The Future of the FTA

Washington’s chief economic diplomat in Amman believes the 2000 Free Trade Agreement can be expanded to offer even more support to Jordanian companies.

By Dina Al-Wakeel

The United States is easily one of Jordan’s most important economic partners. At the heart of their relationship lies their 2000 Free Trade Agreement (FTA), the first Washington signed with an Arab country and which is estimated to have increased bilateral trade by some 800 percent and created tens of thousands of jobs for Jordanians.

Susannah Cooper, the economic counselor at the US Embassy in Amman, believes it’s important the FTA continues to be built upon to help Jordan overcome the major economic challenges it now faces.

How have both sides benefited from the FTA?

The FTA is a cornerstone of our economic partnership and our bilateral relationship. It is really one of many tools that give us everything we need to expand on our economic relationship. We have a bilateral investment treaty, Jordan’s a member of the WTO, and we went from the QIZ model to the full FTA. I think the expansion in trade has really proven that it was a great opportunity not only for Jordanian companies but for American companies as well. There’s almost balanced trade between the two countries. Before we signed the FTA, the United States exported $300 million worth of products to Jordan, and Jordan exported $73 million. The year after we signed the bilateral trade agreement, it was evenly split at about $400 million on each side. Then in 2015, Jordanian exports to the United States actually exceeded US exports to Jordan, reaching about $1.5 billion in total. So when you look at the change in trade you see that Jordanian companies really learned how to take advantage of the US market and what the US market is looking for. And it’s not just about the trade. We also see the FTA has helped attract significant American investment to Jordan. It’s estimated to be around $2.2 billion. Not only has Jordan learned, but the United States has learned because both sides have to come to understand each other’s market: where’s the demand? Where are the customers? And how do you access the market in terms of standards?

What Jordanian products are making it into the US markets?

The number one export is textiles, which was about $1.2 billion last year from what were once QIZs and which are now special industrial zones. The next largest product is jewelry at about $100 million, followed by pharmaceuticals and medical products at about $23 million, then chemicals; bromine and chlorine at about $17 million. Jameed is also being exported to over 30 states. We see that a lot of Jordanian companies have found their niche.

What is your embassy doing to promote Jordanian companies?

We are constantly working to expand our economic relationship. In March, Ambassador Alice Wells led a Jordanian trade delegation on a tour across the United States that created a chance for US and Jordanian companies to meet each other and to look at new markets. In May, we held our FTA Joint Committee meeting to discuss how to get more out of the agreement, in consultation with the private sector. When you talk about SMEs, not only does the assistance USAID gives across Jordan help to develop small and medium enterprises, we also help smaller firms to focus on export potential. There are obviously some special requirements and standards to export to the United States, and that’s one of the things that the embassy staff, including the Commerce and Agriculture Departments, also help companies understand. The US government is also very committed to helping Jordan find other markets, either in the region or in Africa, in the wake of the closure of the borders with Iraq and Syria. For example, USAID helped to fund a market study that showed what products are needed and where the demand was across Africa.

The FTA agreement appears to have cut the export costs of US companies by a higher margin than Jordanian companies. Is this fair?

I think the results of the agreement really proved that both sides benefited equally. Bilateral trade has increased 800 percent, reaching $3.4 billion in two-way trade in 2014, which was an all-time high. Last year it was down a little bit, but the “proof is in the pudding,” as we like to say. Regardless of what the FTA terms were at the time, Jordanian companies have clearly succeeded, and more than 50,000 direct jobs were created in addition to raising environmental and labor standards.

Jordan’s industrial sector has suffered tremendously from high running costs making them less competitive, so some economists argue that these trade agreements open the market for cheaper goods that local products struggle to compete with. Do you agree?

I think that Jordan has faced a number of challenges, a lot of them regional and thus beyond Jordan’s control. When we talk to the government and the private sector we see a lot of commitment to doing things to improve what the World Bank calls the ease of doing business. Jordan hasn’t done as well as other countries in the region in facilitating private sector growth and what we hear from both Jordanian and US companies is that energy costs are one challenge. I think the government has been working very hard to diversify its energy resources. We also see efforts to improve the regulatory environment and make it easier for businesses to know what the laws, taxes, fees, and registration procedures are going to be like in the years going forward so they can make smart business and investment decisions. Clearly job creation is what we all aspire to when we look at agreements like this. So we are very keen on partnering with the government and the private sector to create more jobs and create more demand to increase trade.

Overall we continue to believe that Jordan is a great regional hub for American companies to come and not just do business here, but to take advantage of Jordan’s other free trade agreements across the region. And then of course as Iraq stabilizes and hopefully the border will reopen, there will be a lot of potential to increase exports to Iraq and ultimately Syria.

Where do you see the growth in Jordan’s economy?

We’re very excited about a number of sectors. I think the health sector has historically been strong and there’s more potential there for health services. The ICT sector has always been strong and we continue to see that Jordanian companies are not only developing innovative solutions here, they’re selling their solutions in the Gulf and the United States. The renewable energy sector also continues to be very promising. So those are the key ones that we’re most focused on.

Jordan’s economy is facing multiple challenges due to local and regional factors. What can it do to mitigate these shocks?

First the global economic crisis in 2008, then the Arab Spring broke out, and then the rise of ISIS, these were a number of external shocks to the Jordanian economy that have proven very difficult. At the same time a 2.5 percent growth last year shows the resilience of the Jordanian economy. The point is to facilitate regulations in a way that helps to promote growth and this is something that the new IMF program is very focused on. The World Bank, the United States, and other donors are looking at complementary programs for Jordan that will help create growth. For example, the regulatory environment could be improved to make it easier for companies to know what to predict going forward in terms of their investments.

Would you label the IMF agreement with Jordan that ended last year as successful?

It was successful in terms of the objectives that were set out at the beginning of the program that were largely met, but because of the shocks of the closure of the borders with Iraq and Syria the end result was disappointing unfortunately. And I think that’s why the IMF’s discussions with the government of Jordan are very much focused on a growth-driven program where you’re creating an environment that grows the GDP so that the debt to GDP ratio goes down. Not only is the United States the largest donor to Jordan, we’re providing an estimated $1.6 billion in bilateral assistance this year which is an all-time high, but over the past five years we have also provided three loan guarantees which helped not only drive down the cost of Jordanian debt but also helped to promote the reforms needed to  keep the economy on a more sustainable path. I think the government has a difficult situation where the economy is only growing so fast in light of regional environment, and yet they need to find ways to continue to stimulate growth, in cooperation with the private sector.