $1 million to $10 million (Ref B). END SUMMARY Egypt - Jordan Seeks QIZ Complementarity -------------- ¶2. (C) Dr. Hani Mulki, a royal court advisor and former Foreign Minister, briefed Charge and Econoff recently on his efforts to promote closer trade cooperation with Israel and Egypt. ¶3. (C) Mr. Galal El Zorba, ex-co-chairman of the Egyptian U.S. Business Council was the chief Egyptian interlocutor. (NOTE: El Zorba is considered a leading architect of the Israeli-Egyptian QIZ concept. END NOTE.) Mulki conveyed Jordan's continuing interest in a product content auditing system that matched the Egyptian model, calling for quarterly, post-facto audits of factories (versus a costly and time-consuming product-by-product QIZ pre-qualification review in Jordan). The most significant initiative raised was a trilateral cumulation system between Israel, Egypt, and Jordan whereby assembly operations in Egypt could be complemented by finishing and packing in Jordan. The GOJ argues that, with this system, two cooperating factories would share the Israeli content requirement. The Egyptians had bluntly asked "what's in it" for them, Mulki recounted. In the end, however, the Egyptians gave the green light to the GOJ to discuss the concept with the Israelis. (COMMENT: We suspect that the GOJ is playing to its domestic constituency with this latter offer, and that the GOJ wishes to be perceived by QIZ investors as having made every attempt to further GOJ QIZ factories' interests, regardless of the feasibility of the proposals. END COMMENT.) ¶4. (C) Mulki stressed to Charge that he was not negotiating in parallel with Jordanian Minister of Industry and Trade Sharif Zu'bi. (Trade Minister Zu'bi had reported on some of these developments separately and appeared to have been fully briefed by Mulki.) Rather, Mulki emphasized, he was laying the groundwork for any final negotiations and also providing a "safety net" mechanism. Israel - DPM Olmert "Positive" -------------- ¶5. (C) In Israel, Mulki said that he saw both Foreign Minister Sylvan Shalom and Deputy Prime Minister and Minister of Industry and Trade Ehud Olmert. With both, he raised three Jordanian trade initiatives: (1) moving Jordan's QIZs to the same type of product content review as found in the Egyptian QIZ audit system; (2) reducing the required Israeli content in Jordan QIZ products from eight percent to five percent; and, (3) the trilateral cumulation scheme. Shalom was receptive, he said. On the audit system, DPM Olmert related that the Israelis were still evaluating the quarterly approach, but that if they decided to keep it with Egypt, then Israel would adopt the same system in Jordan. Mulki commented to Charge that it was important to Jordan to accomplish this very quickly, because the Jordanian QIZ investors were seeing themselves put at a disadvantage and it was important for them to be "treated the same." ¶6. (C) Mulki explained that the GOJ's requested reduction in Israeli QIZ content to five percent had an alternative, more complex formula: a sliding scale based on "free-on-board" (FOB) pricing of the particular QIZ product. The more expensive the item, the lower the required Israeli content. Starting with an FOB price of $0 to $2 dollars, which would continue to require eight percent Israeli content, each additional $2 dollar increment in FOB price would see a concomitant drop in Israeli content of one percent, so that FOB prices of $8-10 dollars or more would require five percent Israeli content. Olmert "looked very positively" on the sliding scale concept, especially since it would tend to be less irksome to the Egyptians than an across-the-board three percentage point reduction. (NOTE: Egyptian QIZs are required to manufacture products with 11.7 percent Israeli content. END NOTE.) ¶7. (C) On the trilateral cumulation scheme, Mulki said that Olmert wanted to know what the Egyptians thought and that he would review it if the Egyptians were disposed to the program. Jordan Seeking Help with the Israelis -------------- ¶8. (C) The royal advisor repeated the GOJ trade minister's standing request for USG assistance to convince Israel to support Jordan's trade proposals (Ref A). The QIZ audit, he said, was a matter of some urgency. If Israel decided to extend the quarterly review system in Egypt, it was important to help Jordan with the Israelis so that they quickly extended the same privilege to Jordan. The bracketed, sliding scale of Israeli content was important to help Jordan move to the very highest high-end products, he said. (COMMENT: Five percent of just 2000 $100-dollar garments gives a better return to Israeli suppliers than does eight percent of 50,000 $2-dollar garments. But Jordan cannot be competitive if Israel demands the full eight percent on these high-end garments. There could be Israeli interest in the Jordanian proposal to gain wider joint access to this up-scale market. END COMMENT.) Research: The Bridging the Rift Free Education Zone -------------- -------------- ¶9. (C) Mulki reviewed his discussion with GOI FM Shalom on the new 150-acre desert complex devoted to life sciences research that is under construction in the southern Wadi Araba desert straddling the Jordan-Israel border. Bridging the Rift (BTR),located about 30 miles south of the Dead Sea, will house researchers sponsored by Stanford and Cornell Universities under the financial support of the BTR Foundation created by New York-based Israeli businessman Mati Kochavi (Ref C). A major issue was how to implement the program across a border when a myriad of sovereignty issues were raised such as personal legal culpability or insurance. He said that the GOJ solution proposed had been simple: persons in the free education zone would be treated under the laws of the nation from whence they came (just as occurred at the border crossing zones now). Mulki said that the Israeli Under Secretary of Justice liked the idea. The imaginary borderline running down the middle of the equally apportioned BTR zone would be marked by a long stretch of garden, Mulki noted. (COMMENT: Israeli Ambassador Yacob Handlesman on June 22 gave Charge a similarly positive description of this meeting on BTR. We take this mutual advancement on sensitive issues to indicate the proposed opening date for the BTR desert campus at the end of the year would appear to be realistic. END COMMENT.) TRIDE: Jordan Presses for More Money...Bigger Ideas -------------- -------------- ¶10. (C) The Trilateral Industrial Research and Development (TRIDE) fund was raised with DPM Olmert. After meetings were held last November in the U.S. and in February in Jordan to revive the fund which had been dormant since the second Intifada in 2000 (Ref B),Jordan had been committed to providing its third of the $1 million fund. The plan had been to start a new round of entrepreneurial R&D projects requiring a relatively small amount of seed money. However, Mulki indicated that the GOJ wanted to see the fund expanded to $10 million, an idea first raised last February. Charge indicated that he was unaware of any USG funds available in its budget to contribute to this new concept. ¶11. (C) Mulki stated that he thought $10 million would be more suitable to attracting the type of industrial-scale R&D that Jordan could host. He added that one project being contemplated -- requiring the strictest confidence -- was an industrial park located in Jordan where Israeli high-technology would be used to make products or provide technical services to Iraq. He referred to Iraq's electricity and manufacturing sectors in the coming decade as a rich market to tap. The GOJ could foresee a time in the next few years ahead when such a concept would no longer appear to be so radical. However, now was the time to get in on the ground floor and establish this joint venture -- located in Jordan and exporting nominally "Jordanian" products to Iraq -- to establish a market advantage. TRIDE to be Promoted by King or to Re-Start? -------------- ¶12. (C) Aside from the project directed at Iraq, he noted, there was merit in promoting the larger-scale investment in TRIDE of $10 million. Jordan would want to promote any investments that came through this unique platform, he said. It would be a way to attract a more diversified industrial base to Jordan in one of the technology sectors. With the larger TRIDE fund, more Jordanian, American and Israeli investors could be attracted to permanently "root" a particular industry in Jordan, he noted. King Abdullah could heavily promote TRIDE on his next visit to the United States (likely in September),Mulki indicated. This would be a good mechanism to attract more investment. Charge replied that it would be important to hear the Israeli position on such a proposal. (NOTE: Israeli DCM Danny Nevo, who participated in the February TRIDE discussions (Ref B),indicated to Charge June 22 that the GOI was still waiting for Jordan to contribute its $330,000, to match the U.S. and Israeli contributions, so that an already-delayed Request for Proposals can go out under the current, agreed-upon TRIDE program. END NOTE.) HALE