Extended reach: Strengthening international trade ties

International relations are pivotal to Jordan’s economic wellbeing. Equally, the international community is aware of the importance of supporting the country within a potentially volatile regional climate. While annual grants help Jordan balance the books, technical assistance programmes and trade agreements are helping to increase economic development.

The kingdom has long had to deal with regional conflicts in the Palestinian territories and Iraq, and now faces challenges as a result of unrest in neighbouring Egypt and Syria. Against this uneasy backdrop, the stability and security of the country is a testament to the government’s deft diplomacy both in the Middle East and in the global arena. Key to this has been the careful fostering of relations with its neighbours and larger international players further afield.

INCREASED TRADE: The US and Jordan have long enjoyed a close and supportive relationship both politically and economically. Underlying the importance of the relationship to the continued health of the economy, bilateral trade between the US and Jordan increased by 600% over the period 1999 to 2011 from $307m to $2.1bn, according to Jordan’s Department of Statistics.

Much of this expansion can be attributed to the free trade agreement (FTA) signed in 2000, which was built on the establishment of the Qualified Industrial Zones (QIZs) in the late 1990s. Goods exported from QIZs were exempt from US tariffs provided they used a small proportion of materials or labour from Israel or the Palestinian territories. The FTA has now effectively made all of Jordan a QIZ, but removed the need for Israeli involvement in manufacturing. Jordan remains the largest per-capita recipient of aid from the US and, unlike other countries, has not incurred a drop in funding or additional conditionality. It will receive assistance of $660m for 2012, which is made up of $360m in economic aid and $300m in military assistance.

Business investment has also been a key part of this relationship. In May 2011 the two countries held their first-ever Jordan-US Business Forum, which produced several agreements between US and Jordanian firms. The most notable was the announcement by entertainment brand Rubicon Group Holding to develop the $1bn Red Sea Astrarium project, a 74-ha themed entertainment resort in Aqaba.

In addition, IT giant Cisco announced multi-million-dollar investments projects in Jordan, and Petra Solar announced a proposal for a national smart solar energy plan called Let Jordan Shine. A memorandum of understanding was signed with the town of Tafileh in the south of Jordan to invest in solar and smart-grid technology to produce 75 MW in a trial project.

MARKET ACCESS: In addition to the FTA signed with the US in 2000, Jordan has an FTA with Singapore, signed in 2004, and bilateral agreements with 38 other countries, according to the Jordan Investment Board. Coveted access to EU markets was achieved with the signing of an association agreement in 1997, which came into force in 2002. The agreement allows entry of Jordanian industrial exports to EU markets free of Customs duties, with EU countries allowed similar access in Jordan. This has helped upgrade the legislative and regulatory environment for conducting international trade, including payments and movement of capital, intellectual property rights, and financial and economic cooperation in key common sectors.

GAFTA: Closer to home, Jordan’s membership in the Greater Arab Free Trade Area (GAFTA) provides access to 16 other markets across the region and since 2005 has meant reduced Custom duties and charges, except for less developed countries that wish to keep some level of market protection. Jordan is also a member of the Council of Arab Economic Unity, which aims to reduce double-taxation and tax evasion, and improve the settling of cross-border investment disputes.

While membership of GAFTA provides better access to markets, a striking feature of the treaty is the continued regionalisation of trade. Gulf countries predominantly trade with one another, but less with Levantine and North African states. Likewise, trade between North African members is high, but lower with members from the Levant or Gulf. Of Jordan’s 10 biggest export markets, six are from the Levant or Gulf: Iraq, Saudi Arabia, Lebanon, Syria, the UAE and Kuwait. Algeria and Egypt are the 11th and 12th largest export destinations.

CANADIAN FTA: Following a visit by King Abdullah II to Canada in 2007 both sides have been working on drawing up an FTA similar to the agreement currently held with the US. In late 2011 the Canadian government tabled the legislation to parliament for approval. Once this agreement is passed and given royal assent, both governments can begin work on implementation.

If passed, the proposed FTA would open up another potentially attractive market. Key targets are in textiles and high-value items including food and products from the Dead Sea. According to the Jordanian Department of Statistics, Canada exported JD60.7m ($85.3m) worth of goods to Jordan in 2011, an increase of 13% on 2010, and in the other direction Jordan exported JD9.1m ($12.8m) of goods, a decrease of 2% on 2010.

The key for Jordanian exporters will be in reaching the minimum value added to qualify for duty-free exports. The US FTA demands 35% Jordanian added value, which drops to 20% if raw materials or machinery imported from the US make up part of the value added. The Canadian FTA would enable Jordanian exporters to use the North American Free Trade Area to source a combination of inputs from the US and Canada to qualify for duty exemption in each country.

According to Halim Abu Rahmeh, vice-chairman of the Jordanian Exporters Association, there is great potential to attract FDI projects specifically to take advantage of the FTAs with the US, and potentially Canada. “Pending conditions stabilising there is great export potential, particularly where the US FTA can be fully maximised in sectors in which Jordanian manufacturers hold a competitive advantage,” he told OBG.

Abu Rahmeh also emphasised the importance of Jordan as a destination for foreign manufacturers interested in exporting to countries Jordan has FTAs with. Asian companies have long set up in the QIZs to manufacture textiles for the attractive US market and he urged other companies to look at doing likewise.

GCC MEMBERSHIP: Talks continue regarding Jordan’s accession to the Gulf Cooperation Council (GCC), with both sides keen to take advantage of closer cooperation. For Jordan, it would mean being able to strengthen its economy through better trade access and to increase FDI from Gulf countries.

For their part, GCC countries would benefit from increased tourism, a free flow of Jordan’s skilled and educated workforce and the potential to make use of Jordan’s existing FTAs. The move comes amid the backdrop of the GCC continuing the protracted process of finalising a trade agreement with the EU.

Concurrently, the GCC set up a $5bn fund to assist development projects in Jordan and Morocco with $2.5bn going to each country. The five-year development aid programme is part of a plan to strengthen ties with Arab states outside the Gulf.

EU SUPPORT: The European Commission continues to support development in the kingdom with a €20m ($26.6m) package to assist small and medium-sized enterprises as well as providing support to research and technological innovation. The €15m ($19.94m) Jordan Services Modernisation Programme (2010-13) will assist in facilitating start-ups, particularly outside of Amman. The second project will increase capacity of Jordan’s research and development and innovation sectors and is focused on the commercialisation of technological developments. The package constitutes part of the National Indicative Programme 2011-13, which is worth €223m ($296.4m) for the kingdom.

In 2011 Jordan signed two economic agreements with China under which Beijing will offer technical assistance worth $14m to finance development projects and deliver fire fighting and first aid equipment to the Civil Defence Department. Chinese imports increased by 9% during 2011 to JD1.3bn ($1.8bn).

Prospects are positive for a deepening of international ties through the GCC and potentially with Canada. This would help broaden access to markets and bring more foreign technical assistance. As regional relations are stable, but with some degree of uncertainty, the strength of these new ties lies in bringing opportunities for Jordan to expand its reach in terms of trade, employment and economic development.