US embassy cable - 04AMMAN6581

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 006581 
 
SIPDIS 
 
STATE FOR NEA/LEA 
 
E.O. 12958: DECL: 08/05/2014 
TAGS: ETRD, PREL, EFIN, IZ, JO 
SUBJECT: JORDAN'S EXPORTS TO IRAQ ARE STRONG AND GROWING 
 
REF: 03 AMMAN 106 
 
Classified By: Charge D'Affaires David Hale.  Reasons 1.5 (B, D) 
 
1.  (C)  SUMMARY:  Bilateral Jordan-Iraq trade is 
flourishing, even without considering the strong transit 
trade.  Domestic exports to Iraq took off in 2003 in 
unexpected sectors.  Iraqis' pent-up demand for tobacco and 
alcohol are keeping Jordanian manufacturers and truckers 
busy.  Soaps, animal feed, and electrical machinery are three 
other growing domestic exports to Iraq from Jordan.  With 
total domestic exports of USD 315.8 million to Iraq in 2003, 
Jordan is laying down its marker as a major trading partner 
in the more competitive post-war atmosphere.  Iraq is still 
Jordan's number two export market after the U.S.  While 
Jordanian companies may not claim as large a share of the 
Iraqi market as before, they are climbing up near their best 
pre-war domestic export numbers.  Re-exports from Jordan to 
Iraq are also doing well, at USD 111 million in the first 
five months, but improvements to Aqaba port are needed to 
make the most of this transit trade.  END SUMMARY. 
 
2.  (C)  We reported earlier (Ref) that Iraq under the Saddam 
regime of the 1990s would not buy goods from Jordan deemed 
acceptable under the United Nations sanctions regime; Iraq 
turned elsewhere for many products.  Jordan's Iraq-bound 
exports were mainly in traditional regional exports, 
especially vegetable oils and pharmaceuticals.  By the 
mid-1990s, Jordan was reaping the benefits from being the 
transit point through which the UN's Oil-For-Food (OFF) goods 
were shipped.  (NOTE:  These are deemed "re-exports" in 
Jordanian trade parlance. END NOTE.)   A parallel regime also 
developed, a bilateral trade protocol, which by 1995 provided 
for barter of Jordanian goods for free or discounted Iraqi 
oil valued up to USD 250-300 million.  In the early years, 
the Jordanians did not reach that ceiling, averaging only 
about USD 168 million annually (Ref). 
 
3.  (C)  The Jordan-Iraq bilateral trade protocol, however, 
grew into a sizable export market for Jordan, standing at an 
average of USD 430 million in 2001 and 2002.  Many at the 
time believed this bilateral trade protocol was an attempt by 
the Saddam regime to influence Jordanians, having provided 
large contracts to as many as 400 factories employing some 
20,000 workers.  The war and the fall of Saddam changed the 
trade arrangements overnight;  throughout the summer and fall 
of 2003, some Iraq-protocol-oriented Jordanian factory owners 
and the banks that financed them were complaining to Embassy 
officers that they were not just "hurting" but "crushed" and 
non-performing loans were an all-too-familiar norm.  But 
after a miserable first three quarters in 2003, Jordan sprang 
back to achieve USD 315.8 million in domestic exports to Iraq 
for the year.  As a result, Iraq remains Jordan's 
second-largest market after the U.S., which has jumped to 
first based mainly on the meteoric rise of Qualifying 
Industrial Zone (QIZ) garment exports. 
 
---- -----------------------   --------------------- 
Year JO Exports to Iraq, $mn   JO Exports to US, $mn 
---- -----------------------   --------------------- 
2000         141.1                  63.3 
2001         422.2                 232.1 
2002         439.6                 429.2 
2003         315.8                 660.7 
 
 
Strong Growth and Greater Variety of Domestic Exports 
--------------------------------------------- -------- 
 
4.  (U)  2004 Jordanian domestic exports to Iraq are likely 
to total over USD 360 million, if current trends hold.  For 
the first five months of 2004, domestic exports to Iraq came 
to USD 150.2 million.  Given that the month-by-month growth 
rates are increasing, Jordan this year could well be back to 
the exports achieved in banner years.  The greater variety in 
composition of domestic products exported to Iraq, first 
achieved in 2001, seems to be remaining.  Where before 
pharmaceuticals and vegetable oils accounted for over 90 
percent of Jordanian domestic exports to Iraq (Ref), in 2003 
they accounted for only 18 percent of all such exports.  Two 
big new domestic exports are spirits and tobacco. 
Dramatically, over 90 percent of the domestic export output 
by Jordan's five distilleries, and 97 percent of its tobacco 
exports, were exported to Iraq in 2003.  Soaps were another 
big domestic export to Iraq, accounting for USD 54.3 million, 
or 17 percent, of all Jordanian domestic exports to Iraq last 
year.  Electrical machinery exports of USD 18.1 million 
accounted for six percent of Jordan's exports to Iraq;  but 
this represented about half of all electrical machinery 
exports nationwide. (Post is emailing to NEA/LEA a table with 
a break-out of exports to Iraq by major HS codes.) 
Re-Exports: The Transit Trade is Thriving, Too 
--------------------------------------------- - 
 
5.  (SBU)  The transit trade -- what the GOJ calls 
"re-exports" of goods through Jordan to Iraq -- were reported 
to total USD 111 million in the first five months of 2004 and 
will likely reach USD 250 million by the end of the year. 
(NOTE:  This major source of revenue for traders and the 
transportation industry could grow even faster if bottlenecks 
at Aqaba port could be solved more quickly by APM, the new 
management company contracted by the GOJ.  However, APM is 
constrained by the rate at which the GOJ wants to invest in 
capital improvements at the port.) 
 
6.  (C)  COMMENT:  That Jordan could hold onto the Iraqi 
market was not a foregone conclusion after the war.  Many of 
the old trade arrangements have fallen by the wayside; 
factories in Irbid with monopoly deals were closed in 
mid-2003 for example.  But a new breed of Jordanian trader is 
rising and thriving, providing soaps, electrical machinery 
and other goods to the Iraqi market.  We expect this trading 
relationship to grow, as Jordan firms up its ties to the 
Interim Iraqi Government with an eye to a close, long-term 
relationship with a strategic trade partner, and as the GOJ 
concentrates on policies and infrastructure projects to 
facilitate bilateral trade. 
 
7.  (U)  BAGHDAD MINIMIZE CONSIDERED. 
HALE