US embassy cable - 05AMMAN5130

C O N F I D E N T I A L SECTION 01 OF 03 AMMAN 005130 
 
SIPDIS 
 
STATE FOR NEA FRONT OFFICE; NEA/ELA 
STATE ALSO FOR NEA/RA LAWSON, OES/PCI SHAW 
NSC FOR ABRAMS/DANIN/MUSTAFA 
COMMERCE FOR 4520/ITA/MAC/AMESA/OME/CLOUSTAUNAU 
STATE PASS TO USTR 
 
E.O. 12958: DECL: 06/27/2015 
TAGS: ETRD, PREL, KTIA, SENV, ECON, PGOV, KDEM, EG, IS, JO 
SUBJECT: JORDAN-ISRAEL TRADE AND RESEARCH INITIATIVES 
 
REF: A. AMMAN 4440 
     B. AMMAN 1515 
     C. 04 AMMAN 1971 
 
Classified By: CHARGE DAVID HALE FOR REASONS 1.4 (B) AND (D). 
 
 1.  (C) SUMMARY:  The Government of Jordan (GOJ) has pursued 
trade discussions with Israel and Egypt related to Qualifying 
Industrial Zones (QIZs).  The GOJ seeks USG support of 
Jordanian positions to lower Israeli content to five percent 
in QIZ products and to use the simpler Egyptian QIZ product 
audit system, should the Israelis prove receptive.  The 
Jordanians are also seeking to advance two trilateral 
research efforts:  Bridging the Rift (BTR) project, a new 
life sciences research institution to be constructed on the 
Israel-Jordan border and involving Stanford and Cornell 
Universities (Ref C);  and the U.S.-Israel-Jordan TRIDE 
research program, which some are proposing should be expanded 
from its current base of $1 million to $10 million (Ref B). 
END SUMMARY 
 
Egypt - Jordan Seeks QIZ Complementarity 
---------------------------------------- 
 
2.  (C)  Dr. Hani Mulki, a royal court advisor and former 
Foreign Minister, briefed Charge and Econoff recently on his 
efforts to promote closer trade cooperation with Israel and 
Egypt. 
 
3. (C)  Mr. Galal El Zorba, ex-co-chairman of the Egyptian 
U.S. Business Council was the chief Egyptian interlocutor. 
(NOTE:  El Zorba is considered a leading architect of the 
Israeli-Egyptian QIZ concept.  END NOTE.)  Mulki conveyed 
Jordan's continuing interest in a product content auditing 
system that matched the Egyptian model, calling for 
quarterly, post-facto audits of factories (versus a costly 
and time-consuming product-by-product QIZ pre-qualification 
review in Jordan).  The most significant initiative raised 
was a trilateral cumulation system between Israel, Egypt, and 
Jordan whereby assembly operations in Egypt could be 
complemented by finishing and packing in Jordan.  The GOJ 
argues that, with this system, two cooperating factories 
would share the Israeli content requirement.  The Egyptians 
had bluntly asked "what's in it" for them, Mulki recounted. 
In the end, however, the Egyptians gave the green light to 
the GOJ to discuss the concept with the Israelis.  (COMMENT: 
We suspect that the GOJ is playing to its domestic 
constituency with this latter offer, and that the GOJ wishes 
to be perceived by QIZ investors as having made every attempt 
to further GOJ QIZ factories' interests, regardless of the 
feasibility of the proposals.  END COMMENT.) 
 
4.  (C)  Mulki stressed to Charge that he was not negotiating 
in parallel with Jordanian Minister of Industry and Trade 
Sharif Zu'bi.  (Trade Minister Zu'bi had reported on some of 
these developments separately and appeared to have been fully 
briefed by Mulki.)  Rather, Mulki emphasized, he was laying 
the groundwork for any final negotiations and also providing 
a "safety net" mechanism. 
 
Israel - DPM Olmert "Positive" 
------------------------------ 
 
5.  (C)  In Israel, Mulki said that he saw both Foreign 
Minister Sylvan Shalom and Deputy Prime Minister and Minister 
of Industry and Trade Ehud Olmert.  With both, he raised 
three Jordanian trade initiatives:  (1) moving Jordan's QIZs 
to the same type of product content review as found in the 
Egyptian QIZ audit system;  (2) reducing the required Israeli 
content in Jordan QIZ products from eight percent to five 
percent;  and, (3) the trilateral cumulation scheme.  Shalom 
was receptive, he said.  On the audit system, DPM Olmert 
related that the Israelis were still evaluating the quarterly 
approach, but that if they decided to keep it with Egypt, 
then Israel would adopt the same system in Jordan.  Mulki 
commented to Charge that it was important to Jordan to 
accomplish this very quickly, because the Jordanian QIZ 
investors were seeing themselves put at a disadvantage and it 
was important for them to be "treated the same." 
 
6.  (C)  Mulki explained that the GOJ's requested reduction 
in Israeli QIZ content to five percent had an alternative, 
more complex formula:  a sliding scale based on 
"free-on-board" (FOB) pricing of the particular QIZ product. 
The more expensive the item, the lower the required Israeli 
content.  Starting with an FOB price of $0 to $2 dollars, 
which would continue to require eight percent Israeli 
content, each additional $2 dollar increment in FOB price 
would see a concomitant drop in Israeli content of one 
percent, so that FOB prices of $8-10 dollars or more would 
require five percent Israeli content.  Olmert "looked very 
positively" on the sliding scale concept, especially since it 
would tend to be less irksome to the Egyptians than an 
across-the-board three percentage point reduction.  (NOTE: 
Egyptian QIZs are required to manufacture products with 11.7 
percent Israeli content.  END NOTE.) 
 
7.  (C)  On the trilateral cumulation scheme, Mulki said that 
Olmert wanted to know what the Egyptians thought and that he 
would review it if the Egyptians were disposed to the program. 
 
Jordan Seeking Help with the Israelis 
------------------------------------- 
 
8.  (C)  The royal advisor repeated the GOJ trade minister's 
standing request for USG assistance to convince Israel to 
support Jordan's trade proposals (Ref A).  The QIZ audit, he 
said, was a matter of some urgency.  If Israel decided to 
extend the quarterly review system in Egypt, it was important 
to help Jordan with the Israelis so that they quickly 
extended the same privilege to Jordan.  The bracketed, 
sliding scale of Israeli content was important to help Jordan 
move to the very highest high-end products, he said. 
(COMMENT:  Five percent of just 2000 $100-dollar garments 
gives a better return to Israeli suppliers than does eight 
percent of 50,000 $2-dollar garments.  But Jordan cannot be 
competitive if Israel demands the full eight percent on these 
high-end garments.  There could be Israeli interest in the 
Jordanian proposal to gain wider joint access to this 
up-scale market. END COMMENT.) 
 
Research:  The Bridging the Rift Free Education Zone 
--------------------------------------------- ------- 
 
9.  (C)  Mulki reviewed his discussion with GOI FM Shalom on 
the new 150-acre desert complex devoted to life sciences 
research that is under construction in the southern Wadi 
Araba desert straddling the Jordan-Israel border.  Bridging 
the Rift (BTR), located about 30 miles south of the Dead Sea, 
will house researchers sponsored by Stanford and Cornell 
Universities under the financial support of the BTR 
Foundation created by New York-based Israeli businessman Mati 
Kochavi (Ref C).  A major issue was how to implement the 
program across a border when a myriad of sovereignty issues 
were raised such as personal legal culpability or insurance. 
He said that the GOJ solution proposed had been simple: 
persons in the free education zone would be treated under the 
laws of the nation from whence they came (just as occurred at 
the border crossing zones now).  Mulki said that the Israeli 
Under Secretary of Justice liked the idea.  The imaginary 
borderline running down the middle of the equally apportioned 
BTR zone would be marked by a long stretch of garden, Mulki 
noted.  (COMMENT:  Israeli Ambassador Yacob Handlesman on 
June 22 gave Charge a similarly positive description of this 
meeting on BTR.  We take this mutual advancement on sensitive 
issues to indicate the proposed opening date for the BTR 
desert campus at the end of the year would appear to be 
realistic.  END COMMENT.) 
 
TRIDE:  Jordan Presses for More Money...Bigger Ideas 
--------------------------------------------- ------- 
 
10.  (C)  The Trilateral Industrial Research and Development 
(TRIDE) fund was raised with DPM Olmert.  After meetings were 
held last November in the U.S. and in February in Jordan to 
revive the fund which had been dormant since the second 
Intifada in 2000 (Ref B), Jordan had been committed to 
providing its third of the $1 million fund.  The plan had 
been to start a new round of entrepreneurial R&D projects 
requiring a relatively small amount of seed money.  However, 
Mulki indicated that the GOJ wanted to see the fund expanded 
to $10 million, an idea first raised last February.  Charge 
indicated that he was unaware of any USG funds available in 
its budget to contribute to this new concept. 
 
11.  (C)  Mulki stated that he thought $10 million would be 
more suitable to attracting the type of industrial-scale R&D 
that Jordan could host.  He added that one project being 
contemplated -- requiring the strictest confidence -- was an 
industrial park located in Jordan where Israeli 
high-technology would be used to make products or provide 
technical services to Iraq.  He referred to Iraq's 
electricity and manufacturing sectors in the coming decade as 
a rich market to tap.  The GOJ could foresee a time in the 
next few years ahead when such a concept would no longer 
appear to be so radical.  However, now was the time to get in 
on the ground floor and establish this joint venture -- 
located in Jordan and exporting nominally "Jordanian" 
products to Iraq -- to establish a market advantage. 
 
TRIDE to be Promoted by King or to Re-Start? 
-------------------------------------------- 
 
12.  (C)  Aside from the project directed at Iraq, he noted, 
there was merit in promoting the larger-scale investment in 
TRIDE of $10 million.  Jordan would want to promote any 
investments that came through this unique platform, he said. 
It would be a way to attract a more diversified industrial 
base to Jordan in one of the technology sectors.  With the 
larger TRIDE fund, more Jordanian, American and Israeli 
investors could be attracted to permanently "root" a 
particular industry in Jordan, he noted.  King Abdullah could 
heavily promote TRIDE on his next visit to the United States 
(likely in September), Mulki indicated.  This would be a good 
mechanism to attract more investment.  Charge replied that it 
would be important to hear the Israeli position on such a 
proposal.  (NOTE:  Israeli DCM Danny Nevo, who participated 
in the February TRIDE discussions (Ref B), indicated to 
Charge June 22 that the GOI was still waiting for Jordan to 
contribute its $330,000, to match the U.S. and Israeli 
contributions, so that an already-delayed Request for 
Proposals can go out under the current, agreed-upon TRIDE 
program.  END NOTE.) 
HALE