Futur of Jordan. FREE TRADE, NOT AID

FREE TRADE, NOT AID

By Kamal Nawash

Published in Insight Magazine (2000)

Jordan is one of the leading recipients of US economic and military aid. It receives approximately $300 million annually, and as part of the WyeRiver agreement between the Palestinian Authority and Israel, it will receive an additional $300 million over three years. Recently, the United States helped Jordan enter the World Trade Organization and, in October 2000, it made an important stride toward establishing a US-Jordanian free-trade agreement.

Jordan, with US aid, is working fast and hard to become a modern nation. King Abdullah II of Jordan is serious about modernizing his country and he is working toward establishing Jordan as the "Silicon Valley" of the Middle East. Although providing Jordan with economic and military aid is essential, US aid is a short-term fix and does very little for Jordan's long-term development and prosperity. The basis for Jordan's development must be sustained economic growth rather than sporadic and insufficient foreign aid. To help develop Jordan's economy, the United States accelerated the finalization of a free-trade agreement that would allow Jordan to export its products to the United States without tariffs. President Bill Clinton and Abdullah have already participated in a White House signing even though the agreement has not yet been submitted to the US Senate for a vote. The purpose of the early signing is to make it difficult for the next administration to backtrack on the agreement.

Jordan is a unique country: it is one of the few in the Middle East that possesses all the necessary attributes to attract foreign capital and prosper in today's global economy. Jordan has a low-cost and highly skilled labor force, a highly educated population, effective management expertise, an attractive investment climate, no income taxes, and a superb infrastructure. It also has a modern and diversified banking system that has no restrictions or trade control over foreign exchange, and its stock market is one of the most developed in the Arab world. Currently, Jordan is undergoing an aggressive program of privatization, which is providing investors with tremendous investment opportunities. It also enjoys political stability, a commitment to peace, international respect, and a greater degree of market accessibility than most nations of the Middle East and North Africa (MENA) region. Furthermore, the government of Jordan has been working at a fast pace to change its rules and regulations to improve accountability and transparency and to enhance its ability to attract foreign investment to become part of the global economy. These characteristics make Jordan one of the more open economies in the developing world and place it in a position to be a future MENA base for production, services, and financial interactions.

What Jordan does not have, however, is capital and because the Middle East is considered unstable, the nation has found it difficult to attract investment. This is where the free-trade agreement will be extremely beneficial to both the United States and Jordan. Free access to the US market, which is the most rewarding market in the world, will give companies the incentive to invest in Jordan despite the general perception that the region is unstable. Because of the free-trade agreement, many multinational corporations that sell their goods in the United States will place Jordan on their lists of possible countries in which to build, manufacture, and produce their goods. With free access to the US market, these corporations would benefit from Jordan's low-cost but high-quality labor force. Jordan's advantages are further enhanced by its relatively easy access to other MENA nations.

Moreover, Jordan is part of the EuroMed Initiative--with the European Union (EU)--that will come into full effect within the next 10 years. Thus, by investing and locating production facilities in Jordan, corporations will be at the doorsteps of three continents and have free trade access to the EU, the United States, and the MENA region. This is a winning combination that multinational corporations should find difficult to resist.

Traditionally, when one nation enters into a free-trade agreement with another, both expect to suffer some short-term losses, in addition to overall gains. Consider NAFTA between Mexico, Canada, and the United States. As a result of this agreement, the United States gained a much larger market to sell its goods without tariffs. However, many Americans lost their jobs when US companies moved to Mexico to manufacture their products at cheaper prices. The potential loss of American jobs was the reason why 1996 presidential candidate Ross Perot opposed NAFTA.

By entering into a free trade agreement with Jordan, however, the United States will enjoy economic benefits without suffering the job losses that are usually associated with such agreements. US consumers will benefit by being able to purchase high-quality, low-priced goods from Jordan without American job losses since it is highly unlikely that a US corporation would relocate its operations to Jordan. Most US corporations would not find any economic benefit in such a move; any such corporation needing to cut labor expenses for the US market could simply relocate to Mexico. Those that would relocate to Jordan would primarily be multinational corporations that would otherwise have moved to Asia, or those that could benefit from Jordan's strategic location while at the same time having free or easy trade access to the United States, the EU, and the MENA region.

A free-trade agreement with the United States will significantly reduce Jordan's unemployment rate and raise its gross national product. The increase in national wealth and government revenues will allow Jordan to replace economic aid with economic growth and, as such, will save American taxpayers hundreds of millions of dollars. Economic growth will also enhance political stability and encourage peace in the region. For its part, the United States can market Jordan's economic development as a product of peaceful relations with its neighbors, especially Israel. Jordan can also use this argument to convince pro-Israeli US politicians that a wealthier and more stable Jordan is good for Israel. As long as Jordan remains poor, then its citizens, who are mostly Palestinian, will continue to blame their poverty on the loss of their country -- and on Israel. The fact is that an impoverished Jordan is unstable and poses political and security risks for Israel. To avoid the likely crises that would ensue from such instability, the United States needs to help strengthen its ally, through initiatives such as the free-trade agreement, thereby consolidating peace and stability in the region.

Kamal Nawash is a Washington D.C. attorney and analyst focusing on international trade law and business transactions. 2000.