US embassy cable - 02AMMAN2371

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 002371 
 
SIPDIS 
 
USTR FOR NED SAUMS 
COMMERCE FOR 4520/ITA/MAC/ONE/PTHANOS 
USAID FOR MSCOVILL 
 
E.O. 12958: DECL: 05/13/2012 
TAGS: ETRD, EINV, JO, WTRO, EUN 
SUBJECT: EU ASSOCIATION AGREEMENT DOES LITTLE FOR JORDAN'S 
ECONOMY 
 
 
Classified By: DCM Greg Berry, reasons 1.5 (b,d) 
 
SUMMARY 
 
1.  (sbu)  Jordan's Association Agreement with the EU entered 
into force May 1 after a five-year ratification process that 
had frustrated Jordan and embarrassed EU diplomats here. 
While both sides have publicly lauded the agreement as a 
catalyst for investment and trade, privately the GOJ, EU and 
business community are far less enthusiastic about the 
agreement's potential for boosting Jordanian economic 
development.  Instead, the most likely effect of the 
agreement will be a stronger push by the EU to bring Jordan 
into conformity with European positions on WTO regulatory 
issues like GMO labeling and technical standards and 
certifications.  End summary. 
 
ASSOCIATION AGREEMENT (FINALLY) LAUNCHED 
 
2.  (u)  On May 1, an Association Agreement between the EU 
and Jordan, signed in 1997,  entered into force.  The 
agreement, which is part of the broader "Euro-Mediterranean 
Partnership" that also includes political, security and 
cultural elements, will eliminate tariffs on most traded 
goods over a twelve-year phase-in period.  Ratification of 
the agreement was quick on the Jordanian side, but was held 
up for five years in the EU due to delays and quibbles from a 
number of EU member parliaments (Belgium alone held up the 
agreement for roughly a year).  The EU mission here plans a 
low-key launching event, noting with chagrin that they prefer 
not to highlight the fact that it took so long to finalize 
the agreement.  They added that future Association 
Agreements, such as the one recently signed by Algeria, will 
not require ratification by all member state parliaments. 
 
PUBLIC PLAUDITS 
 
3.  (u)  Jordanian Trade Minister Salah al Bashir welcomed 
the agreement, expressing hope that it would help attract 
foreign investment into the kingdom and increase the 
competitiveness of Jordanian businesses through competition 
and technology transfer.  European Commissioner for External 
Affairs Chris Patten added his enthusiasm for the agreement 
in a half-page feature in the English-language Jordan Times 
on May 9.  Patten's comments put the advantages under the 
agreement in the broader context of the "Euro-Mediterranean 
Partnership," joining free trade with human rights, migration 
issues, and security cooperation.  Patten's statement 
envisaged a free trade area where "a fabric could be produced 
in France or Egypt, dyed in Hungary and made into a dress in 
Jordan for export to Ireland without paying any duty." 
 
4.  (u)  The agreement undoubtedly offers some initial 
benefits to Jordan.  It opens to Jordanian goods a large, 
developed market that is much closer than the US, and hence 
allows for lower shipping costs.  In addition, the agreement 
immediately opens the European market to select Jordanian 
agricultural exports, including oranges, grapefruit, and 
dried vegetables - though none of these is a major Jordanian 
export.  And the promise of a free trade area probably helped 
spur Jordanian pharmaceutical companies to expand into the 
European market.  Europe is now a major growth market for 
Jordanian pharmaceuticals, with five different Jordanian 
firms obtaining European health authority approval to market 
specific products in the EU in 2001.  That said, total 
Jordanian exports to the EU have fallen in three of the last 
four years, and in 2001 were less than JD 50 million ($70 
million), or three percent of Jordan's exports.  In contrast, 
Jordanian exports to the US in 2001 were over JD 164 million 
($231 million), up from JD 44.8 million ($63 million) in 2000. 
 
PRIVATE RESERVATIONS 
 
5.  (c)  Whatever was said in public, contacts in the Trade 
Ministry, the EU mission, and the business community all 
concur that the agreement has some serious shortcomings that 
will keep it from having a measurable impact on bilateral 
trade or Jordanian economic development.  First, because 
trade benefits are tied into a broader political and security 
dialogue, those benefits can be held up at the whim of any EU 
member country that has a human rights or immigration dispute 
with Jordan.  They note that while this might not affect 
Jordan directly, it could affect other Euromed partners like 
Egypt, which could in turn affect Jordan's ability to secure 
inputs for products to be sold to EU countries.  Our EU 
mission contacts admitted this could be a stumbling block 
down the road. 
 
6.  (sbu)  Second, the rules of origin provisions of the 
agreement are too restrictive to be of much benefit.  Trade 
Ministry Secretary General Samer Tawil provided an 
illustrative example:  under US textile rules of origin (and 
hence under the QIZ and FTA), fabric from a third country 
that is doubly substantially transformed can count as 
Jordanian for the purposes of country of origin 
determination.  Europe has no such provision for double 
substantial transformation.  Thus any garment made in Jordan 
for export under the Association Agreement must be made of 
cloth from Jordan or another Euromed country.  Since Jordan 
has no cotton crop and produces little cloth, it would have 
to buy from Egypt or France, making production 
cost-prohibitive.  Since Jordan has little in the way of 
natural resources, it would have to source most of its inputs 
from Europe, eliminating any comparative advantage it had in 
labor cost. 
 
7.  (c)  Third, market access is restricted on those products 
that Jordan might reasonably have a shot at exporting 
competitively.  In agriculture, most products are subject to 
"gradual liberalisation" following a "reciprocal approach," 
according to Patten.  The agreement provides for quota 
restrictions on many agricultural products, with access to 
the EU market restricted to certain times of the year. 
According to our EU contacts, a number of EU members have 
already blocked access for sensitive agricultural products 
from Mediterranean countries, notably Spain's action to 
restrict olive oil imports.  With Jordan's few key 
agricultural exports directly competitive with sensitive EU 
sectors, the opportunites for greater trade are limited. 
 
COMMENT 
 
8.  (c)  While the trade and investment opportunities created 
by the Association Agreement are limited, there is likely to 
be more movement on institution-building issues.  As our EU 
contact noted, this agreement is more about regulatory 
capacity building than anything else.  Patten's statement 
emphasized "a process of alignment of policies and 
regulations...with a view to create a single 
Euro-Mediterranean market, for example in the fields of 
technical standards, conformity assessments and 
certifications."  In short, we can expect the EU to use this 
agreement to try to mold partner countries in their own image 
on issues of trade policy.  This could have significant 
downstream impacts on positions with regard to labeling, 
GMO's, SPS, and similar issues in the WTO.  We will continue 
to monitor these efforts, and to work closely with the GOJ to 
ensure it maintains its close partnership with the US on 
central WTO issues. 
Gnehm