Cablegate: Jordan Qiz Investors Bring Concerns to Israeli

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 004755

SIPDIS

USTR FOR NOVELLI/SAUMS
USDOC FOR 4520/ITA/MAC/ONE/PTHANOS

E.O. 12958: N/A
TAGS: ETRD IS JO
SUBJECT: JORDAN QIZ INVESTORS BRING CONCERNS TO ISRAELI
OFFICIALS

REF: AMMAN 3296

Sensitive but Unclassified.

This is a joint message with Embassy Tel Aviv.

1. (u) Summary. Thanks to a meeting organized by the
Israel-Jordan Chamber of Commerce, an impressive number of
QIZ investors were able to raise directly with senior
Israeli officials their concerns about slow and expensive
shipping of QIZ products through Israel and difficulty
meeting the current 8% Israeli content requirement for goods
qualifying for duty and quota free access to the U.S.
market. Israeli officials, perhaps impressed by the
enthusiasm of the QIZ investors, were partially responsive
to their concerns -- although they also surfaced the
potentially difficult issue of the scheduled 2003 increase
in the Israeli content requirement to 11.7%. This was a
productive start to a hopefully ongoing dialogue that would
be even more useful with the participation of Jordanian
government officials. End Summary.

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ABOUT 100 QIZ INVESTORS GATHER AT NORTHERN BRIDGE
--------------------------------------------- ----

2. (u) Approximately 80-100 representatives of companies
and park managers from Jordan's five leading Qualifying
Industrial Zones (QIZ's) attended an August 2 meeting with
an approximately equal number of Israeli suppliers and
government officials. Organized by the Israel-Jordan
Chamber of Commerce with the help of the Israeli foreign
ministry, the meeting was held in a tent erected on the
premises of the Israeli facility at the Shaikh Hussein
northern border crossing. This arrangement accommodated
both Israeli security concerns and the desire of many of the
QIZ participants, especially those from south Asian
countries, not to have to obtain Israeli visas and entry
stamps in their passports that could have created
difficulties when they returned to their home countries.

3. (u) In addition to the private sector participants,
Israeli government representatives included deputy director
general of the ministry of foreign affairs Yossi Gal and MFA
Director for Middle East Economic Affairs Ilan Baruch,
deputy director general of the ministry of trade Gabi Bar
and several members of his staff, a representative of
Israeli customs, and a Haifa port official. After some
internal discussion, the Jordanian government declined to
send representatives. Members of embassy Tel Aviv and Amman
economic sections and USAID Jordan also observed the
proceedings. They mayor of Bet Shean was unable to attend
but sent a message expressing her region's interest in
expanded commercial interaction with northern Jordan.

4. (sbu) In contrast to the private sector representatives,
Jordanian government officials did not attend. Trade
Ministry Secretary General Samer Tawil told Embassy Amman
that it would be too politically risky for Jordanian
government officials to be seen meeting Israeli counterparts
in the immediate aftermath of the killing of Hamas' Salah
Shehadeh. Nevertheless, Tawil said the Jordanian government
supported QIZ private sector participation.

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Freight and Trucking Issues
---------------------------

5. (u) The Israeli organizers kept the discussions focused
on the practical issues of doing business between Israel and
Jordan. Israeli freight forwarder Gadi Sassower led a
discussion of logistical and trucking issues. Along with
several other participants he noted the large increase in
QIZ-related shipments across the bridge. He said that the
number of containers shipped to Haifa from Jordan was
currently 400-600 per month, up from just a handful three or
four years ago. QIZ company reps raised slow processing
procedures and what they said were limited opening hours at
the bridge, as well as the high cost of back-to-back
shipping and convoying from the bridge to Haifa. The
Israeli customs officials said that they were taking action
to speed shipments, although they said that slow out-
processing on the Jordanian side was another constraint. In
one innovation, they announced that beginning September 1,
the requirement to convoy trucks from the bridge to Haifa
would be eliminated in cases where containers are
transferred to Israeli trucks. The QIZ companies welcomed
this, but also asked the Israelis to look other ways to ease
shipping and reduce the need to post expensive customs
guarantees.

-----------------------------
Speeding Up Product Approvals
-----------------------------

6. (u) Gabi Bar of the Israeli trade ministry acknowledged
complaints from QIZ companies that his ministry's processing
of applications for qualifying products (so-called QPR's)
was slow, particularly given the upsurge in QIZ business.
To help speed things up, Bar said the staff of the
ministry's QIZ unit had been increased by one person and the
frequency of inter-departmental meetings to review QPR
applications had been increased. Further improvements were
unlikely given the ministry's budgetary constraints. In
response to a request, a representative of the USAID-
supported Jordan-US Business Partnership (JUSBP) described a
new on-line QPR application process that should be up and
running in Jordan soon. Linking the Israeli side into this
web-based system could help speed procedures without
requiring new staff.

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Israelis Defensive About Content Requirements
---------------------------------------------

7. (u) Several QIZ participants said that the current 8%
Israeli content requirement was holding back the potential
of the QIZ initiative. They claimed that it was often
difficult, especially for high unit-price products, to reach
the 8% level and that Israeli suppliers often provided low
quality inputs at inflated prices. These investors called
for either a reduction in the current 8% Israeli content
requirement or a new formula that would allow calculation of
Israeli content on a range of products instead of the
current product-by-product calculation. They argued that
Israeli suppliers would share in the benefits from QIZ
growth if the requirement were reduced.

8. (u) Bar replied that Israeli input was the key
philosophical and political basis of the QIZ initiative.
Indeed, he said, QIZ companies should be willing to pay even
more for duty and quota free access to the U.S. market. He
said he resented efforts by some QIZ companies to keep
Israeli input to "eight point zero" despite the availability
of competitive Israeli suppliers. Nevertheless, Bar added
that he was "brainstorming" with his Jordanian counterparts
on creative ways to calculate Israeli input.

9. (u) Bar also noted that the five-year Israeli-Jordanian
agreement to lower the content requirement to 8% would end
next year and revert to its "normal" 11.7% level. This
comment provoked an outburst of concern from QIZ investors,
who said that they could not operate economically at this
level. They said they would have no choice but to move to
other locations that offer preferential access to the QIZ
market, particularly noting the growth in Kenya's and
Madagascar's garment exports to the U.S. under the AGOA
program. This promises to be a high profile issue for the
QIZ program over the coming months.

--------------------------------------------- -----
Assessment: A Promising Start to a Useful Dialogue
--------------------------------------------- -----

10. (u) The number of participants was a surprise even for
the organizers and showed the great enthusiasm for the QIZ
program on both sides of the Jordan River. As the first
such meeting, the discussion was general and there was more
than a bit of speechmaking on both sides. Outgoing Israel-
Jordan Chamber of Commerce Director Miki Jungreis said that
the Chamber would look into organizing future meetings and
forming smaller working groups to study issues in greater
detail. The MFA's Yossi Gal told Embassy Tel Aviv econoff
that as one of the negotiators of the QIZ arrangement, the
meeting was a dream come true for him. The discussions
suffered from the absence of Jordanian government officials
(the meeting generated a handful of critical articles in the
Jordanian press). Overall, however, the event succeeded in
allowing Israeli officials to hear directly from the QIZ
investor community about their practical concerns. It also
gave a more concrete sense of the success of the initiative
and its continuing potential for increasing business
contacts between Jordan and Israel.
Gnehm

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