US embassy cable - 02AMMAN4755

UNCLAS SECTION 01 OF 02 AMMAN 004755 
 
SIPDIS 
 
USTR FOR NOVELLI/SAUMS 
USDOC FOR 4520/ITA/MAC/ONE/PTHANOS 
 
E.O. 12958:  N/A 
TAGS: ETRD, IS, JO 
SUBJECT:  JORDAN QIZ INVESTORS BRING CONCERNS TO ISRAELI 
OFFICIALS 
 
REF:  AMMAN 3296 
 
Sensitive but Unclassified. 
 
This is a joint message with Embassy Tel Aviv. 
 
1.  (u)  Summary.  Thanks to a meeting organized by the 
Israel-Jordan Chamber of Commerce, an impressive number of 
QIZ investors were able to raise directly with senior 
Israeli officials their concerns about slow and expensive 
shipping of QIZ products through Israel and difficulty 
meeting the current 8% Israeli content requirement for goods 
qualifying for duty and quota free access to the U.S. 
market.  Israeli officials, perhaps impressed by the 
enthusiasm of the QIZ investors, were partially responsive 
to their concerns -- although they also surfaced the 
potentially difficult issue of the scheduled 2003 increase 
in the Israeli content requirement to 11.7%.  This was a 
productive start to a hopefully ongoing dialogue that would 
be even more useful with the participation of Jordanian 
government officials.  End Summary. 
 
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ABOUT 100 QIZ INVESTORS GATHER AT NORTHERN BRIDGE 
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2.  (u)  Approximately 80-100 representatives of companies 
and park managers from Jordan's five leading Qualifying 
Industrial Zones (QIZ's) attended an August 2 meeting with 
an approximately equal number of Israeli suppliers and 
government officials.  Organized by the Israel-Jordan 
Chamber of Commerce with the help of the Israeli foreign 
ministry, the meeting was held in a tent erected on the 
premises of the Israeli facility at the Shaikh Hussein 
northern border crossing.  This arrangement accommodated 
both Israeli security concerns and the desire of many of the 
QIZ participants, especially those from south Asian 
countries, not to have to obtain Israeli visas and entry 
stamps in their passports that could have created 
difficulties when they returned to their home countries. 
 
3.  (u)  In addition to the private sector participants, 
Israeli government representatives included deputy director 
general of the ministry of foreign affairs Yossi Gal and MFA 
Director for Middle East Economic Affairs Ilan Baruch, 
deputy director general of the ministry of trade Gabi Bar 
and several members of his staff, a representative of 
Israeli customs, and a Haifa port official.  After some 
internal discussion, the Jordanian government declined to 
send representatives.  Members of embassy Tel Aviv and Amman 
economic sections and USAID Jordan also observed the 
proceedings.  They mayor of Bet Shean was unable to attend 
but sent a message expressing her region's interest in 
expanded commercial interaction with northern Jordan. 
 
4.  (sbu) In contrast to the private sector representatives, 
Jordanian government officials did not attend.  Trade 
Ministry Secretary General Samer Tawil told Embassy Amman 
that it would be too politically risky for Jordanian 
government officials to be seen meeting Israeli counterparts 
in the immediate aftermath of the killing of Hamas' Salah 
Shehadeh.  Nevertheless, Tawil said the Jordanian government 
supported QIZ private sector participation. 
 
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Freight and Trucking Issues 
--------------------------- 
 
5.  (u)  The Israeli organizers kept the discussions focused 
on the practical issues of doing business between Israel and 
Jordan.  Israeli freight forwarder Gadi Sassower led a 
discussion of logistical and trucking issues.  Along with 
several other participants he noted the large increase in 
QIZ-related shipments across the bridge.  He said that the 
number of containers shipped to Haifa from Jordan was 
currently 400-600 per month, up from just a handful three or 
four years ago.  QIZ company reps raised slow processing 
procedures and what they said were limited opening hours at 
the bridge, as well as the high cost of back-to-back 
shipping and convoying from the bridge to Haifa.  The 
Israeli customs officials said that they were taking action 
to speed shipments, although they said that slow out- 
processing on the Jordanian side was another constraint.  In 
one innovation, they announced that beginning September 1, 
the requirement to convoy trucks from the bridge to Haifa 
would be eliminated in cases where containers are 
transferred to Israeli trucks.  The QIZ companies welcomed 
this, but also asked the Israelis to look other ways to ease 
shipping and reduce the need to post expensive customs 
guarantees. 
 
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Speeding Up Product Approvals 
----------------------------- 
 
6.  (u)  Gabi Bar of the Israeli trade ministry acknowledged 
complaints from QIZ companies that his ministry's processing 
of applications for qualifying products (so-called QPR's) 
was slow, particularly given the upsurge in QIZ business. 
To help speed things up, Bar said the staff of the 
ministry's QIZ unit had been increased by one person and the 
frequency of inter-departmental meetings to review QPR 
applications had been increased.  Further improvements were 
unlikely given the ministry's budgetary constraints.  In 
response to a request, a representative of the USAID- 
supported Jordan-US Business Partnership (JUSBP) described a 
new on-line QPR application process that should be up and 
running in Jordan soon.  Linking the Israeli side into this 
web-based system could help speed procedures without 
requiring new staff. 
 
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Israelis Defensive About Content Requirements 
--------------------------------------------- 
 
7.  (u)  Several QIZ participants said that the current 8% 
Israeli content requirement was holding back the potential 
of the QIZ initiative.  They claimed that it was often 
difficult, especially for high unit-price products, to reach 
the 8% level and that Israeli suppliers often provided low 
quality inputs at inflated prices.  These investors called 
for either a reduction in the current 8% Israeli content 
requirement or a new formula that would allow calculation of 
Israeli content on a range of products instead of the 
current product-by-product calculation.  They argued that 
Israeli suppliers would share in the benefits from QIZ 
growth if the requirement were reduced. 
 
8.  (u)  Bar replied that Israeli input was the key 
philosophical and political basis of the QIZ initiative. 
Indeed, he said, QIZ companies should be willing to pay even 
more for duty and quota free access to the U.S. market.  He 
said he resented efforts by some QIZ companies to keep 
Israeli input to "eight point zero" despite the availability 
of competitive Israeli suppliers.  Nevertheless, Bar added 
that he was "brainstorming" with his Jordanian counterparts 
on creative ways to calculate Israeli input. 
 
9.  (u)  Bar also noted that the five-year Israeli-Jordanian 
agreement to lower the content requirement to 8% would end 
next year and revert to its "normal" 11.7% level.  This 
comment provoked an outburst of concern from QIZ investors, 
who said that they could not operate economically at this 
level.  They said they would have no choice but to move to 
other locations that offer preferential access to the QIZ 
market, particularly noting the growth in Kenya's and 
Madagascar's garment exports to the U.S. under the AGOA 
program.  This promises to be a high profile issue for the 
QIZ program over the coming months. 
 
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Assessment: A Promising Start to a Useful Dialogue 
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10.  (u)  The number of participants was a surprise even for 
the organizers and showed the great enthusiasm for the QIZ 
program on both sides of the Jordan River.  As the first 
such meeting, the discussion was general and there was more 
than a bit of speechmaking on both sides.  Outgoing Israel- 
Jordan Chamber of Commerce Director Miki Jungreis said that 
the Chamber would look into organizing future meetings and 
forming smaller working groups to study issues in greater 
detail.  The MFA's Yossi Gal told Embassy Tel Aviv econoff 
that as one of the negotiators of the QIZ arrangement, the 
meeting was a dream come true for him.  The discussions 
suffered from the absence of Jordanian government officials 
(the meeting generated a handful of critical articles in the 
Jordanian press).  Overall, however, the event succeeded in 
allowing Israeli officials to hear directly from the QIZ 
investor community about their practical concerns.  It also 
gave a more concrete sense of the success of the initiative 
and its continuing potential for increasing business 
contacts between Jordan and Israel. 
Gnehm