US embassy cable - 02AMMAN3394

UNCLAS SECTION 01 OF 02 AMMAN 003394 
 
SIPDIS 
 
SENSITIVE 
 
USDOC FOR 4520/ITA/MAC/ONE/PAUL THANOS 
USTR FOR SAUMS 
TREASURY FOR PIPATANAGUL 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, EINV, BEXP, JO 
SUBJECT: SYRIAN SOFT DRINKS SWAMP U.S. PRODUCTS 
 
REF: A) AMMAN 2093 B) AMMAN 2039 
 
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SUMMARY 
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1.  (SBU) The local subsidiaries of Pepsi and Coca Cola say 
that their soft drink sales are off by up to 40 percent from 
2001 due to a new bilateral trade agreement between Jordan 
and Syria that has led to an influx of Syrian soft drink 
products  concurrent with the continuing boycott of American 
products (REF A).  They also allege that the Syrian goods are 
in clear violation of trademark regulations.  The companies 
say their combined USD 200 million investment in Jordan is in 
jeopardy.  They are requesting trade protection from the 
Jordanian government and judicial system, but are drawing up 
plans to lay off hundreds of employees should sales not pick 
up.  End Summary 
 
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THE CHICKEN OR THE EGG 
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2.  (SBU) In separate meetings with local Pepsi and Coke 
officials, EmbOffs were informed about a major decline in 
soft drink sales for both major brands, which together 
control the Jordanian market.  While the decrease in sales 
had begun late spring at a time when calls for a boycott of 
American goods in the region peaked, the companies have 
recently seen a sharp upsurge of lower-priced Syrian soft 
drink products in Jordan, some of which are clear copies of 
American beverages.  This follows the entry into force of a 
bilateral trade agreement between Jordan and Syria, and 
suggests that Syrian producers are exploiting the boycott to 
get a foothold in the Jordanian market. 
 
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THE REAL THING? 
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3.  (SBU) We met with Azem Yousef, General Manager of Coca 
Cola Bottling LTD. of Jordan.  Yousef told us that business 
was off by 30 percent for the year so far.  While he allowed 
that the boycott was certainly having an impact, he pointed 
to the sudden appearance of low-priced Syrian soft drinks on 
the market.  Yousef said that the new Jordanian-Syrian trade 
agreement allows Syrian soft drink manufacturers to export 
their product to Jordan tariff-free.  He added that, although 
Jordanian brands could enter Syria without tariffs under the 
agreement, Pepsi and Coke were not allowed to register their 
trademarks or sell their products in Syria.  Even at 
wholesale prices, Yousef said, Coke cannot compete. 
 
4.  (SBU) Yousef brought out some examples of the Syrian 
products.  Master Cola is packaged in an indented plastic 
bottle and is labeled in a manner, both in color and in 
script, that is identical to Coke.  Similarly, flavored soft 
drinks, such as "Master Orange", bear a striking resemblance 
to Fanta, another Coca Cola product.  However, according to 
Yousef, the similarity stops there; the Syrian flavors are 
not even close approximations, and the plastic bottle is 
milky, distorting the soda's true color. 
 
5.  (SBU) Yousef also shared with us the results of a survey 
commissioned by Coke to assess Jordanian attitudes toward the 
boycott and his company's products.  The survey, which polled 
1200 Jordanians across the country and was conducted by an 
independent polling organization, showed that the primary 
targets of the boycott are Jordanian companies with an 
American brand name, over American companies and the USG.  In 
addition, respondents were evenly split on the question of 
whether or not the boycott should continue even if it hurt 
the Jordanian work force.  On the positive side, the survey 
suggested that less than 17 percent of those asked were 
firmly committed to the boycott. 
 
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CHEER UP 
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6.  (SBU) PepsiCo Jordan Managing Director Khaled al-Bakri 
told us a similar story.  He said that Pepsi's current 
numbers are "just like winter's", despite having "many more 
throats" in Jordan this time of year, a reference to the 
200,000 or so Saudis and Gulf residents that spend their 
summers in cooler Amman.  He said that business was down 40 
percent from last year, and attributed the decline to the 
Syrian products.  He echoed Yousef's view that Syrian 
producers were using the trade agreement to take advantage of 
the boycott and pry their way into the Jordanian market, 
saying "the flood of Syrian soft drinks encourages the 
sustainment of the boycott". 
7.  (SBU) Al-Bakri showed us a study done by Pepsi in 
collaboration with Coke on the economic impact of the 
imported soft drinks on both American brands.  In addition to 
a USD25 million loss in revenue to the two companies, the GOJ 
would see a USD 13 million shortfall in sales tax revenue 
since the Syrian product is being under-invoiced at the 
border.  More importantly, he said, if sales don't pick up, 
as many as 900 employees from both companies would have to be 
laid off by the end of the year.  He stressed the point by 
telling us that the company's HR Director was preparing 
contingency plans for a layoff of up to 400 employees, out of 
a 1200 person workforce, by the end of the summer if sales 
did not pick up.  Al-Bakri added that, due to continued 
losses by its Jordanian subsidiary, Pepsi had begun "to write 
down" the operation in Jordan as a five year amortization 
rather than 20 years. 
 
8.  (SBU) Courtesy of Al-Bakri, we saw another example of 
copycat Syrian beverages.  Cheer Up, produced by the Udarit 
Trading Company of Damascus, is packaged identically to 
PepsiCo's Seven Up, right down to the background shading of 
the can and even the logo itself.  He said that there are no 
intellectual property rights concerns in Syria, hence the 
ability of Syrian companies to produce whatever they want 
without regard to trademark considerations.  Al-Bakri said 
that he had recently seen other products, such as candies, 
pirated by Syrian companies in similar fashion. 
 
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COMPETITORS JOIN FORCES 
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9.  (SBU) Yousef and al-Bakri met jointly with Minister of 
Industry and Trade Bashir June 17.  They told us the Minister 
was very supportive, and encouraged them to apply to the 
Ministry for trade protection.  Al-Bakri said the criterion 
the companies had to demonstrate was that an increase in 
Syrian imports was followed by a significant decline in the 
production and sales of the Jordanian-produced soft drinks. 
Following the application, there would be a 200 day temporary 
injunction on Syrian imports while the application was 
reviewed.  Yousef added that the Minister suggested they file 
trademark infringement cases in Jordanian court.  (Note: 
Al-Bakri told us that PepsiCo Regional Director Sa'ad 
Abdul-Latif was coming to Jordan June 19-20 to meet with GOJ 
officials in an effort to heighten government awareness of 
the problem.  Ambassador and Embassy staff will meet with 
Abdul-Latif to follow up). 
 
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COMMENT 
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10.  (SBU) Despite this combined USD 200 million invested in 
Jordan, USD 60 million in salaries and benefits, USD 50 
million in capital expenditures, and USD 150 million in sales 
tax, Pepsi and Coke have suffered combined net losses of USD 
55 million since 1997.  Executives are growing increasingly 
frustrated.  In addition, confiscatory sales taxes and 
unfounded quality control issues with the Ministry of Health 
(REF B), coming as they have during an already costly 
boycott, have soured the investments for the American 
companies. 
 
11.  (SBU) The influx of Syrian product, with its attendant 
IPR problems, exacerbation of the boycott, and impact on 
sales, is another example of the difficulties of doing 
business in Jordan despite the economic reforms of the past 
several years.  Significant layoffs and the potential 
abandonment of the Jordanian market by PepsiCo would be even 
more troubling.  Embassy staff will continue working with 
Pepsi, Coke, and GOJ officials to sort through the issues 
raised by the Jordan-Syrian FTA and its impact on American 
business.  END COMMENT 
Gnehm