Promoting the U.S.-Jordan Free Trade Agreement

UNCLAS SECTION 01 OF 05 AMMAN 000813 SIPDIS SENSITIVE SIPDIS STATE PLEASE PASS USAID STATE PLEASE PASS TO USTR STATE PLEASE PASS TO OPIC STATE PLEASE PASS TO EXIM STATE PLEASE PASS TO TDA STATE FOR EEB, NEA/ELA, and CA/VO CAIRO FOR AGCOUNS E.O. 12958: N/A TAGS: ETRD ECON EAGR WTRO JO SUBJECT: Promoting the U.S.-Jordan Free Trade Agreement Refs: A) Amman 573 B) Amman 551 C) Amman 51 D) 07 Amman 4083 E) 07 Amman 3814 F) 07 Casablanca 195 ¶1. (SBU) Summary: Although total U.S.-Jordan trade has continued to grow, Jordanian exports to the U.S. under the U.S.-Jordan Free Trade Agreement (FTA) represented a mere 23% of total exports to the U.S. in 2007, and grew only modestly over 2006. Garment exports, primarily shipped under the Qualifying Industrial Zone (QIZ) agreement, continue to represent the bulk of Jordanian exports to the United States, and decreased in 2007. Jordan did import more American goods in 2007, which contributed to the overall growth in two-way trade, but the purchase of aircraft and aircraft parts represented the lion's share of this increase. Post continues to encourage greater use of the FTA, which has been hindered by lack of know-how on the Jordanian side and lack of awareness on the American side, similar to the Moroccan experience (ref F). Diversification, more practical training, FTA-specific public diplomacy, and outreach on both sides of the trade ledger are needed to overcome these obstacles. End Summary. Jordanian Exports to U.S. Down, Imports Up -------------- ¶2. (U) According to USITC, total bilateral trade in 2007 reached $2.19 billion. NOTE: Government of Jordan (GOJ) figures differ slightly, as reported in ref B. END NOTE. U.S. exports to Jordan increased 31.8% to $857 million, mostly due to the purchase of $146 million in aircraft and associated parts. The rise in U.S. exports offset a 6.2% drop in Jordanian exports to the U.S., which reached $1.33 billion. The fall in Jordanian exports is largely attributed to an 8.6% decrease in garment exports totaling $1.15 million. ¶3. (SBU) As tariffs continue to drop under the FTA with the goal of complete elimination by 2010, a natural shift has been seen from exporting under the QIZ agreement to the FTA. In 2007, $923 million or 69% of Jordanian exports to the U.S. were shipped under the QIZ agreement, compared to 72% in 2006 and 90% in 2002. Meanwhile, $313 million or 23% of Jordanian exports to the U.S. were shipped under the FTA in 2007, compared to 22% in 2006 and 3% in 2002. Most Jordanian exporters look forward to no longer having to meet the 8% Israeli input requirement currently mandated by the QIZ agreement, which they claim is too expensive. Others have indicated that they will continue buying from their Israeli partners, given their established relationships, and ship under whichever trade regime makes financial sense. -------------- Jordanian Challenges -------------- Diversification is the Name of the Game -------------- ¶4. (SBU) The drop in garment exports in 2007 - the first decline in eight years - sent a wake-up call to the apparel industry. Garment producers face various challenges, including lack of local labor, rising production costs, and pressure by U.S. companies to reduce prices given worldwide competition (ref D). USAID funded a garment expert to work with an initial group of factories to enhance competitiveness and efficiency in the garment sector through better factory training programs and recruitment targeting Jordanians. The GOJ is also exploring with the private sector the concept of establishing satellite garment factories in rural areas of high AMMAN 00000813 002 OF 005 female unemployment that would ship under the FTA. ¶5. (SBU) Given that garment exports represented 86% of Jordan's exports to the U.S., the decline also underscored the need to diversify. The GOJ is fully aware of the dangers of having the majority of exports concentrated in one sector, and diversification has been cited continuously as the key to continued export-driven growth. USAID has been working with the GOJ to develop a new national trade strategy to identify sectors with significant export potential, and intends to provide assistance to Jordanian companies in such sectors to build export readiness and attend trade shows in the U.S. In March, USAID began a series of trade workshops for stakeholders in the information technology, medical services, and architect and engineer industries to raise awareness of the potential export opportunities under Jordan's various free trade arrangements, including the FTA. ¶6. (SBU) Key to Jordan's success will be finding those industries that offer niche products to the U.S. and can take advantage of preferential FTA treatment. Market research in the U.S. will also be important for advising companies in this regard. The Jordan Investment Board (JIB) had an investment program in the U.S. - JOINUS - to provide those services, but after two years, the program showed little results. JIB is now considering opening an office in the U.S., whose services would hopefully be well exploited by the Jordanian and U.S. business communities. Lack of Export Know-How -------------- ¶7. (SBU) Given the competitive edge provided by the FTA, it begs the question why more Jordanian companies are not taking greater advantage of it. MOIT Secretary General Montaser Oklah commented that the FTA is the best trade agreement that Jordan has, and yet Jordan continues to import more expensive goods from Europe, mostly because of its geographic proximity. Increased transportation costs, due to higher world fuel prices, have made importing from closer Europe more attractive. Jordanians also have long established private sector trade partnerships with European counterparts. ¶8. (SBU) Jordanian business people commonly indicate that they know the FTA exists, but simply do not know how to use it. They yearn for insight into the basic rules and regulations of exporting to the U.S. on a practical level - i.e., filling out customs paperwork, understanding Harmonized Tariff System (HTS) codes, determining the best shipping methods and other logistics. FCS plans to conduct a training seminar in 2008 with Department of Commerce and U.S. Customs representatives for import- and export-ready companies in Jordan to help address some of these more technical issues. The USAID-funded Business Development Center (BDC) also began a series of articles in the major daily Arabic papers in March 2008 to increase awareness of FTA opportunities. Additionally, USAID funded the development of an Arabic Exporters' tool kit in 2008. ¶9. (SBU) Jordanian companies also have indicated a lack of understanding of the U.S. market and ways to match up with U.S. suppliers, buyers, and distributors, often looking to the government to help provide those links. One Jordanian businessman faulted lack of entrepreneurship and dynamism in the Jordanian business community, commenting that a long history of being a state economy generated a "what can the government do for me?" attitude that persists today. Another successful Jordanian exporter of air conditioning systems, Omar Wishah of Petra Engineering, also noted that Jordanian companies need to take the initiative and be more aggressive by traveling to the U.S. for trade shows, rather than waiting for the business to come knocking on their doors. He added AMMAN 00000813 003.2 OF 005 that American consumers also want high-quality products delivered on-time, when promised, which is a mind-set that many Jordanian businesses still need to adopt. Part of Petra's marketing strategy has included bringing American buyers to Jordan on an annual basis to introduce not only the company, but also the country to Americans who may be wary of traveling to the Middle East. This tactic has increased Petra's sales. Need for Better Marketing, Labeling, and Packaging -------------- -------------- ¶10. (SBU) Minister of Industry and Trade Amer Hadidi recently noted that 98% percent of the businesses in Jordan are small and medium enterprises (SMEs). SMEs often do not have the capacity or resources to set up satellite offices in the U.S. or find American partners. BDC, which has been working with SMEs in Jordan to develop export readiness, also noted that Jordanian products are not yet well-known in the U.S. Once the goods make it to U.S. shelves, the Jordanian companies lack marketing representatives in the U.S. to continue to promote the products. In some cases, such as olive oil, the companies formed an export consortium, but then each producer had to try to tell a different story about his oil in order to differentiate it from the others. ¶11. (SBU) The BDC has also been stressing the importance of labeling for providing a marketing edge. Jordan has a number of food and other products, such as soap, that BDC believes might have a market in the U.S. if they use "organic" or "ethnic" labels. BDC also promotes using the "fair wage label" as a tool for differentiating a product. Packaging is another area in which improvements can be made for some products. BDC showed Econoff a pet shampoo developed by one of its clients that uses dead sea minerals and might be a niche product, but the packaging looked amateurish and needed to be improved in order to attract U.S. buyers. The Embassy is looking to support a course offered by the State of Texas-run Business Development Center to help Jordanian companies, which are not yet export-ready, better understand how to market their product to the U.S., select suppliers, and transport their goods. Lack of Financing -------------- ¶12. (U) Lack of access to financing presents another important challenge to Jordanian exporters. USAID has been working with the Association of Banks in Jordan to expand SME financing at all retail banks. Most of the major banks, including Arab Bank, have now set up SME Financing Units. The primary obstacle with the banks is their inability to analyze and price risk generally. This causes an acute problem for SMEs, because most of their assets are current assets, such as inventory, which banks will not agree to use as collateral. Letters of credit (L/C) provide a similar problem in that banks require a certain percentage of cash collateral in order to issue an L/C for a client. BDC hosted a February 24-27 SME Finance Conference that aimed to disseminate research, strategies, best practices and technological tools for building the capacity of SMEs to access financing. -------------- U.S. Challenges -------------- Small, Risky Market -------------- ¶13. (SBU) For U.S. exporters, Jordan represents a relatively small market of only about five and a half million people, unfamiliar to AMMAN 00000813 004 OF 005 most American businesses. Add to that its location in the heart of the politically fragile Middle East, and many U.S. companies see Jordan as a risky investment in a bad neighborhood. Jordan has few promotional agencies and ad campaigns in the U.S. to distinguish it from the rest of the Middle East as an oasis of stability that offers real business incentives and serves as a platform for doing business in other parts of the region, particularly Iraq. Nor does the Jordanian government or American Chamber of Commerce in Jordan aggressively get the word out about potential privatization or other investment opportunities in Jordan. Bids for proposals are put on the government websites, but are not massively distributed over the internet or through other channels to possible investors. ¶14. (SBU) To better inform the American business community, FCS has been advertising opportunities for U.S. investment in Jordan through a monthly newsletter distributed in the U.S., works with Export Assistant Centers in the U.S. to educate U.S. companies on the FTA, and provides information on the FTA and links to U.S. companies through the FCS website. FCS is also exploring opportunities for additional U.S. trade missions to Jordan. -------------- What Else Can Be Done? -------------- ¶15. (SBU) In addition to providing more hands-on, sector-specific training for and public outreach to Jordanian companies looking to export to the U.S., post plans to use more public diplomacy tools for educating the Jordanian population on U.S. trade policy and the FTA, such as International Visitors programs and Digital Video Conferences with U.S. trade experts. We also intend to have an FTA component in programs for the 60th anniversary in 2009 of U.S.-Jordan diplomatic relations; in particular, Jordanian companies would welcome a U.S. speaker who could provide practical guidance on exporting to the U.S. or importing U.S. goods. The American Chamber of Commerce is also exploring the possibility of beginning an ad campaign, such as small blurbs in daily Arabic papers informing the public of tariff reductions available under the FTA for various products. On the Washington end, we encourage USG officials dealing with Jordan to continue to raise awareness about the opportunities presented by the FTA when meeting with the American companies. ¶16. (U) Post plans to encourage more activities by private sector associations, such as the Jordan Exporters' Association, to organize serious trade missions to the United States. FCS also intends to continue supporting International Buyers Programs in which Jordanian companies travel to trade shows in the U.S. and learn about opportunities to buy American products. ¶17. (SBU) The USG should support efforts by the Jordanian private sector to expand "ethnic" product lines. For example, Jordanian food processing company Nabil Food has requested permission to export to the U.S. ethnic food produced in Jordan, with meat from American sources (ref C). We also encourage USDA's Animal Plant and Health Inspection Service to conduct pest risk analysis for identified Jordanian agricultural products - i.e., strawberries and cucumbers (ref E). We have also asked the GOJ to identify areas for potential OPIC assistance in cold packaging and storage for agricultural exports (ref A). ¶18. (SBU) With Jordan's energy sector opening up, opportunities exist for U.S. investment in this area as well. We would welcome feedback from the EXIM bank as to possible avenues of support for U.S. exporters in the energy and other sectors. ¶19. (U) Post continues to promote the start of the Jordan Science and Technology Incubator (JSTI) Pilot project, which is awaiting AMMAN 00000813 005 OF 005 Jordanian funding. Through this program, 80 Jordanian technologies will be screened for a potential fit for entry into the U.S. market, and 20 short-listed companies will have a special commercialization plan drawn up for U.S. market entry. The iPark business incubator will also receive training in the market commercialization program from the University of Texas at Austin's commercialization program. ¶20. (SBU) The GOJ and USG have been in protracted discussions to extend the length of E-1/E-2 treaty trader visas from the current single-entry three month visa, to a multiple-entry five year visa, which would facilitate business. We encourage Washington to conclude its review of the Jordanian proposal. ¶21. (SBU) Jordan's ongoing negotiations within the World Trade Organization (WTO) for a Government Procurement Agreement (GPA) are expected to conclude in 2008. Such an agreement will open up new investment and trade opportunities for U.S. companies to bid on government contracts in Jordan. Visit Amman's Classified Web Site at http://www.state.gov.sgov.gov/p/nea/amman/ HALE