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Cablegate: Jordan and Israel Seeking Eu "Qiz" Arrangement

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 006220

SIPDIS

SENSITIVE

USTR FOR NOVELLI/SAUMS
USDOC 4520/ITA/MAC/ONE/PTHANOS
TREASURY FOR OASIA - MILLS/DEMOPULOS

E.O. 12958: N/A
TAGS: ETRD JO IS EU
SUBJECT: Jordan and Israel Seeking EU "QIZ" Arrangement

REF: PARIS CABLE; B. 02 AMMAN 2371

SENSITIVE BUT UNCLASSIFIED.

1. (sbu) Summary. Jordan and Israel are working
together to ask the EU for a special "QIZ-like"
arrangement that will allow duty-free access to the
European market for goods produced in Jordan with Israeli
content. This effort, which the Jordanians say has high-
level European and Israeli political backing, is part of
a Jordanian strategy to grow out of its defunct "special
relationship" with Iraq. Appropriate U.S. support with
the EU could help move the process along, recognizing
that this is -- refreshingly -- a Jordanian-Israeli
project. End Summary.

------------------------------------------
JORDANIANS/ISRAELIS PITCH "QIZ" PLAN TO EU
------------------------------------------

2. (sbu) Jordanian and Israeli trade officials met
jointly with EU officials in Brussels in late August to
pitch a "Qualifying Industrial Zone (QIZ)" arrangement
between Jordan, Israel and the European Union. According
to Jordanian trade officials, External Relations
Commissioner Chris Patten is the political force behind
the idea -- originally discussed at a Euromed trade
ministerial in Palermo in July -- and Trade Commissioner
Lamy is also a strong backer. Former Jordanian Trade
Minister Salah al-Bashir and Israeli Deputy PM Ehud
Olmert agreed to pursue the initiative during their
meeting at the Dead Sea World Economic Forum in June.
The concept was supported by French trade minister Loos
during an August visit to Amman.

3. (sbu) Trade Minister DG Amer al-Hadidi said the
concept he and his Israeli Trade Ministry counterpart
Gaby Bar proposed to an EU Commission Trade Directorate
team is modeled on the U.S. QIZ initiative. That is,
products with cumulated Jordanian and Israeli content
above a certain threshold would have duty free access to
the European market. He said this presented some
conceptual problems for the EU, which does not favor
special "zones" and whose complex rules of origin make
such cumulation arrangements difficult. Nevertheless,
the group agreed to meet again October 8, with a goal of
announcing an arrangement in December.

--------------------------------------------- -----------
STRATEGY TO ADJUST TO END OF "SPECIAL" IRAQ RELATIONSHIP
--------------------------------------------- -----------

4. (sbu) Trade Minister Mohamed Abu Hammour told ECON/C
that Israel is completely on board and that Jordan would
appreciate U.S. support with the Europeans. He said the
initiative was part of a strategy to forge agreements
that open new markets to Jordanian manufacturers. This
would help smooth Jordan's economic adjustment to the end
of its privileged trade and oil relationship with Iraq.
Jordan is also pursuing, he said, free trade agreements
with Turkey, Singapore, and other promising new markets.
Also driving efforts to open new markets is a desire to
prepare for the end of the WTO Multi-Fiber Agreement in
2005, which could slow growth of QIZ garment exports to
the United States.

5. (sbu) Jordan's woefully imbalanced trade with the EU
(imports of $1.5 billion from the EU in 2002 versus
exports of $63 million) is a perennial source of
frustration for Jordanian officials. An EU Association
Agreement that came into force in May 2002 is not
expected to redress the balance. The rules of origin
requirements are complex and difficult to satisfy, and
cumulating origin with other countries in the region,
including those that also have Association Agreements, is
practically impossible (ref b). Using strong language,
Deputy Prime Minister Halaiqa was quoted in the press
September 16 as saying the EU agreement does "not serve
the national economy nor is it a free trade agreement in
the full sense."

6. (sbu) Jordan-Israel trade is thriving ($262 million
in 2002, compared to $41 million in 1997). This growing
relationship makes cumulating with Israeli value-added an
attractive opportunity for Jordanian exporters, as the
success of the U.S. QIZ arrangement has demonstrated.
According to al-Hadidi, the Europeans had offered to
allow cumulation of origin among "partner" countries that
had signed free trade agreements among themselves. The
Jordanians explained that the current political situation
made it impossible to sign an FTA with Israel,
nonetheless they hoped the Europeans would take into
account the thriving economic relationship and support a
QIZ-like initiative as a way station.

--------------------------------------------- ---------
COMMENT: U.S. SUPPORT SHOULD AFFIRM REGIONAL OWNERSHIP
--------------------------------------------- ---------
7. (sbu) Negotiating trade agreements that will allow
exports, particularly of manufactured goods, to grow and
diversify is part of an increasingly coherent Jordanian
strategy to reduce the economy's reliance on foreign cash
aid and politically-fragile "special relationships" like
the one with Iraq that came to an abrupt end in March.
The U.S. experience has shown the potential of Jordanian-
Israeli economic collaboration. In addition to creating
income and jobs, the QIZs are building a political
constituency for peace and trade. While USEU and Embassy
Tel Aviv may want to find out more, it could be helpful,
as Minister Abu Hammour suggested, for the United States
to lend its support to this initiative. We should
encourage the Europeans to find a pragmatic way around
their rules and protectionist tendencies that will spur
regional economic interaction, growth, and job creation.

8. (sbu) It is significant that Jordanians and Israelis
are jointly taking the lead. This shows the increasing
maturity of their relationship. It is also a departure
from past Jordanian practice of coming to the United
States to fix their problems, without first seeing what
they do for themselves. We will want to couch our
support in a way that affirms Jordanian and Israeli
ownership of this project.

9. (sbu) Background on the QIZ initiative can be found
at http://usembassy-amman.org.jo/QIIZ.htm.
GNEHM

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