The number of Jordanian exports to the European market is expected to rise following a newly inked deal with the EU that relaxes the rules of origin stipulations.
More relaxed rules of origin will enable industries in Jordan to export goods made using 70% of non-local materials. The agreement covers 52 product groups manufactured in 18 industrial and development zones.
According to Imad Fakhoury, minister of planning and international cooperation, the agreement is set to attract local and foreign investment, as well as open new markets and support a wider diversity of exports.
The 10-year agreement came into effect after being signed at the 10th 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 terms of the agreement, the workforce in the specified industrial zones must be comprised of at least 15% Syrian refugees, a number that is set to increase to 25% in 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 1.4m Syrians – comprising 20% 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% in the second quarter of 2015 to 14.7% for the same period this year, according to data released by the Department of Statistics.
More still to do
Following the agreement, the Jordan Strategy Forum (JSF) issued a 30-page study saying that, while the deal is a positive step towards enhancing Jordan’s exports, it is still not enough.
The JSF reported that 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.
The study suggested the deal should be expanded geographically beyond the boundaries of 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, emphasizing the sector’s potential to compete in the EU market, particularly due to high demand for halal food in Europe.
Exports further afield
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 $1.34bn in 2002 to approximately $4bn in 2015.
Due to the more stringent rules of origin previously in place, Jordanian exports to the EU grew minimally from $60m in 2002 to $350m last year.
In comparison, Jordanian exports to the US reached over $1.3bn last year, namely due to a free trade agreement between the two countries, as well as more relaxed rules of origin, with the US and Canada requiring manufactured products to require 35% of local Jordanian contribution whereas Europe required 65%, Prime Minister Abdullah Ensour said at a conference prior to the new deal.
While the EU represented just 4.1% of Jordan’s exports, the US and Canada accounted for approximately 19%, and the Greater Arab Free Trade Area accounted for more than 51%, 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 US – saw a decrease of 37% in exports during the first eight months of last year. Likewise, exports to Syria dropped by 40%, hindering Jordan’s ability to trade with Lebanon, Turkey and the EU.
Oxford Business Group