US embassy cable - 03AMMAN6220

UNCLAS SECTION 01 OF 02 AMMAN 006220 
 
SIPDIS 
 
SENSITIVE 
 
USTR FOR NOVELLI/SAUMS 
USDOC 4520/ITA/MAC/ONE/PTHANOS 
TREASURY FOR OASIA - MILLS/DEMOPULOS 
 
E.O. 12958:  N/A 
TAGS: ETRD, JO, IS, EU 
SUBJECT: Jordan and Israel Seeking EU "QIZ" Arrangement 
 
REF: PARIS CABLE; B.  02 AMMAN 2371 
 
SENSITIVE BUT UNCLASSIFIED. 
 
1.  (sbu)  Summary.  Jordan and Israel are working 
together to ask the EU for a special "QIZ-like" 
arrangement that will allow duty-free access to the 
European market for goods produced in Jordan with Israeli 
content.  This effort, which the Jordanians say has high- 
level European and Israeli political backing, is part of 
a Jordanian strategy to grow out of its defunct "special 
relationship" with Iraq.  Appropriate U.S. support with 
the EU could help move the process along, recognizing 
that this is -- refreshingly -- a Jordanian-Israeli 
project.  End Summary. 
 
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JORDANIANS/ISRAELIS PITCH "QIZ" PLAN TO EU 
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2.  (sbu)  Jordanian and Israeli trade officials met 
jointly with EU officials in Brussels in late August to 
pitch a "Qualifying Industrial Zone (QIZ)" arrangement 
between Jordan, Israel and the European Union.  According 
to Jordanian trade officials, External Relations 
Commissioner Chris Patten is the political force behind 
the idea -- originally discussed at a Euromed trade 
ministerial in Palermo in July -- and Trade Commissioner 
Lamy is also a strong backer.  Former Jordanian Trade 
Minister Salah al-Bashir and Israeli Deputy PM Ehud 
Olmert agreed to pursue the initiative during their 
meeting at the Dead Sea World Economic Forum in June. 
The concept was supported by French trade minister Loos 
during an August visit to Amman. 
 
3.  (sbu)  Trade Minister DG Amer al-Hadidi said the 
concept he and his Israeli Trade Ministry counterpart 
Gaby Bar proposed to an EU Commission Trade Directorate 
team is modeled on the U.S. QIZ initiative.  That is, 
products with cumulated Jordanian and Israeli content 
above a certain threshold would have duty free access to 
the European market.  He said this presented some 
conceptual problems for the EU, which does not favor 
special "zones" and whose complex rules of origin make 
such cumulation arrangements difficult.  Nevertheless, 
the group agreed to meet again October 8, with a goal of 
announcing an arrangement in December. 
 
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STRATEGY TO ADJUST TO END OF "SPECIAL" IRAQ RELATIONSHIP 
--------------------------------------------- ----------- 
 
4.  (sbu)  Trade Minister Mohamed Abu Hammour told ECON/C 
that Israel is completely on board and that Jordan would 
appreciate U.S. support with the Europeans.  He said the 
initiative was part of a strategy to forge agreements 
that open new markets to Jordanian manufacturers.  This 
would help smooth Jordan's economic adjustment to the end 
of its privileged trade and oil relationship with Iraq. 
Jordan is also pursuing, he said, free trade agreements 
with Turkey, Singapore, and other promising new markets. 
Also driving efforts to open new markets is a desire to 
prepare for the end of the WTO Multi-Fiber Agreement in 
2005, which could slow growth of QIZ garment exports to 
the United States. 
 
5.  (sbu)  Jordan's woefully imbalanced trade with the EU 
(imports of $1.5 billion from the EU in 2002 versus 
exports of $63 million) is a perennial source of 
frustration for Jordanian officials.  An EU Association 
Agreement that came into force in May 2002 is not 
expected to redress the balance.  The rules of origin 
requirements are complex and difficult to satisfy, and 
cumulating origin with other countries in the region, 
including those that also have Association Agreements, is 
practically impossible (ref b).  Using strong language, 
Deputy Prime Minister Halaiqa was quoted in the press 
September 16 as saying the EU agreement does "not serve 
the national economy nor is it a free trade agreement in 
the full sense." 
 
6.  (sbu)  Jordan-Israel trade is thriving ($262 million 
in 2002, compared to $41 million in 1997).  This growing 
relationship makes cumulating with Israeli value-added an 
attractive opportunity for Jordanian exporters, as the 
success of the U.S. QIZ arrangement has demonstrated. 
According to al-Hadidi, the Europeans had offered to 
allow cumulation of origin among "partner" countries that 
had signed free trade agreements among themselves.  The 
Jordanians explained that the current political situation 
made it impossible to sign an FTA with Israel, 
nonetheless they hoped the Europeans would take into 
account the thriving economic relationship and support a 
QIZ-like initiative as a way station. 
 
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COMMENT: U.S. SUPPORT SHOULD AFFIRM REGIONAL OWNERSHIP 
--------------------------------------------- --------- 
7.  (sbu)  Negotiating trade agreements that will allow 
exports, particularly of manufactured goods, to grow and 
diversify is part of an increasingly coherent Jordanian 
strategy to reduce the economy's reliance on foreign cash 
aid and politically-fragile "special relationships" like 
the one with Iraq that came to an abrupt end in March. 
The U.S. experience has shown the potential of Jordanian- 
Israeli economic collaboration.  In addition to creating 
income and jobs, the QIZs are building a political 
constituency for peace and trade.  While USEU and Embassy 
Tel Aviv may want to find out more, it could be helpful, 
as Minister Abu Hammour suggested, for the United States 
to lend its support to this initiative.  We should 
encourage the Europeans to find a pragmatic way around 
their rules and protectionist tendencies that will spur 
regional economic interaction, growth, and job creation. 
 
8.  (sbu)  It is significant that Jordanians and Israelis 
are jointly taking the lead.  This shows the increasing 
maturity of their relationship.  It is also a departure 
from past Jordanian practice of coming to the United 
States to fix their problems, without first seeing what 
they do for themselves.  We will want to couch our 
support in a way that affirms Jordanian and Israeli 
ownership of this project. 
 
9.  (sbu)  Background on the QIZ initiative can be found 
at http://usembassy-amman.org.jo/QIIZ.htm. 
GNEHM