The United States-Jordan FTA: Defogging the Myth
Bashar H. Malkawi, S.J.D
The U.S-Jordan FTA is a “first” FTA in two ways. It is the first FTA to be ever concluded with an Arab country. It is also the first FTA to include labor and environment within the text of the FTA itself. It is the “second” FTA with a low middle-income country after the U.S and Canada expanded their FTA to Mexico, an upper middle-income country. The purpose of this article is to give an account of the history and some provisions of the U.S-Jordan Free Trade Agreement (hereinafter “US-JO FTA”). It will assess the extent to which the FTA provides a viable “model” to the proposed US-Middle East Free Trade Agreement (“US-Middle East FTA”).
In 1994, in the aftermath of the peace treaty between Israel and Jordan, the U.S, Israel, and Jordan began to explore economic ways to support the peace treaty that otherwise may not hold water.These efforts culminated first by the establishment of qualifying industrial zones (“QIZs”) generally along the Israeli-Jordanian borders.Any product manufactured in these zones, after meeting certain conditions, can enter the U.S duty-free.
Moreover, the U.S and Jordan signed a trade and investment framework in 1999, which is usually a precursor for FTA. Afterward, the U.S and Jordan declared that they would launch negotiations for a free trade agreement.Jordan served as the right candidate for such a free trade agreement in terms of economic and political aspects. Economically, Jordan’s exports to the U.S would not have a measurable impact on U.S industries, U.S employment, and production. Thus, it would not face opposition in the U.S Congress. Politically, which is the most important factor, the FTA reflects the U.S appreciation for Jordan’s role in the Middle East peace process and in cooperating in international counter-terrorism activities.
Selected Provisions of the US-Jo FTA
In the area of goods, the parties agreed on a staged tarrif elimination schedule. In the area of services, Jordan took further obligations above and beyond it took in its accession to the WTO. The FTA adopted the "full box" approach. The U.S took no further obligations beyond its GATs schedule in the WTO. It is fair to say the service provisions of the FTA are GATs-Plus.
As to rules of origin, rules that determine whether a product is of Jordan and thus eligible for preferential tariff treatment, are very complex for the many mom and pop manufacturers in Jordan. Take for example the concept of "substantial transformation". It known among trade lawyers that this concept is non-functionanl for FTA due to its vagueness.
In intellectual property provisions of the FTA, which occupies large slab of the FTA Jordan, once again, took further obligations beyond its WTO commitments. Thus, the US-Jo FTA is TRIPs-Plus. Worse enough, the FTA requires Jordan to accede to the International Convention for the Protection of New Varieties of Plants which would limit poor farmers rights to trade seeds without permission.
Article 7 of the US-JO FTA is to large extent is based on the U.S Internet Tax Freedom Act of 1998. The act, which has the purpose of promoting universal access and less burdensome Internet tax policy, imposes a moratorium on all taxation of Internet access and on “multiple” or “discriminatory” taxes on e-commerce. The act also includes a declaration that the Internet should be free of tariffs, trade barriers, and other restrictions. Moreover, the act asks the U.S President to pursue “international agreements” to ban such tariffs and other trade barriers. Once wonder how Jordan can benefit from the e-commerce provisions considering the limited access to the Internet for its population and often power outages.
Setting aside all the goods intentions of including the environmental and labor provisions of the FTA, this is was a response to U.S demand. The Clinton administration certainly knew how to use the political calendar by incorporating those provisions in the text of the FTA during the presidential election year of 2000.
To large extent the success, if one can call it this, of the FTA has been limited. The costs of the FTA outweighted its benefits. The US-Middle East FTA is likely to follow the template of the US-Jo FTA meaning limited benefits.
Even if one would factor statistics into the equation, there has been much trade between the parties under the FTA. Most of trade occures under QIZs. The largest items exported to the U.S are the textiles and apparels orbit. Once the quotas phase out by the end of 2004 under the Textiles and Clothing Agreement of the WTO, and China assumes it role as a leading exporter, Jordan textiles and apparels exporters should kiss their industries goodbye.