Jordan's Trade Deficit Doubles During First Half of 2008;

UNCLAS AMMAN 002654

SENSITIVE
SIPDIS

STATE PLEASE PASS TO USTR (SFRANCESKI)
STATE FOR EEB AND NEA/ELA

E.O. 12958: N/A
TAGS: ETRD ECON EAGR WTRO JO
SUBJECT: Jordan's Trade Deficit Doubles During First Half of 2008;
FTA Negotiations Concluded with Canada

Ref: Amman 1612


1. Summary: Jordan's trade deficit nearly doubled to $5 billion
during the first half of 2008. The Government of Jordan (GOJ)
attributes the expanding trade gap to a significant increase in
imports, which reached $8.61 billion due largely to the price
increase for crude oil imports. The Greater Arab Free Trade Area
remains Jordan's largest export-import market, with Jordanian
exports to Iraq rising 53.5% during this period. The U.S. remains
Jordan's top bilateral trading partner with two-way trade reaching
over $881 million, according to GOJ statistics. A 38.8% increase in
Jordanian imports from the U.S. off-set a 16.5% decrease in exports
to the U.S., due primarily to a drop in apparel exports. Jordan
recently concluded negotiations on a free trade agreement (FTA) with
Canada that is expected to be signed soon. End Summary.

Significant Import Increase due to High Oil Prices
-------------- --------------


2. According to the GOJ Department of Statistics (DOS),Jordan's
trade deficit widened 46% to JD 3.558 billion ($5.025 billion) from
January to June 2008, compared to JD 2.436 million ($3.441 billion)
during the same period last year. This is largely attributed to a
38.2% increase in Jordanian imports, which reached JD 6.098 billion
($8.61 billion).


3. Most notably, imports of crude oil, primarily from Saudi Arabia,
rose 131.6% to JD 1.136 billion ($1.6 billion),compared to JD 490.3
million ($692.51) for the same period in 2007. Imports of
machinery, electrical appliances and their parts reached JD 977
million ($1.38 billion). There was also a 27% increase in vehicle
imports, totaling about JD 431 million ($609 million),with Germany
and the U.S. as the primary sources. Imports of iron and its
products rose 55% to JD 421 million ($595 million). Cereal imports
also rose 27% to JD 247 million ($349 million).

Jordanian Exports Increased, but Not Enough
--------------


4. A 28.6% increase in Jordanian exports worldwide was not enough
to off-set the increase in imports. Total Jordanian exports reached
JD 2.54 billion ($3.587 billion),which included JD 1.965 ($2.78
billion) in national exports and JD 574.7 million ($811.72 million)
in re-exports.


5. Garments continued to be Jordan's top export, reaching JD 333
million ($470 million),but this figure represented a 15.5% drop
compared to the same period last year. Interlocutors have cited
downward worldwide trends in the apparel industry and high costs of
production in Jordan as contributing factors to the decline. The
second largest export was fertilizer, which increased 105% to reach
JD 259 million ($366 million),with over two-thirds of the product
being sold to India (ref A). Pharmaceuticals ranked third with JD
183 million in exports, primarily to Algeria and Saudi Arabia.
Other exports included JD 169 million ($238 million) in vegetables,
JD 165 million ($233 million) in potash, and JD 125 million ($177
million) in phosphates. NOTE: Potash and phosphates are ingredients
for fertilizer. END NOTE.

Markets: U.S. Remains Top Bilateral Trading Partner
-------------- --------------


6. The Greater Arab Free Trade Area (GAFTA) remained Jordan's
largest export-import market during the first half of 2008. While
imports from Saudi Arabia increased significantly, exports to Iraq
rose 53.5% to reach JD 259 million ($366 million). Top Jordanian
exports to Iraq included vegetables, aluminum products, plastics,
and electrical machinery. Jordan also does a significant amount of
trade with non-Arab Asian countries, including China which exported
JD 553 million ($781 million) to Jordan during this period,

particularly machinery and fabrics. Jordan continues to maintain a
large trade deficit with the EU countries by importing over $1.9
billion and exporting only $141 million.


7. The U.S. is still Jordan's top bilateral trading partner with
two-way trade reaching $881 million in the first half of 2008. GOJ
statistics show that Jordanian imports of U.S. products rose 39% to
JD 280 million ($396 million). According to the GOJ, Jordan's top
import from the U.S. was cereal which reached JD 37 million ($52
million) or 13.2% of total imports, followed by JD 33 million ($46
million) in machinery and JD 26 million ($40 million) in vehicles.
Total Jordanian exports to the U.S. dropped 16.5%, however, to JD
343 million ($485 million),primarily due to the drop in apparel
exports.


8. NOTE: USITC calculations differ slightly from the GOJ, showing
bilateral trade at $977 million, with $541 million in Jordanian
exports to the U.S. and $436 million in Jordanian imports from the
U.S. USITC also shows vehicles as being the top Jordanian import
from the U.S., having reached $98 million during the first half of
2008, followed by aircraft and parts thereof, machinery, and
equipment. Cereal imports rank fifth at $25 million. The Ministry
of Industry and Trade is looking into the discrepancies but provided
an initial explanation that the DOS does not register officially
imports from the U.S. that arrive in Jordan but are then re-exported
to other countries - i.e., to Iraq. END NOTE.

Free Trade Agreement with Canada
--------------


9. Jordan concluded negotiations with Canada on an FTA in August

2008. Both parties initialed the agreement, the first between an
Arab country and Canada, which will be formally signed during an
imminent visit by the Canadian Prime Minister to Jordan. According
to Ministry of Industry and Trade Secretary General Montaser Okla,
upon entry into force of the agreement, Jordan will receive full
exemption of customs duties for Jordanian goods entering the
Canadian market, except for a list of 97 agricultural products,
including eggs and dairy products. In return, Jordan will implement
a three-tiered schedule of reducing customs duties on Canadian
products to zero over a transitional period of five years. Trade
with Canada is currently minimal with JD 3.6 million ($5.1 million)
in total exports to Canada and JD 27.9 million ($39.4 million) in
imports from Canada during the first half of 2008. Jordan views
this new agreement as a nice complement to the U.S.-Jordan FTA.

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