US embassy cable - 03AMMAN1157

UNCLAS SECTION 01 OF 03 AMMAN 001157 
 
SIPDIS 
 
SENSITIVE 
 
USTR FOR SAUMS 
COMMERCE FOR 4520/ITA/MAC/ONE/COBERG 
TREASURY FOR MILLS, CHANG 
 
E.O. 12958: N/A 
TAGS: EINV, JO 
SUBJECT: JORDAN STALLS ON BIT 
 
REF: 01/28/03 SVAT/ROGERS TELCON 
 
SENSITIVE BUT UNCLASSIFIED; PLEASE HANDLE ACCORDINGLY 
 
1.  (SBU) SUMMARY: FM Muasher told the Ambassador that he 
wants a three month delay in the Exchange of Instruments of 
Ratification that would bring the Bilateral Investment Treaty 
(BIT) into force in order to allow the government time to 
assess the Treaty's impact on a pending investment dispute 
with an Italian firm.  Further delay in the Exchange will 
send a bad message to investors at a critical time for 
Jordan, particularly given the role FDI could play in 
mitigating the long-term economic impact of a military 
conflict with Iraq.  Following up on his discussions in 
Jordan in October, we recommend U/S Larson raise this concern 
with the Jordanian Trade and Foreign Ministers.  END SUMMARY 
 
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NOW YOU SEE IT; NOW YOU DON'T 
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2.  (SBU) In a meeting with the Ambassador January 19, FM 
Muasher said Jordan would like a three month delay in the 
Exchange of Instruments of Ratification that would bring the 
BIT into force.  Muasher said MFA and outside lawyers advised 
him to postpone the Exchange pending resolution of an 
International Center for Settlement of Investment Disputes 
(ICSID) case brought against Jordan by two Italian companies 
due to fears that the companies could take advantage of Most 
Favored Nation (MFN) status under the Jordan-Italy BIT once 
the U.S. BIT enters into force.  Muasher suggested that 
Jordanian and U.S. lawyers get together to resolve the 
question of the U.S. BIT's applicability. 
 
3.  (SBU) MFA Legal Affairs Director Naber called Econoff 
February 20 to elaborate on the reasons for the Minister's 
delay.  He said the counsel for the GOJ, Imam Odeh of the 
Sheif Ali Zoubi law firm, sent a letter to Minister of Water 
and Irrigation (MWI) Nasser suggesting that he request, via 
the MFA, a three month delay in the entry into force of the 
BIT.  He suggested that this could enhance the Ministry's 
legal position regarding an ICSID complaint filed by the two 
Italian companies against the MWI.  Odeh argued that the 
delay was desirable because the companies were currently 
submitting the facts of the case to ICSID under the Italian 
BIT, which permits ICSID intervention only as a method of 
last resort.  He said he was concerned that an entry into 
force of the American BIT at this time would enable them to 
use MFN status to more readily access the ICSID mechanism via 
the American BIT.  Once the facts of the case are presented, 
the case is "locked", according to Odeh, and the companies 
would be unable to invoke the American BIT. 
 
4.  (SBU) Naber was at pains to stress that this was not an 
open-ended matter, and that the MFA fully expected the issue 
to be resolved soon and the entry into force to proceed.  He 
said, "It is not our intention to delay putting into place 
the last big piece of the jigsaw we have put together,"  but 
added that "for a small economy like ours, $28 million (the 
amount claimed by the Italians) is a lot of money."  Naber 
added that he and other MFA advisors met with Odeh to "see if 
there might be another way" and avoid this problem, but could 
find none.  He said that he, and Odeh, were open to 
discussing their concerns with lawyers from the Department. 
 
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THE ITALIAN CONNECTION 
---------------------- 
 
5.  (SBU)  The dispute with the MWI was brought to ICSID by 
Italian construction companies Salini Construtorri and 
Italstrade against the Jordanian government in November, 2002 
under the terms of the Jordan-Italy BIT.  However, in a 
discussion with Italian Embassy Econoff Nicola Lener, we 
learned the Italian companies plan to use most favored nation 
treatment accorded to it by the Italian BIT to gain access to 
the ICSID mechanism once our BIT is in force.  (ICSID is a 
measure of last resort in the Italian BIT, but available to 
investors at any point under the U.S. treaty.)  Lener 
confirmed that the company is strictly Italian, with no 
American connection or investors.  He said the complaint 
centers on cost overruns allegedly incurred by the companies 
in the construction of the Karameh dam project in the mid-90s 
for which they have not been reimbursed. 
 
6.  (SBU) Naber had brought the Italian case to our attention 
in mid-January, upon receiving our diplomatic note proposing 
minor technical changes to the Jordanian-Arabic text of the 
BIT (changes that were agreed to by both parties in direct 
discussions in December in Washington).  Post then consulted 
with L and EB (REFTELCON) and were advised that BIT 
provisions only apply after entry into force, thirty days 
after the Exchange of Instruments of Ratification.  We passed 
this information along to Naber late January, who expressed 
appreciation, and assured us an MFA response to the Dip Note 
would soon be forthcoming and that we could soon proceed on 
setting up a ceremony for the Exchange.  As recently as 
February 17, a Jordan Investment Board (JIB) official told us 
she was expecting the draft copy of the response to our Dip 
Note from the MFA. 
 
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COMMENT 
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7.  (SBU)  We expect that regime change in Iraq will 
considerably improve Jordan's attractiveness as a destination 
for foreign investment.  The combination of greater regional 
stability and the preferential access Jordan enjoys to the 
U.S. and European markets would put Jordan in a unique 
position to stand out in the region as an FDI recipient. 
Indeed, an increase in FDI flows could well be an important 
factor in helping Jordan adjust over time to the loss of its 
special oil relationship with Iraq and otherwise offset the 
negative economic impact on Jordan of a military conflict. 
 
8.  (SBU)  Given the role FDI could play, the idea that 
Jordan would not allow an investment treaty to enter into 
force because there is a chance its provisions might actually 
be used in a particular case is shortsighted.  In addition to 
a BIT being an important asset in attracting foreign 
investment, potential foreign investors are likely to look 
especially poorly on legalistic maneuvers like the one 
proposed by Muasher in order to avoid obligations to 
investors.  (In fact, the GOJ has already argued that a case 
brought to ICSID by the U.S.-U.K. company Jacobs Engineering 
under the UK BIT is not valid because the UK BIT was not 
properly ratified.  This assertion was quickly disproved by 
the UK embassy.)  Furthermore, we note that an investment 
chapter was not included in the U.S.-Jordan FTA on the 
expectation that the BIT would provide sufficient protections. 
 
10.  (SBU)  Post will vigorously pursue this issue with 
Muasher and senior ministers responsible for economic 
matters.  Even though the question of the BIT's applicability 
to the Italian case should not bear on the GOJ's policy 
making, we would also be happy to facilitate contacts between 
USG and Jordanian lawyers if the Department thinks it would 
be useful.  In addition, we think it could be helpful for U/S 
Larson to include this issue in his discussions with 
Jordanian officials on the impact on Jordan of a conflict. 
Letters from U/S Larson to Muasher and to Industry and Trade 
Minister Salah al-Bashir along the lines of the text 
suggested below would reinforce the high-level USG economic 
interest in seeing this treaty in force without further 
delay. 
 
11.  (SBU)  Begin text of proposed draft letter. 
 
Dear Mr. Minister: 
 
A theme of my meetings with you and other Jordanian officials 
and the business sector in Amman last October was the 
economic potential Jordan enjoys given its outstanding record 
of economic reform and the preferential access it enjoys to 
the U.S., EU and other markets.  Jordan's attractiveness as a 
destination for foreign direct investment will be a key 
ingredient of its capacity to mitigate the economic impact of 
disruptions in the region and to achieve its full economic 
potential. 
 
Because of the central role foreign direct investment plays 
in economic growth and development, I am concerned that the 
United States and Jordan have not been able to bring into 
force the Bilateral Investment Treaty that was signed in 1997 
and ratified by the Jordanian Parliament in 1998 and the U.S. 
Senate in 2000.  Since U.S. and foreign investors look to the 
assurances provided by such treaties when making investment 
decisions, I hope that we can bring this agreement into 
effect without further delay.  I understand that once a few 
technical adjustments have been made to the Arabic text, 
Ambassador Gnehm is prepared to exchange instruments of 
ratification with Jordan's designated official. 
I look forward to hearing from you about this important 
issue.  With this key complement to our Free Trade Agreement 
in place, I believe that we will have created a legal 
structure that will allow the economic relationship between 
the United States and Jordan to continue to grow and flourish. 
 
End Text 
 
 
GNEHM