Making the Deal Work

A senior EU official believes Jordan still hasn’t fully taken advantage of the relaxed rules of origin deal it signed with world’s largest trading bloc.

In 2015, Jordan suggested a specific mechanism that would help it navigate through the difficult regional circumstances and turn the Syrian refugee crisis into an economic opportunity that would benefit the country and the refugees, as well as the European Union.

This developed into the simplified rules of origin agreement, under which trade between the Kingdom and European countries was facilitated and import and export documentation requirements were simplified.

Only four companies benefited from the agreementso far which was ratified two years ago, and the Jordanian government recently asked the EU to allow more types of firms to take part.

But Michael A. Kohler, the European Commission’s director of Neighborhood South and director general of Neighborhood and Enlargement Negotiations, explained why the agreement’s terms might not change at the moment and Jordan’s role in luring potential investors.

You met with the Minister of Planning and International Cooperation. What were the highlights of that meeting and did it include discussions of additional aid?

We have seen a steadily developing cooperation agenda over the past years between Jordan and the European Union, particularly since the outbreak of the Syrian crisis, but by no means limited to that. I think to a certain extent such a first meeting is a get together where we tried to explain our priorities. I then had the opportunity to explain to the minister the various programs that we have and the preparation for financing decision to be taken still this year. There is a wide portfolio of actions that go from helping Jordan with improving its control of boarders—and this is not only control but also to make border crossing points more efficient when it comes to organizing trade with Iraq, for an example. Then we have many activities in the area of private sector promotion. We have a number of other projects where we work together with financial institutions on access to finance, and of course on top of the bilateral cooperation we have specific programs that are geared either to the Syrian refugees and their host communities or to the Palestinian refugees. Whenever I come to Jordan we discuss these issues because Jordan is such an important host country for a huge refugee population from other countries in this part of the world. We have specific programs because we don’t want to let Jordan alone in this. The challenge is to organize these programs in such a way to benefit both the refugees and the host communities. This can be in the area of education, job creation, water supply, as well as trash management. I thought it would be very useful for the minister to come to Europe and to speak to the European Commission and introduce the Jordanian point of view more forcefully.

It would be unfair to say that because Jordan has a new government we come with an extra aid package. But we definitely have some major financial decisions under preparation that we are taking this year to benefit Jordan. It will be between the amount of JD165 million and JD225 million in grant money that will still be decided at European level before the end of this year.

This would be for 2018 but the contracts will be signed in 2019 and that will also be the start of implementation.

How significant has Europe’s response to the refugee crisis in the region been?

We have to distinguish between refugees and immigrants. The first is a problem resulting from the Syrian crisis and the second includes African immigrants coming to Europe via a country like Libya. The first response by Europe was the EU Regional Trust Fund in Response to the Syrian Crisis, ‘Madad’, that provides funding managed by the European Union to any organization that helps the refugees. This was very efficient. In light of the new developments we might consider doing more, but this has to take place in coordination with the governments. Whether refugees or immigrants this is a very important topic for the EU member states as we try to find solutions to address the core of the problem which is why we work to strengthen the resilience of southern Mediterranean countries so they can contain the refugees instead of them heading to Europe and improve the living standards so that the immigrants will stay there as well.

Some of the terms under the simplified rules of origin agreement are now being renegotiated. What could be achieved here?

In early 2017 we concluded with Jordan a document that is called partnership priorities, attached to that we have an annex, which is called an EU-Jordan Compact. This takes the form of a list whereby Jordan does this and the EU does that in order to create chances for refugees and more. This document is meant to be a living document so from time to time it has to be updated, but so far we did not enter into formal talks to change it.

The question of simplified rules of origin goes back to a Jordanian initiative in autumn 2015 that has seen a lot of evolution over time. I remember at the beginning Jordan wanted to have simplified rules for products from about 9 or 10 special economic zones. Right now it’s 18 and there are about 52 sectors, so it’s basically most of the economy that can benefit from this. Jordan has made a couple of requests concerning a further simplification of these rules, and the EU is ready to [accept] some of them. We were actually ready to approve last month a further flexibilization of the system, except the Jordanian government asked us not to take a decision yet and instead continue the talks so that perhaps we could offer even more. One of the things that the EU is ready to grant at this moment of time is that the scheme should not only be valid for the 18 economic zones but for the entire country. So you can produce wherever you want. There are still some concerns regarding the duration; because it’s a facilitation that is given for 10 years and the question is when do you start counting the 10 years? For the time being it counts from the day the commission took this decision. The Jordanian side wants to flexibilize it further by saying it should count individually, company by company, from the day when the company first utilizes it. We are not against that but we think we should first gain some years of experience and then in three or four years we can think of further flexibilization measures.

Does that mean the EU will not approve of the Jordanian government’s suggestions?

The positions are not very far apart, the point is—and I think that’s what Jordan should reflect on—why are there only a few companies that benefit from this? With the new rules of origin, an entrepreneur that employs 15 percent Syrians has access to the EU, the biggest market in the world, that is as good as the access that we grant to the poorest countries in the world. And still there are only a few companies that are trying to apply. Why does Jordan not become an even more interesting place for investment either by Jordanians themselves, by international companies already established in Jordan or by companies that come from abroad? The answer to this question is not easy but it has to do with the business environment, first with the question of weather Jordan and its advantages are well known. We have tried to help Jordan to go to business fairs and to make presentations in business capitals about these possibilities. Secondly, is the labor market flexible enough? What about the cost of labor? And there are those experts that say for a certain number of reasons that have to do with monitoring policy the production of a unit in Jordan is more expensive than the production of the same unit in Romania or Bulgaria. It has to do also with the fact that the Jordanian dinar is very expensive. So say you are an Indian entrepreneur and you want to export textiles to Europe, what would make you produce in Jordan rather than Bulgaria where you are already in the European market?

I think the Europeans have granted a very attractive scheme, we are also ready to make it more attractive and work on other parts to make the business environment more attractive. But if I were the Jordanian PM I would also consider certain elements that would bring down the costs of production so that people can come here and benefit from the labor force. We all know that Syrians are often skilled workers, they are very good at construction and certain forms of industrial work so that’s not the problem, the problem is that the cost of production is still relatively expensive here. I’m sure that we could give even more trade advantages to Jordan but it would not change the situation because as long as the entire environment is not conducive it simply doesn’t make sense from an entrepreneurial point of view.

For the Europeans the problem is that we all know we gave this kind of scheme to Jordan because of a specific situation, because you’re such an important host country to refugees. But we also know that there are many countries that are observing the situation in Jordan and that are already lining up in Brussels knocking on our door and saying you have been very nice to the Jordanians so give us the same thing. So if you give the same kind of trade advantages to other countries first it would in a way undo the Jordanian advantage and it would also work in favor of countries that are very present in European market, which leads to much more competition against European businesses. Thus some of our member states look at this with critical eyes, making it difficult for us to be more flexible with such a scheme as long as we cannot at least prove that it really works in Jordan, and that it really benefits both, Jordanian companies and Syrian refugees.

But wouldn’t helping Jordan with this also guarantee keeping many of the refugees away from Europe?

There are other countries that also say they have good reasons. So you are in a unique situation because you are hosting so many refugees but it is not quite unique because there are others like Lebanon or Turkey in a similar situation. There are other countries as well that without refugees are also doing other things that are vital to Europe and that rightfully ask us to make an extra effort beyond financial assistance to stabilize them and help the local population. And we are ready to consider that but one has to also consider what it means for your own market. I will give you an anecdote; the same countries in the EU that are very much in favor of us trying to help Arab countries in the Mediterranean get very nervous when we say one of the ways to help these countries is to give them better access for certain agricultural products to the European market. One such example is olive oil; if you are Greek, Spanish, French or Portuguese then your own farmers compete. And so automatically you are between a rock and a hard place. On the one hand you want to help your southern neighboring countries and at the same time you don’t want to have trouble with your own farmers. So you always have to find the right balance and this is not always easy to do.