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French Version

Jordan-European Association Agreement - Potential growth despite challenges

"The trade deficit with Europe is running at 1.3 million euros and rising. This is unsustainable for both parties," said James Moran, head of the European Commission Delegation in Amman.

JORDAN(Star) - The Jordan-European Association Agreement, which took effect this May, certainly means benefits for both sides. However, the agreement is still in its early stages, as Jordanian economists believe much is needed to sustain gradual growth in trade between Jordan and Europe. Today, the trade volume between the two stands at $1.57 billion, but 90 percent of this is in European exports to the Kingdom.

Jordanian exports to the EU, on the other hand, have declined to $70 million. In 1997, when the agreement was first signed, exports from the Kingdom to the countries of the EU were at a peak of $100 million. Over the last five years, the mutual trade deficit has increased by 50 percent. Prime Minister Ali Abul Ragheb said last week the gradual trade deficit would affect Jordan's efforts to upgrade its industries and economic growth in the long run.

"The trade deficit with Europe is running at 1.3 million euros and rising. This is unsustainable for both parties," said James Moran, head of the European Commission Delegation in Amman. He stressed the challenges are tremendous, and are forcing the private sector in Jordan to shoulder a large portion of the burden.

However, the contents of the agreement looks promising for Jordan in view of the Kingdom's hopes of sustaining balanced trade ties in the future. Besides political dialogue and economic cooperation, the agreement focuses on the free movement of goods, and cooperation in social, financial and cultural matters.

Europe's ultimate objective through the association agreement is to foster the establishment of bilateral free trade with Jordan. It is the first step to create a wider regional Euro-Mediterranean free trade area. The agreement aims to lay the foundation for reciprocal tariff liberalization of trade in industry and agriculture. Quantitative restrictions and equivalent measures will be removed between the parties within 12 years.

"The economic transition is never easy," stressed Moran, adding the overall process of establishing a free trade area with Jordan provides positive signals to the international business community and stimulates foreign direct investment. Indeed, the association agreement covers the effectiveness of both sides; the EU's trade and agricultural interests hoping to be met by Jordan's reform in the political, economic and social fields.

Jordanian economists agree the EU-Jordan agreement offers great opportunities for the Kingdom and amplifies its trade relations with Europe. These opportunities can only be developed through bolstering the partnership between the private and public sectors in Jordan.

Despite this, economists warn the challenges are becoming harder for Jordan as the Kingdom gets set to meet its commitments to the EU's regulations-bearing in mind the Free Trade Agreement with the US which became effective six months ago. "Three main points must be achieved by Jordan to reap benefits from the agreement with Europe: A gradual increase in exports, taking advantage of foreign direct investments, and empowering advanced technology into local industries," said Dr Munir Hamarneh, professor of economics at University of Jordan.

He told The Star Jordan is increasingly becoming a home for international services, where imported goods find the Kingdom a haven for their interests. Other economists agree, but reiterate Jordan already has the potential to achieve sustainable growth.

"No one can deny the EU's continuing commitment to support Jordan's economy," said Dr Yousuf Mansur, senior advisor in economic relations with Europe. He noted between 1995 and 2000 the EU gave Jordan 1.5 billion euros to support its economic and social development programs.

Moran reiterated the EU is fulfilling its part of the agreement, to assist small and medium enterprises (SMEs) in the Kingdom. The Union is also committed to supporting the public services in Jordan so as to ease implementation of the agreement by the Kingdom. A developing economy like Jordan relies much on the potency of its SMEs.

"The government must have a clear, long-term vision to sustain development of small industries," Mansur told The Star. "SMEs in Jordan must first get all the support and the empowerment they need to take advantage of the agreement. This helps Jordanian products to reach European markets at high standards of quality and competitiveness." Developing proficient human resources, enhancing research and development schemes and equipping an efficient infrastructure of computer-run database are also fundamentals for the government to promote its local industries in the eyes of European markets.

Hamarneh wondered if the agreement will allow Jordan to import high-technology equipment and use it locally. "The trade deficit deepens our debts with Europe. By enhancing local industries our debts will be reduce gradually."

According to the agreement 60 percent of the inputs in Jordanian products must be made locally. This is so that they can obtain an "originating status" in Europe.

"Targeting European markets is a strategic option for Jordanian companies," Mansur said. "Profitable partnerships require qualified and creative industries to meet European demands."

The current association agreement replaces a much older one that was signed, way back in 1977, between the EU and Jordan. It used to give duty-free access for Jordanian products into Europe, instead of the European products targeting Jordanian markets. The current association agreement, however, allows exports from both sides to have duty-free access to European and Jordanian markets.

The Euro-Jordanian Action for the Development of Enterprise (EJADA) was launched in July 2001 with an emphasis on local SMEs to foster Jordan's competitiveness. The program is worth 41.6 million euros and works through technical, financial and vocational support. It runs until December 2005. "The program enhances the capacity of the private sector to increase Jordan's GDP growth per capita. It also facilitates the establishing of an EU-Jordan Free Trade Area in the future," said Mansur, who worked as EJADA's senior advisor in its first year.

Ghassan Joha
The Star

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