US embassy cable - 03AMMAN2231

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 002231 
 
SIPDIS 
 
TREASURY FOR MILLS/CHANG 
NSC/NEC FOR JASON SINGER 
USUN FOR KONZET AND HILLMAN 
 
E.O. 12958: DECL: 04/10/2013 
TAGS: EFIN, ETRD, EAID, IZ, JO 
SUBJECT: TFIZ01: LOCAL EXPORTERS FACE LOSSES FROM 
SADDAM-ERA CONTRACTS 
 
REF: A. AMMAN 2159 
     B. AMMAN 1955 
 
Classified By: DCM Greg Berry, reasons 1.5 (b,d) 
 
1.  (c)  Summary:  While the government meets with business 
leaders to formulate a plan to mitigate the economic costs of 
war in Iraq, local businesses are beginning to feel the 
squeeze from the inability of the evaporating Saddam regime 
to pay its bills.  Local exporters worry that a new Iraqi 
government will not honor Saddam-era contracts, leaving them 
holding the bag.  Balancing the need to offset real costs 
incurred by Jordanian companies from the war against weaning 
Jordan off of concessional trade relationships with its 
neighbor will be a key consideration for the kingdom in a 
post-war environment.  End summary. 
 
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Government Meets, Businesses Fret 
--------------------------------- 
 
2.  (u)  King Abdullah has been meeting over the past two 
weeks with senior representatives of all of Jordan's major 
economic sectors, trade unions, and business associations to 
gauge their losses from conflict in Iraq.  On April 1, PM 
Abul Ragheb formed a special commission to study the issue 
and prepare recommendations for the government to offset 
those losses. 
 
3.  (sbu)  As the government formulates a response, we have 
begun to hear from business groups that have already felt, or 
expect soon to feel, the economic consequences of war in 
Iraq.  Irbid Chamber of Industry Chairman Maher al-Nasser 
visited April 8 to voice concern over the exposure faced by 
Jordanian companies trading under the Oil For Food program 
and the bilateral oil and trade protocol with Iraq.  Nasser 
said a number of companies are facing difficulties receiving 
payments for goods delivered to Saddam Hussein's government, 
while others were unable to deliver contracted goods and thus 
could not present a delivery receipt to claim payment from 
Jordan's Central Bank under the terms of the protocol.  This 
second group of companies now has warehouses full of goods to 
deliver, but no permission to make the trip to Baghdad and no 
entity to receive the shipment in any case. 
 
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GOJ Sticks to Its Legal Guns 
---------------------------- 
 
4.  (sbu)  Nasser gave a list of companies facing 
difficulties along with contract numbers to the Trade 
Ministry.  This list estimates potential losses to 6 
companies of over $27 million (including $25 million in OFF 
contracts and $2 million in protocol contracts).  In most of 
these cases, the goods were contracted between Saddam's 
government and the exporter, but applications to the OFF 
program are either pending in committee or have not yet been 
submitted.  According to Nasser, these companies are facing 
increasingly stern demands from creditors to repay debts for 
inputs that they accrued to manufacture the contracted goods. 
 This creates a "double whammy" of company failures due to 
inability to move the goods, and increasing bad debt owed by 
these companies to a handful of local banks.  We expect that 
the Irbid-area companies listed by Nasser represent only a 
fraction of companies country-wide facing similar losses. 
 
5.  (c)  In an April 9 meeting with ECON Chief, Trade 
Ministry Secretary General Farouk Hadidi said the GOJ is 
ready to pay off any protocol contracts for which a receipt 
can be produced as proof of delivery of goods to the 
consignee in Iraq.  Any exporters who cannot provide proof of 
delivery, though, will not be paid, he said, even if they can 
produce a signed contract or L/C for the goods.  He said if 
the GOJ started paying off these contracts for 
undelivered/undeliverable goods, they would only open the 
door to other abuses of the protocol and saddle the 
government with a warehouse full of unsalable goods.  He 
thought the GOJ would need to find other ways and resources 
to meet these companies' needs. 
 
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A Plea for Assistance 
--------------------- 
 
6.  (c)  Nasser said that, for OFF contracts, Jordanians 
would like to see a commitment from the UN to a) accept 
applications for goods for which contracts had already been 
signed between Saddam's government and the exporters; and b) 
process those applications and pending applications 
expeditiously, since for some of the companies these 
contracts represent an entire year's worth of business.  For 
protocol contracts, Nasser said the Chamber and individual 
businesses will continue to try to work out a compensation 
scheme with the GOJ.  As an alternative, Nasser said the 
business community would appreciate assurances from the USG 
that Saddam-era contracts would be honored and transactions 
finalized with Jordanian exporters.  If that proved 
impossible, Nasser hoped some other authority in Iraq would 
honor these contracts instead. 
 
7.  (c)  Echoing remarks by FM Muasher to the Ambassador 
April 8, Hadidi welcomed the decision to position UN OFF 
inspectors from COTECNA in Aqaba.  He noted that Jordanian 
OFF exporters would be incurring additional transportation 
costs as a result of having to truck goods from northern 
Jordan to Aqaba and back up to the Iraqi border (rather than 
straight through as was previously the case), and asked if it 
would be possible to put a "satellite" COTECNA office closer 
to the Jordan-Iraq border to further facilitate the movement 
of Jordanian goods into Iraq.  We told Hadidi we would pass 
this request to Washington, and encouraged him to be in 
direct contact with the Office of the Iraq Program and 
COTECNA, which has a support office in Amman. 
 
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Comment 
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8.  (c)  Nasser's questions raise the broader question of how 
(or indeed, whether) a new government in Iraq will account 
for obligations of Saddam's regime to Jordan and  Jordanian 
companies. This applies not just to commercial contracts, but 
more importantly to the continuation of the oil and trade 
protocols, acknowledgment of Iraqi debt to Jordan, and 
similar issues.  Several senior Jordanian officials have 
raised their interest on the last point with the Ambassador. 
They point out, for instance, that the current bilateral oil 
and trade protocol expires at the end of December.  The 
Ambassador has in response noted our mutual interest in 
ending Jordan's economic dependence on concessional economic 
relationships with Iraq. 
GNEHM