Exports to Europe to grow as Jordan signs new trade deal

The amount of Jordanian exports to the European market is expected to rise following a newly inked deal with the EU that relaxes the rules of origin stipulations. More relaxed rules of origin will grant preferential access to Jordanian goods containing as much as 70% non-local materials. The agreement covers 52 product groups manufactured in 18 industrial and development zones. At a press conference to announced the deal in July 2016, Imad Fakhoury, the minister of planning and international cooperation, stated that the agreement is set to attract both local and foreign investment, as well as open new markets and support a wider diversity of exports. The 10-year agreement came into effect after being signed at the 10th session of the Jordan-EU Partnership Committee held in Amman in July 2016, and marks the first deal of its kind between the EU and a Middle Eastern country.

Incorporating Refugees

In addition to stimulating the flow of exports, the deal also represents an opportunity for Jordan to create employment opportunities for its workforce amid regional uncertainty. According to the terms of the agreement, at least 15% the workforce in the specified industrial zones and factories that are exporting to the EU must be comprised of Syrian refugees, a target that is set to increase to 25% three years into the deal. After 200,000 Syrian refugees are provided with work, the relaxed rules of origin will be expanded to other industries across Jordan, Fakhoury told local media at the July 2016 press conference. However, this expansion is contingent on the required percentages in regards to Syrian labour being respected. Fakhoury added that a conference for the targeted firms and business is planned for early 2017 in order to promote the new incentives and better acquaint investors with these benefits.

Jordan is currently host to roughly 1.3m Syrians, who are about 20% of the country’s total population, which has posed challenges to employment, public health and education services. Partly due to the influx of refugees, as well as a cooling economy, Jordan’s unemployment rate has been rising, from 11.9% in the second quarter of 2015 to 14.7% for the same period in 2016, according to data released by the Department of Statistics.

More Still To Do

Following the agreement, the Jordan Strategy Forum (JSF) issued a 30-page study that stated that while the deal is a positive step towards enhancing Jordan’s exports, it is still not enough. The JSF added that the agreement excludes numerous industries that are ready to export to the EU market but do not fall under the predetermined sectors or zones. “Many renowned Jordanian manufacturers who can meet the quality demanded by the European market and do already produce in large quantities are ready to begin immediately exporting to Europe, which makes them instantly able to create jobs for both Syrian and Jordanian labour. These firms, however, are not willing to move to industrial zones to benefit from relaxed rules of origin due to the costs associated with relocating their factories,” the JSF study said.

The study also suggested that the deal should be expanded geographically beyond the boundaries of the industrial zones listed in the EU’s Proposal for a Council Decision. Indeed, the major obstacle did appear to be relocation, according to the JSF report, as it found that most Jordanian firms had no reservations with regard to hiring Syrians. The study said, “Almost all factories affirmed that they do not discriminate against nationality in their hiring process and that Syrian labour would substitute for migrant labour. Therefore, the more Jordanian exporters are able to expand their production, the more Syrian labour they will be willing to hire.” Furthermore, the study criticised the exclusion of certain industries, such as food manufacturing, emphasising the sector’s potential to compete in European markets, particularly due to high demand for halal food across Europe.

Progress Begins At Home

The JSF study also noted other obstacles hindering Jordanian exports, including some that are homegrown, such as “high shipping costs, the lack of adequate market information, high electricity prices, and legislative instability”. Citing a report by the US Agency for International Development, the authors also described a bureaucratic environment in which “there are 34 bodies responsible for regulating trade in Jordan and they often require complex paperwork to be completed by exporters”.

These observations are not entirely consistent with other sources, including the World’s Bank’s “Doing Business” reports. According to the 2017 edition, Jordan ranks 118th overall out of 190 economies, but it came in a very respectable 50th (its second-best result) in the trading across borders category. Some of this disparity presumably stems from different methodologies, but the World Bank index is updated every year, while the JSF report attributed at least some of its findings to material published in 2010. In four of the 10 years since that time, the World Bank’s ease of doing business index has singled out the kingdom for undertaking positive trade reforms, including streamlined Customs procedures, easier clearance for preapproved traders, online submission of Customs declarations and numerous other infrastructure, process and technology upgrades that have saved time for exporters. Still, it would be foolhardy to dismiss the JSF’s comments, and not just because the World Bank’s reports have been criticised for inconsistent methods and unrepresentative samples.

Exports Further Afield

The recent agreement between Jordan and the EU should go some way to remedying the existing trade gap between the two, with Jordan’s trade deficit with the EU increasing from $1.34bn in 2002 to approximately $4bn in 2015. Due to the more stringent rules of origin previously in place, Jordanian exports to the EU grew from $60m in 2002 to a still moderate $350m in 2015. In comparison, Jordanian exports to the US reached over $1.3bn in 2015, mainly due to a free trade agreement between the two countries, as well as more relaxed rules of origin; the US and Canada require manufactured products to maintain a 35% local Jordanian contribution whereas Europe requires 65%, former Prime Minister Abdullah Ensour told The Jordan Times in February 2016.

While the EU represented just 4.1% of Jordan’s exports, the US and Canada accounted for about 19%, and the Greater Arab Free Trade Area accounted for more than 51%, according to data issued by the Ministry of Industry, Trade and Supply at the end of 2015. Meanwhile, Jordan’s exports have decreased due to regional instability. Iraq – which represents Jordan’s second-largest market after the US – saw a decrease of 37% in exports during the first eight months of 2015. Likewise, exports to Syria dropped by 40%, hindering Jordan’s ability to trade with Lebanon, Turkey and the EU.

Good, But Not Enough

In sum, with regional instability throwing up barriers to exports, it is hard to argue with the JSF’s core judgment that “although relaxing Rules of Origin is necessary, it might not alone be sufficient for achieving the impact that both the EU and the Jordanian government hope for.” Happily, there are strong indications that legal reform is emerging as a top priority, which would increase investor confidence and reduce barriers to trade. In mid-October 2016, King Abdullah II established a new Royal Committee for Developing the Judiciary and Enhancing the Rule of Law. The king has asked for the new body to prepare recommendations for submission in the first quarter of 2017.