US embassy cable - 05AMMAN1147

UNCLAS SECTION 01 OF 03 AMMAN 001147 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR NEA/LEA 
STATE ALSO FOR OES AND FOR CA/VO/F/P - M. MCEVOY 
STATE PASS TO USTR 
 
E.O. 12958: N/A 
TAGS: ETRD, SENV, CVIS, PREL, EAGR, KTIA, JO 
SUBJECT: UPDATE ON U.S.-JORDAN FREE TRADE AGREEMENT JOINT 
COMMITTEE FOLLOW-UP 
 
SENSITIVE BUT UNCLASSIFIED.  FOR USG USE ONLY. 
 
1.  (U)  This is an action request. Please see paras 5 and 14. 
 
2.  (SBU)  SUMMARY:  Since USTR hosted Jordan at the annual 
Free Trade Agreement (FTA) Joint Committee (JC) meeting last 
June, steady progress has been made on the twelve action 
items raised.  Five action items are completed, from the 
mounting of a Joint Environmental Forum, to U.S. approval of 
eight percent Israeli content in QIZ products, to Jordan's 
lifting of a ban on poultry from the United States.  On the 
remaining JC action items: 
 
-- Jordan continues to stress its strong interest in 
accelerated tariff reductions under the FTA. 
 
-- Post is pressing the GOJ to lift its ban on U.S.-origin 
beef. 
 
-- Ministry of Industry and Trade (MOIT) officials are 
distributing for public comment a concept paper on Rules of 
Origin and accumulation of content; they plan to submit it to 
USTR to support combined-content manufactures with other U.S. 
FTA partners. 
 
-- GOJ trade officials continue to pursue lengthening E1/E2 
treaty trader/investor visas to five years. 
 
-- Three JC issues regarding Government Procurement and 
investment promotion require first actions by Jordan before 
the U.S. can engage. 
 
Post will continue to report separately on the potential 
significant barrier to trade raised by Jordan's DAMAN product 
conformity/pre-shipment inspection program.  Embassy will 
send septel its recommendations on accelerated tariff 
reductions and other measures to enhance bilateral trade. 
King Abdullah has raised with A/S Burns and with Charge his 
interest in accelerated tariff reduction under the FTA and 
several QIZ issues, outlined in a recent letter from MOIT 
Minister Hindawi, in order to ensure that Jordan maintains 
its competitive edge.  END SUMMARY. 
 
Accelerated Tariff Reductions 
----------------------------- 
 
3.  (SBU)  MOIT Minister Ahmed Hindawi on February 7 sent a 
letter addressed to the Charge emphasizing the importance of 
the tariffs reduction request for our bilateral economic 
relations (the request was first made at the JC).  Although 
more than 80 percent of all bilateral tariffs have already 
been reduced to zero reciprocally under the FTA, some of the 
potentially highest-earning export items (especially 
garments) still carry high tariffs under the FTA and will do 
so until 2010.  These garments are now exported under the 
special Qualifying Industrial Zone (QIZ) arrangement with 
Israel, whereby products with eight percent Israeli content 
enter the U.S. duty free.  The GOJ wants to give all of 
Jordan's garment factories a chance for duty-free access to 
the U.S. market, not just the QIZ factories.  Post will fax 
NEA/ELA a copy of Minister Hindawi's letter, along with 
post's updated checklist of FTA JC action items. 
 
4.  (SBU) We understand that USTR is handling formal 
consultations on the proposed accelerated tariff reductions. 
 
5.  (SBU)  ACTION REQUEST:  Post would appreciate any update 
that may be available on the status of this request. 
 
Rules of Origin Concept Paper 
----------------------------- 
 
6.  (SBU)  Jordan has stated an interest in discussing rules 
of origin under the FTA Article 16, which stated the two 
sides would "enter into discussions" on developing 
interpretive and explanatory materials of those rules.  Rules 
of origin (ROO) define what makes a product a "new or 
different article of commerce" from Jordan (versus, say a 
slightly altered product from China which a manufacturer is 
trying to re-export under the much more favorable FTA rules). 
 These essential rules of free trade can enhance already 
existing comparative trade advantages.  USTR has stated its 
clear intention to engage on ROO but has been waiting for the 
GOJ's promised concept paper.  As the GOJ Ministry of Trade 
has been preoccupied with regional trade agreements, a 
Singapore FTA, and upgrading its bilateral trade agreement 
with Israel, it asked USAID, through its AMIR technical 
assistance program, to produce a draft technical report.  The 
draft technical report on FTA ROO options was recently 
completed and the MOIT will use it as a basis for collecting 
public comments, before preparing a final GOJ concept paper. 
An MOIT senior official told us that the concept paper should 
be presented to the USG in March. 
 
7.  (SBU)  An important dimension of the bilateral ROO 
discussion will be the accumulation of content across borders 
as it pertains to the 35 percent domestic content requirement 
of the FTA.  For example, the FTA Rules of Origin (in Annex 
2.2) allow manufacturers to apply up to 15 percent U.S. 
content toward the 35 percent "domestic" content requirement, 
meaning a Jordanian firm could use American components for an 
electronic good and then would need only to produce in Jordan 
20 percent value added (as defined by ROO on "substantial 
transformation" into a new product).  A clause in the Jordan 
FTA ROO uniquely allows for discussion of accumulation of 
content from a "territory contiguous to Jordan" toward the 
required 35 percent "domestic" content.  Since the WTO rules 
require that all of the countries involved in such 
accumulation of content have bilateral FTA's, for now only 
Israel could be considered a partner country of origin for 
the 35 percent content requirement. 
 
8.  (SBU)  GOJ officials would like also to extend the 
discussion on accumulation of content to include other FTA 
countries in the region, such as Morocco and Bahrain 
(assuming the latter FTA will be ratified and enter into 
force).  GOJ officials were encouraged by public remarks made 
by USG trade officials on expanding the bilateral FTAs in the 
region into a Middle East Free Trade Area (MEFTA), a central 
feature of which would be such accumulation of content. 
Finally, although warned last June by A/USTR Novelli that 
USTR would prefer to limit such discussions to the Middle 
East, GOJ officials will likely try again to talk about 
accumulation with other nations with which we both have 
FTA's, particularly Singapore.  A section on Singapore is in 
the concept paper in its current draft form. 
 
E1/E2 Visas 
----------- 
 
9.  (SBU)  A senior MOIT trade policy official told us that 
the MOIT is discussing with the GOJ Foreign Ministry the 
current status of E1/E2 treaty trader/investor visas, which 
were provided for in the FTA and are being made available at 
the Embassy.  The Jordanians plan to discuss with other 
(especially security) agencies loosening the current 
limitation on validity of the Jordanian equivalent of the 
E1/E2 visa, now just one year.  Their goal in these internal 
discussions is to arrange to lengthen Jordanian 
E1/E2-equivalent validity to five years, so that Jordan and 
the U.S. could then discuss reciprocally issuing 
multiple-entry E1/E2 visas of five years duration, versus the 
current single-entry, three-month visa.  For now, all action 
on this issue is with the GOJ.  MOIT officials understand 
that they could now request discussions on a multiple-entry, 
12-month visa if they so chose, but so far have indicated 
their preference to investigate the five-year option first. 
It is possible that Amman officials and Jordan's Washington 
embassy are not fully coordinating on this issue. 
 
Other JC Issues 
--------------- 
 
10.  (SBU)  The GOJ ban on beef was imposed after the 
late-2003 report by USDA of a presumptive case of bovine 
spongiform encephalopathy (BSE) in a Holstein cow in 
Washington state.  Embassy Amman, working with the regional 
USDA attache in Cairo, continues to make the case that BSE is 
contained in the U.S. and that U.S. beef is safe to eat.  The 
latest USG non-paper on BSE is reportedly currently being 
reviewed in the Ministry of Agriculture and a decision on the 
ban may be imminent.  The Ministry of Agriculture lifted the 
ban on U.S. poultry late in 2004.  In addition to the holding 
of the Joint Environmental Forum and the USTR decision 
approving 8 percent Israeli content in QIZ's, Jordan last 
year finally approved regulations on "sell by" dates on food 
packaging consistent with WTO standards.  On an IPR issue 
raised at the JC, Jordan last August sent a letter stating it 
would continue to seek an exception to the Berne Convention 
regarding translation and reproduction on what it called 
"proper use" cases (such as xeroxing of excerpts from 
copyrighted materials for university classes). 
 
11.  (SBU)  A few issues raised at the JC remain with the 
Jordanians.  On the Government Procurement Agreement, Jordan 
continues to contemplate a bilateral GPA, but remains 
hesitant until the WTO plurilateral GPA negotiations are 
completed.  At the JC, Jordan had also raised possibly 
changing our Bilateral Investment Treaty so as to refer to 
the FTA and reflect a more open investment climate than was 
in place when the FTA was first negotiated.  Finally, Jordan 
had suggested a two-way investment promotion board but has 
not provided particulars.  We continue to reiterate USTR's 
position that the USG stands ready to engage on these issues 
when the GOJ is ready. 
 
More on QIZ's 
------------- 
 
12.  (SBU)  MOIT Minister Hindawi's February letter also 
raised two new issues regarding the Qualifying Industrial 
Zones that require attention.  First, Hindawi noted that the 
Israel-Egyptian QIZ administrative rules were "more 
favorable" than those for Jordan and Israel.  Although the 
QIZ Product Approval Procedures on which Hindawi based his 
assessment were sourced from an Egyptian newspaper, it does 
appear that the Egyptian system is more streamlined:  it is 
post facto and bases QIZ factory approvals on quarterly data, 
whereas in Jordan a product rather than a factory must be 
reviewed based on detailed product specifications and raw 
input purchase data that all must be pre-approved.  It is our 
understanding that the Israelis want to experiment with this 
new system, but the Jordanians see it as a "competitive 
advantage" and they request similar QIZ product approval 
procedures.  Secondly, Hindawi proposed essentially a 
quadrilateral QIZ, with Jordan, Egypt, and Israel together 
accumulating QIZ product content for duty-free export to the 
U.S.  Hindawi stated this step would encourage regional 
economic cooperation. 
 
13.  (SBU)  COMMENT:   King Abdullah has raised with A/S 
Burns and Charge the points made in Hindawi,s letter, in 
general terms but with a clear intent to speed bilateral 
engagement on issues he regards as important to keep Jordan 
competitive.  Post will send septel recommendations on 
accelerating tariff reductions under the FTA and otherwise 
enhancing trade relations.  Under former MOIT Minister 
Halaiqa, who was double-hatted as DPM and hampered by 
political considerations, these JC issues were not being 
handled with speed or alacrity.  Now with Hindawi at the 
helm, FTA JC issues may move at a brisker pace.  Nonetheless, 
Hindawi lost by promotion his best and brightest trade 
negotiator responsible for overseeing complex issues such as 
rules of origin.  Post would like to see the discussion on 
"contiguous territories" start as soon after the USG receives 
the ROO concept paper as possible, and is working with 
Embassy Tel Aviv to recommend possible new approaches to 
Jordan-Israel trade under the FTA.  Concerning Hindawi's 
point about QIZ product approvals, the perception of unequal 
treatment is of concern to us.  We ask that Washington 
consider options for providing Jordan a similar arrangement 
on QIZ product approvals.  Hindawi's second point on 
three-way accumulation of content would require further 
amendment of the United States-Israel Free Trade 
Implementation Act of 1985, as amended.  We pass it along for 
consideration by concerned Washington agencies. 
 
14.  (SBU)  ACTION REQUESTED:  Post requests guidance on 
responding to the two GOJ requests contained in MOIT Minister 
Hindawi's letter. 
HALE