New Trade Deal to Boost Exports to EU

Jordanian exports to Europe are expected to rise following a newly-inked deal that relaxes rules of origin requirements.

A new trade agreement between Jordan and the EU, which is based around relaxed rules of origin rules, will enable industries in the Kingdom to export goods made using 70 percent of non-local materials. The agreement covers 52 product groups manufactured in 18 industrial and development zones.

According to Imad Fakhoury, the minister of planning and international cooperation, the agreement is set to attract local and foreign investment, as well as open new markets and encourage a wider variety of exports.

The 10-year agreement came into effect at the tenth session of the Jordan-EU Partnership Committee held in Amman in July, and marks the first deal of its kind between the EU and a Middle Eastern country.

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 agreement’s terms, the workforce in the specified industrial zones must be comprised of at least 15 percent Syrian refugees, a figure that has to rise to 25 percent by 2019. 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 in late July, as long as the percentages of Syrian labor are respected.

Jordan is currently host to roughly 1.4 million Syrians—comprising 20 percent of the country’s total population—which has posed challenges to employment, public health, and education services.

Partly due to the refugee influx, as well as a cooling economy, the country’s unemployment rate has been rising, from 11.9 percent in the second quarter of 2015, to 14.7 percent for the same period this year, according to data released by the Department of Statistics.

Following the agreement, the Jordan Strategy Forum (JSF), an economic think tank, issued a 30-page study saying that while the deal is a positive step towards enhancing Jordan’s exports, it is still isn’t enough.

The JSF said 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 labor. 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, adding the deal should encompass firms operating outside the industrial zones listed in the EU’s Proposal for a Council Decision.

Furthermore, the study criticized the exclusion of certain industries, such as food manufacturing, emphasising the sector’s potential to compete in the EU market, particularly due to high demand for halal food.

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 $1.34 billion in 2002 to approximately $4 billion in 2015.

Due to the more stringent rules of origin previously in place, Jordanian exports to the EU grew minimally from $60 million in 2002 to $350 million last year.

In comparison, Jordanian exports to the United States reached over $1.3 billion last year, mainly due to a Free Trade Agreement between the two countries, as well as more relaxed rules of origin stipulations, with the United States and Canada requiring manufactured products to include 35 percent of local Jordanian contribution, whereas Europe required 65percent.

While the EU represented just 4.1percent of Jordan’s exports, the United States and Canada accounted for approximately 19 percent, and the Greater Arab Free Trade Area accounted for more than 51percent, according to data issued by the Ministry of Industry, Trade and Supply at the end of last year.

Meanwhile, Jordan’s exports have decreased due to regional instability. Iraq, which represents Jordan’s second-largest market after the United States, saw a drop of 37 percent in exports during the first eight months of last year. Likewise, exports to Syria dropped by 40 percent, hindering Jordan’s ability to trade with Lebanon, Turkey, and the EU.

This Jordan economic update was produced by Oxford Business Group.