Jordan signed the EU Association Agreement (AA) with the EU in 1997, two
years after the Barcelona Declaration. The AA, which entered into effect in
2002, covered political, trade, economic, social, and cultural venues of
cooperation. Moreover, in 2016, to help with the refugee situation in what
became known as the Jordan Compact, the EU, through the EU Relaxation Decision
(No.1/2016), relaxed requirements concerning certificates of origin for certain
goods produced in Jordan for a 10-year period, until December 31, 2026. Now
that 20 years have passed, it is only fair to ask whether the AA added value,
and had a discernible impact on employment and foreign direct investment (FDI)
in Jordan, and, if not, what remedies/changes can be done to fix the AA.
اضافة اعلان
EU is Jordan’s
largest trade partner, accounting for 14.7 percent of Jordan’s trade in 2020.
EU imported goods from Jordan worth 0.4 billion euros, and its exports to
Jordan reached 3.0 billion euros.
However,
Jordan’s trade with the EU does not represent more than 3 percent of its total
trade. Interestingly, there is something of a rule in economics, that says that
for a small country to gain from trade with a large country, the latter should
be altruistic toward the smaller one. It is not by chance that the EU is the
leading foreign investor in Jordan, accounting for 55 percent of the foreign direct
investment (FDI) stock in the Kingdom, and that the EU became a major donor to
Jordan after the signing of the AA (EU aid to Jordan averaged 130 million euros
per year during 2014–2020).
A recent report,
“Trade liberalization and jobs in the Mediterranean: towards a new generation
of trade agreements”, by the Center for Mediterranean Integration (CMI),
underscores that the impact on jobs, value added, and FDI has been mixed (a
hodgepodge of few winner and loser sectors) and mild (underwhelming is the
wording of the authors) across the Jordanian economy.
Jordan needs to do much more than simply signing a free trade agreement to benefit from trade. It needs to put in place and implement a strategy to develop its manufacturing industry.
In fact, other
regional developments, such as the Palestinian Intifada, the invasion of Iraq,
the Arab Spring, the influx of refugee from Syria, may have more of an impact
than the AA.
So what can be
done to make the AA more beneficial to Jordan (and the other three countries,
Tunisia, Morocco, and Egypt)?
According to the
CMI report, three things can be done: liberalization of the services sectors
(such as business services, information, telecommunication and financial
services), which contribute to enhancing the value added in the manufacturing
sector; attracting FDI in manufacturing to promote knowledge-intensive
production, especially in labor-intensive sectors; improving the
competitiveness of industry and addressing the non-tariff barriers (which are
more forbidding to trade than tariffs sometimes).
Clearly, one
must agree with the report that by simply signing a free trade agreement a
country does not immediately benefit from trade, particularly if it is the
smaller partner, which is Jordan’s case.
Jordan needs to
do much more than simply signing a free trade agreement to benefit from trade.
It needs to put in place and implement a strategy to develop its manufacturing
industry. It should facilitate the manufacturing sector’s access to finance,
which remains a challenge today.
Jordan needs to
focus on value added everywhere (services, industry and agriculture). There is
great need to support firms to become exporters to the EU market (market access).
In other words, there is a whole cluster of activities that ought to be done
internally to ensure that local producers enhance their competitiveness and
gain from trade.
Yusuf Mansur is CEO of the Envision Consulting Group and
former minister of state for economic affairs.
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