US embassy cable - 05AMMAN7793

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 007793 
 
SIPDIS 
 
PASS TO USTR 
STATE FOR NEA FRONT OFFICE, NEA/ELA, NEA/IPA 
STATE ALSO FOR EB/TPP/ABT 
COMMERCE/ITA/OTEXA - M. D'ANDREA 
 
E.O. 12958: DECL: 09/28/2015 
TAGS: ETRD, KTEX, ECON, PREL, IS, JO 
SUBJECT: JORDAN AND ISRAEL CLOSE TO NEW QIZ ARRANGEMENT 
 
REF: A. TEL AVIV 5077 
 
     B. AMMAN 4440 
 
Classified By: CDA David Hale for Reasons 1.4 (b) and (d). 
 
1.  (U) This message contains an action request.  See para 11. 
 
2.  (C) SUMMARY: Jordan is close to agreeing with Israel on 
an amendment to their Qualifying Industrial Zone (QIZ) 
Agreement that would change the terms of the product review 
mechanism by which Israeli content in Jordanian QIZ products 
is audited.  The cumbersome pre-audit of every single product 
has been an inefficient, non-competitive drain on Jordanian 
manufacturers, who prefer a system closer to the Israel-Egypt 
QIZ model (Refs).  An initial meeting between the GoJ and GoI 
has produced potential alternatives, including a quarterly 
audit system to ensure the requirement for 8 percent Israeli 
content is being met.  The two sides will meet again on 
October 6, and are forwarding to USTR Portman a summary of 
their preliminary discussions.  Jordan seeks USG views on the 
proposed new arrangement.  END SUMMARY. 
 
3.  (C) Reviewing the QIZ negotiations with Israel, Baha' 
Al-Armouti, an assistant to the GoJ Ministry of Industry and 
Trade (MOIT) Secretary General, told econoff that he and 
Hassan al-Nsour from the MOIT QIZ Unit met with Gabi Bar of 
Israel's Ministry of Industry, Trade and Labor (MITL) and 
Yair Shiran of the MITL International Agreements and Trade 
Policy Department on September 20.  Armouti said the 
Jordanian side cast the meeting in the context of adapting 
QIZ trade regimes to facilitation of ongoing procedures at 
Jordan's QIZ factories, which produce mainly garments. 
Armouti told his Israeli counterparts that an increasing 
number of Jordanian manufacturers were now balancing their 
efforts between QIZ production and FTA production on separate 
lines in the same factories.  NOTE:  FTA items accounted for 
roughly a fifth of QIZ factory production in the first half 
of the year. END NOTE. 
 
4.  (C) Armouti further highlighted Jordanian manufacturers' 
frustration with the current product review mechanism whereby 
each clothing item (by tariff Harmonized System code) must be 
pre-approved to ensure that it has 8 percent Israeli content. 
 Producers had been raising questions about the inefficiency 
and non-competitive nature of this procedure since well 
before Egypt and Israel adopted the post-facto, quarterly 
content review system in Egyptian QIZ's. 
 
5.  (C) Armouti reported that at first, Israel insisted that 
Jordan move to an 11.7 percent content requirement - vice the 
current 8 percent requirement - if it wanted a product review 
system similar to the Egyptian model.  But the GoJ side 
elaborated further on why Jordanian manufacturers were 
shifting to production under the U.S.-Jordan FTA largely to 
avoid the current cumbersome review system. 
 
6.  (C) A follow-on Israeli proposal laid out two choices -- 
either Jordan could fully adopt the Egyptian model with the 
11.7 percent content requirement that includes "carry on" 
provisions from one quarter to the next, or Jordan could 
modify the Egyptian model to keep an 8 percent content 
requirement without "carry on."  (NOTE:  A factory in Jordan 
now must account for Israeli content in each and every 
article manufactured;  if it purchases "too much" Israeli 
thread for a certain line, it cannot carry forward that 
excess content to another article of clothing.  In contrast, 
as Armouti explained it, the Egyptian factory totals up 
quarterly inputs from Israel and outputs for the U.S. market 
under the QIZ agreement, and can carry forward excess Israeli 
content to any other outputs in the next quarter. END NOTE.) 
 
7.  (C) Noting that the MOIT had generally explored the 
Egyptian concept with Jordanian manufacturers, Armouti was 
confident they would prefer the 8 percent content requirement 
and that they would continue to make arrangements with 
suppliers about excess content.  This was a burden they had 
already adapted to - notwithstanding additional layers of 
accounting and administration - said Armouti, in lieu of the 
simpler "carry on" provision.  He opined that this was a 
"more intensive" process, but that the 8 percent content 
requirement would balance more with the FTA. 
 
8.  (C) All other aspects of the quarterly review system 
would be identical to the procedure now carried out in Egypt, 
according to Armouti.  The two sides are to meet again on 
October 6 in Amman to iron out details, with Israel taking 
the lead in drafting the procedural details. 
 
9.  (C) Armouti requested the USG,s assessment of this 
change.  He passed two draft documents to be signed by 
Israeli and Jordanian representatives which outlined the 
state of play of this QIZ negotiation:  a cover letter to 
USTR Portman to be signed by the two trade ministers, and a 
one-page "minutes of meeting."  (Post is faxing copies to 
NEA/ELA and relevant agencies.) 
 
10.  (C) COMMENT: This issue has been a thorn in the side of 
Jordan-Israel trade relations since the December 2004 
Israel-Egypt agreement (Refs).  From post,s perspective, 
settlement of the QIZ content review mechanism would be in 
the USG interest, as well as eliminate one source of friction 
in regional economic relations. 
 
11.  (C) ACTION REQUEST: Given that the two sides must seek 
final approval from the U.S. for any change to the 
Jordan-Israel QIZ Agreement, Post believes that a provisional 
indication of USG approval to the general approach the GoJ 
and GoI are taking could accelerate the conclusion of these 
negotiations.  Washington guidance in response to Jordan's 
request for the USG,s assessment is appreciated. 
HALE