US embassy cable - 05AMMAN4440

C O N F I D E N T I A L SECTION 01 OF 04 AMMAN 004440 
 
SIPDIS 
 
STATE PASS TO USTR 
STATE FOR EB; NEA FRONT OFFICE; NEA/ELA 
NSC FOR ABRAMS 
 
E.O. 12958: DECL: 06/05/2015 
TAGS: PREL, ETRD, ENRG, EAID, ECON, JO 
SUBJECT: ASSISTANT SECRETARY WAYNE'S MEETINGS WITH 
JORDANIAN TRADE MINISTER ZU'BI AND PLANNING MINISTER AL-ALI 
 
REF: A. AMMAN 4297 
 
     B. AMMAN 0013 
 
Classified By: CHARGE DAVID HALE FOR REASONS 1.4(B) AND (D) 
 
1.  (C) SUMMARY:  EB Assistant Secretary E. Anthony Wayne met 
with two new reformist Jordanian ministers from the 
Ministries of Trade and Planning on the margins of the BMENA 
Trade and Investment Finance Conference held in Amman May 18. 
 Both laid out the GOJ's aggressive plans for fiscal reform, 
including by privatization, a possible new flat tax and 
enhanced collections on the revenue side, and streamlined 
government and reduced spending on the expenditures side. 
Both also signaled the GOJ's commitment to reducing oil 
subsidies over the next few years; however, Minister of 
Planning and International Cooperation Suhair al-Ali stressed 
that Jordan is now facing a severe budget shortfall due to 
the effect increased oil prices have on Jordan's fuel subsidy 
program, noting the current Saudi contribution was only 30 
percent of last year's.  She repeated the GOJ's appeal for 
further U.S. help in securing increased oil assistance from 
its neighbors. 
 
2.  (C) SUMMARY CONTINUED:  al-Ali also made the GOJ's case 
for the largest portion of the $100 million in supplemental 
assistance to be given in cash.  On external debt, al-Ali 
said that debt service was high, and the overall fiscal 
picture was "very tough."  She noted Jordan's desire to be a 
model of reform in the region and asked once again that the 
U.S. provide "moral support" for Jordan's effort to persuade 
the Paris Club to raise the ceiling on debt swaps from 30 to 
50 percent.  Minister of Industry and Trade Sharif Zu'bi said 
that debt swaps and privatization were interlinked in order 
to reduce economic burdens while attracting strategic 
investors.  Zu'bi outlined plans for greater trade with the 
EU through pan-Euro-Med cumulation rules, noting similar 
plans for the U.S.  He sought treatment for Jordan's QIZ 
product audits equivalent to those in Egypt. 
 
3.  (C) SUMMARY CONTINUED:  A/S Wayne reiterated strong USG 
support for economic development in Jordan, noting USTR's 
commitment to enhanced trade and our multiple high-level 
efforts to secure oil assistance.  He also urged the GOJ to 
provide its proposal for supplemental expenditures as soon as 
possible.  A/S Wayne repeated USG demands to end the DAMAN 
pre-shipment program as it is currently practiced, noting 
that it was a barrier to trade not in keeping with our 
bilateral free trade agreement.  Zu'bi promised to finalize 
plans to revamp DAMAN saying the GOJ must be "finished with 
it."  END SUMMARY. 
 
4. (U)  Accompanying A/S Wayne in the meeting with Zu'bi were 
Charge David Hale, Econ/C Richard Eason and Econoff Greg 
Lawless (notetaker).  Acting DCM Chris Henzel was present for 
the meeting with al-Ali, along with Econ/C and Econoff. 
 
Trade Minister Zu'bi : Lean Government, Export-Led Growth 
--------------------------------------------- ------------ 
 
5.  (C)  Minister of Industry and Trade Sharif Zu'bi led off 
by saying the new government he had joined was "reformist," 
although it had not been formally declared as such.  He was 
dedicated to "getting the government out" of areas where it 
had no business, including by privatization of assets in 
telecommunications, minerals and tourism.  He outlined a path 
for fiscal reform that included an overhaul of the tax system 
to increase revenues while reducing spending on fuel 
subsidies and the GOJ's debt service.  This represented quite 
a lot of work and would require assistance, he said. 
 
6.  (C)  On fuel subsidies, Zu'bi said that the reduction 
would be gradual so as to soften the blow at the gas pumps 
and to keep attracting investors.  On privatization, he noted 
that the program was "very much interlinked" with the GOJ's 
proposed debt swaps.  He cited the sell-off by Royal 
Jordanian Airlines of the Queen Alia Airport duty free shop 
to Spain's Aldeasa and possibly more deals between France 
Telecom and Jordan Telecom, as well as potential interest by 
Japan in telecomms operations.  The GOJ tries to mix its use 
of debt and equity, he said, not only to reduce its burden, 
but also to attract strategic investors. 
 
Trade: A Blend of Export Policies 
--------------------------------- 
 
7.  (C)  Zu'bi said Jordanian economic growth depended on 
liberalizing trade.  Barriers had to go down, just as key 
industries needed to be upgraded and other sectors might have 
to go.  Capacity building was key; he acknowledged USAID 
assistance in identifying and strengthening major export 
sectors such as pharmaceuticals, Dead Sea health and cosmetic 
products, garments, jewelry and olive oil.  He proudly 
pointed to Jordanian stone and marble as a big seller 
worldwide, noting Chinese fascination with yellow marble. 
 
8.  (C)  Jordan was a member in the Agadir trade agreement 
with Morocco, Tunisia, and Egypt, which was likely to come 
into effect in June.  Through this and an enhanced trade 
agreement with the EU, he expected Jordan to cumulate more 
content with its neighbors and to significantly increase 
exports to the EU.  Jordan would also cumulate content with 
Israel in a new QIZ-like trade arrangement with the EU (Ref 
B), but the GOJ needed to continue pressing physical access 
issues with Israel if it were to use more Israeli inputs, he 
said.  (NOTE: A reference to the continued lack of 
door-to-door access called for in a bilateral transportation 
agreement but hindered by Israeli security concerns.  END 
NOTE.) 
 
9.  (C)  A/S Wayne took note of outstanding GOJ requests for 
tariff reduction acceleration and other trade-related issues, 
saying that the United States Trade Representative was 
looking at these issues. 
 
U.S. Invited to Look at Rules of Origin, Cumulation in FTA 
--------------------------------------------- ------------- 
 
10.  (C)  Referring to new U.S. Free Trade Agreements with 
Morocco and Bahrain, Zu'bi said that Jordan was intensively 
investigating cumulation of content with those countries for 
exports to the U.S.  It would add to the competitiveness of 
Jordanian industries, he said.  Charge Hale expressed the 
hope that the USG could receive a concept paper on FTA-based 
cumulation that the GOJ had promised at last June's bilateral 
FTA Joint Committee (JC) meeting.  When Zu'bi also raised 
joint projects with FTA partner Singapore possibly including 
an Integrated Sourcing Initiative (ISI), A/S Wayne reiterated 
USG hopes to receive a concept paper. 
 
Jordan Wants QIZ Equivalence with Egypt 
--------------------------------------- 
 
11.  (C)  Turning to Israel's streamlined system for auditing 
the required Israeli inputs in duty-free products from 
Egyptian Qualifying Industrial Zones (QIZs), Zu'bi noted that 
Israeli officials had so far been less than enthusiastic in 
their reaction to repeated GOJ requests for a similar system. 
(Jordan's seven-year-old QIZ system requires pre-approval of 
inputs on a product-by-product basis; the Israel-Egypt-U.S. 
arrangement provides for a quarterly, factory-based 
post-audit system.)  A/S Wayne urged the GOJ to continue 
pursuing this request and then, once there was an opening, 
the USG would see what it could do. 
 
USG Asks for Progress on DAMAN Trade Barrier 
-------------------------------------------- 
 
12.  (C)  Regarding Jordan's DAMAN product conformity and 
pre-shipment inspection program, A/S Wayne noted USG concerns 
about lowering barriers which could in any event negatively 
affect economic growth.  He asked for an update on GOJ 
promises to initiate a risk-based vetting system with 
Suppliers' Documentation of Conformity (SDOC).  A/S Wayne 
expressed the hope that an American product, such as a 
personal computer, could enter Jordan without facing 
barriers, especially given the bilateral trade agreement. 
Minister Zu'bi responded that he did not have a problem with 
the SDOC approach.  Furthermore, new cars would be removed 
from the DAMAN program, he said.  A/S Wayne replied that he 
was looking forward to the proposed changes to DAMAN.  At a 
later point in the meeting, Zu'bi said that he would finalize 
plans to change DAMAN procedures, saying that the GOJ must be 
"finished with it" very soon.  (NOTE:  Zu'bi later scheduled 
a meeting for the following week with an interagency Embassy 
team and the Jordan Institute of Standards and Metrology to 
review solutions to the DAMAN-related trade barriers (Ref A). 
END NOTE.) 
 
Reform in the Region 
-------------------- 
 
13.  (C)  Reflecting on trade liberalization in the region, 
Zu'bi said there was no stopping a process that had begun 
already, which he likened to a train leaving the station. 
The next important step was to bring along the populace in 
other contexts -- political, social and educational.  While 
these steps would take time, for Jordan time was of the 
essence, he said.  He thought that other countries in the 
region were "jealous" of Jordan.  While traditional elements 
had to be considered (as a potential hindrance to the reform 
process), the people were listening, he said.  The GOJ had to 
improve the standard of living of the man in the street, and 
Jordanians could see the light at the end of the tunnel. 
Though some were concerned about falling behind, he liked to 
think that the GOJ was acting to achieve its goals, he said. 
 
Planning Minister al-Ali: Challenges Ahead 
------------------------------------------ 
 
14.  (C)  Referring to the skyrocketing price of oil, 
Minister of Planning and International Cooperation Suhair 
al-Ali said that Jordan faced a significant challenge in the 
near term with a deficit in the budget amounting to $225 
million more than anticipated to accommodate oil subsidies 
alone.  She noted plans to have simplified personal and 
corporate taxes with more efficient collections backed by 
enforced criminal penalties.  But belt tightening would be 
required, including 20 percent across-the-board cuts in 
government expenditures for salaries through streamlining and 
reduced staffing.  Eliminating travel and reducing use of 
government cars were among the steps the GOJ would be taking 
to cut expenses.  As the GOJ cut oil subsidies, it would 
increase the social safety net for the poor, she added. 
 
Need for More Oil Assistance to "Fill the Hole" 
--------------------------------------------- -- 
 
15.  (C)  While the plan for reducing oil subsidies 
continued, said al-Ali, Jordan would need more oil assistance 
in the short term.  The current monetary contribution by 
Saudi Arabia for example, was only 30 percent of last year's 
levels, she noted, given today's oil prices.  The assistance 
was much appreciated, she said, but it "doesn't fill the 
hole." 
 
16.  (C)  A/S Wayne noted that the USG had responded to GOJ 
requests by weighing in directly with the governments of 
Saudi Arabia, the United Arab Emirates, and Kuwait. 
President Bush had also requested assistance from the Saudis, 
he noted.  He expressed his hope that Jordan's neighbors 
would respond to these appeals; it appeared that the Saudis 
were already responding, he added. 
 
Debt Swaps 
---------- 
 
17.  (C)  Jordan was seeking additional assistance grants to 
continue its social, health and educational programs in the 
face of the budget deficit, but it also was requesting more 
relief from the external debt burden, she said.  She noted 
that Jordan continued to request raising its debt swap 
ceiling from 30 to 50 percent in the Paris Club and was 
seeking U.S. political and moral support in this effort.  A/S 
Wayne noted that while the USG political support for Jordan's 
economic growth was strong, it was difficult to support debt 
swaps above the current ceiling, especially since Jordan had 
gone through four debt treatments already.  Even if the U.S. 
did not participate in the swaps, supporting them could set 
an unwanted precedent with other debtor nations.  A/S Wayne 
encouraged the minister to make a straightforward, 
understandable case regarding its added short-term debt 
burden and then the USG would try to work with the GOJ and 
our G-7 and Paris Club partners on this problem. 
 
Supplemental Assistance 
----------------------- 
 
18.  (C)  The planning minister provided background on 
ongoing discussions with the USAID mission to allocate the 
$100 million supplemental assistance package between cash and 
programs.  She noted the GOJ's continuing needs in its 
current budget crisis for as much cash as possible.  A/DCM 
Henzel added details concerning the current understanding 
about possible next steps.  A/S Wayne noted that the decision 
had not yet been taken in Washington on the relative 
allocations in that supplemental and urged the GOJ to present 
any relevant information as soon as possible, as the decision 
would need to be taken soon and in a transparent and 
accountable manner.  Key Congressional players would need to 
agree with any shift. 
 
19. (U)  This message was cleared by Assistant Secretary 
Wayne. 
HALE