This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 AMMAN 000013 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR NEA/ELA 
STATE PASS TO USTR - C. NOVELLI, E. SAUMS 
 
E.O. 12958: N/A 
TAGS: ETRD PREL KTIA KTEX IS JO
SUBJECT: JORDAN, ISRAEL UPGRADE TRADE AGREEMENT TO CREATE 
QIZ'S TO EXPORT TO EU 
 
REF: A. FBIS GMP20041223000082 
     ¶B. 04 AMMAN 9246 (NOTAL) 
     ¶C. 04 AMMAN 8997 (NOTAL) 
     ¶D. 04 AMMAN 8145 (NOTAL) 
     ¶E. LAWLESS-SAUMS EMAIL ON JORDANIAN APPROVED JC 
        NOTES (09/16/04) 
 
SENSITIVE BUT UNCLASSIFIED.  FOR USG USE ONLY. 
 
¶1.  (SBU)  Jordan hosted the signing of an upgraded trade 
agreement with Israel December 23 to take aim at a Qualifying 
Industrial Zone (QIZ) arrangement with the EU using 
cumulation of content under a pending Pan-Euro-Mediterranean 
rules of origin system.  The pact moves Jordan and Israel 
toward a Free Trade Agreement (FTA) by 2010.  Jordanian 
Minister of Industry and Trade (MOIT) Ahmad Hindawi stressed 
the goal of the FTA with Israel was to enhance the investment 
climate in Jordan by opening the market to the EU for 
Jordanian products.  MOIT senior officials noted privately 
that it may take up to a year before the EU QIZ agreement is 
in place.  (The agreement must go to Brussels for EU 
approval, as well as be presented to Jordan's parliament for 
its consideration.) 
 
¶2.  (U)  Jordanian QIZ factories exporting garments to the 
United States have been hugely successful over their six-year 
run to date, achieving exports of over USD 900 million in 
2004 and employing 40,000 production workers (REFS B-D).  The 
exporters qualify for duty-free entry into the U.S. if they 
can demonstrate that at least 8 percent of the content is 
derived from Israel and show a total of 35 percent value 
added under a relatively simplified rules of origin scheme. 
 
¶3.  (U)  Israeli Deputy Prime Minister and Minister of Trade 
and Industry Ehud Olmert told a crowd of diplomats and 
journalists attending the signing ceremony that the agreement 
was a step forward in promoting greater exports from the 
region to the EU.  He noted the agreement was first and 
foremost a business arrangement that would create jobs and 
develop the two countries' economies.  Olmert also called the 
improved trade pact a symbol of cooperation and friendship 
that he hoped would be a role model for other nations in the 
region.  Hindawi echoed Olmert's comments, referring to King 
Abdullah's vision for economic development, but also noting 
the king's reminder that development is not complete without 
a comprehensive and just peace in the region. 
 
¶4.  (SBU)  The mood of the signing was pleasant and 
businesslike.  When a journalist asked for comments on the 
Jordanian professional association's protest against the 
agreement that same day, DPM Olmert asked why the two sides 
should not support jobs and wealth creation.  GOJ Trade 
Minister Hindawi, who will be facing some pointed opposition 
in parliament, was brief but supportive of the agreement in 
his replies. 
 
Reaction Mixed 
-------------- 
 
¶5.  (SBU)  Jordanian reaction to the new agreement was mixed 
at best.  Proponents, such as former Trade Minister Mohammad 
Halaiqa, noted that exports to the EU under this arrangement 
would never reach the levels found with the U.S.-directed 
QIZ's.  He and other analysts nonetheless praised the move as 
potentially lowering Jordan's trade deficit with Europe. 
Rashe'ed Darwazeh, the head of Jordan's garment 
manufacturer's association, JGATE, noted that EU rules of 
origin were "tough" to meet, thus making it difficult to 
export to that market. 
 
¶6.  (SBU)  Prime Minister Fayez faced strong criticism in the 
Lower House of Parliament on December 26, especially from 
Islamic Action Front deputies.  Fayez emphasized that signing 
the agreement stems from the government,s objective of 
bolstering the national economy, highlighting that Jordan,s 
13 QIZs have created thousands of job opportunities for 
Jordanian citizens.  (NOTE:  Nine QIZ's are currently active. 
 END NOTE.)  During the session, Hindawi rejected allegations 
that Jordan,s trade relationship with Israel had allowed 
Israel to penetrate Arab markets.  Eventually, the debate 
moved beyond the merits of the agreement itself and devolved 
into a low-toned controversy over semantics, as the PM 
declared that he would "deal with the devil in the interest 
of Jordan."  IAF MP Ali Abu Sukkar criticized the PM,s 
comments as impious and unconstitutional, contending that 
such talk is unacceptable because Jordan,s state religion is 
Islam.  Al-Rai columnist Sultan Hattab defended the PM's use 
of the phrase as merely figurative, and criticized the MPs 
who attacked the PM as more or less ignorant. 
 
More Regional Accumulation; A Precursor to MEFTA? 
--------------------------------------------- ---- 
¶7.  (SBU)  MOIT senior official Amer Hadidi explained that 
the EU had for some time signaled that it would move on the 
QIZ concept once the Jordan-Israel agreement had been beefed 
up into a more equitable, bilateral preferential trading 
pact.  (The original, 1995 agreement had been heavily 
weighted in favor of Jordan.)  The agreement also took into 
account the Pan-Euro-Med rules of origin, to accommodate the 
three-way coordination of trading rules, he said.  MOIT 
officials noted that EU rules of origin were quite complex, 
often outlined item by item in the list of thousands of 
products delineated by harmonized system of tariffs (HS) 
codes.  The textiles rules, in particular, were 
"yarn-forward" and thus not as easy to meet as the U.S. 
minimal content rules.  Nonetheless, Hadidi added, if content 
was just 1 percent beyond defined "minimal operations" there 
was great flexibility for Jordanian manufacturers to mix 
content from Israel and eventually the region.  Jordan's 
Agadir trade agreement with Tunisia, Egypt, and Morocco, is 
also built on the Pan-Euro-Med system (but it has still not 
been ratified in all countries, including in Jordan). 
 
COMMENT 
------- 
 
¶8.  (SBU)  The Israel-Jordan agreement aimed at the EU offers 
the first opportunity to demonstrate the cumulation of 
content between two nations in the region outside the 
fixed-content formula seen in the U.S.-Israel-Jordan QIZ 
agreement.  In that sense, it could bring to fruition what 
has to date remained only a promise under the Middle East 
Free Trade Area (MEFTA) proposed by the U.S. in 2003.  (In 
Ref B, a QIZ factory manager told CODEL Thomas that the fixed 
formulae of the U.S.-sanctioned QIZ agreement made Israeli 
inputs 2-3 times more expensive than in the world market. 
This causes trade diversion, and makes the prices for inputs 
higher than would be seen in the more flexible, open market 
cumulation arrangement seen in the EU agreement; it also 
makes Jordanian QIZs less competitive in the U.S. in the 
post-quotas global textiles market.)  Hadidi reminded Acting 
Econ/C that Jordan is anxious to pursue a similar formula for 
content cumulation with the United States under the 
U.S.-Jordan FTA and promised that a concept paper on such 
cumulation, first proposed at last June's bilateral FTA Joint 
Committee meeting, would be forthcoming by the end of January. 
HALE