July 20, 1994

THE ECONOMIC DIVIDENDS TO BE REALIZED FROM JORDANIAN TREATY (GPO)

1. ‘JORDAN FEARS ECONOMIC COMPETITION.’ – Interview with Prof. Eliahu Kanovsky, ("Ha’aretz", July 20, 1994)

Q: In your most recent research report, you expressed reservations regarding economic stimulus by the Arab states to the Israeli economy from the peace talks. Were you also referring to Jordan?

A: Yes. We are not starting from zero on this point. The Jordanian economy has gone through a number of dramatic changes. From the 1970s through the early 1980s a boom period existed due to the rise in oil prices and monetary aid from the richer Arab nations like Kuwait and Saudi Arabia. However, the oil price crisis of 1982 changed the direction of Jordan’s economy. Afterwards, came the Gulf War, precipitating another crisis. With King Hussein’s support of Iraq and Saddam Hussein, aid from other Arab nations was cut drastically, and 300,000 to 400,000 Palestinian refugees fled Kuwait to Jordan, forcing the country to look after their welfare, following the conquering of Kuwait by the UN forces. Yet, within a short time, the Jordanian economy adjusted, fueled by the newcomers and came out of its crisis in fair condition.

Q: King Hussein has promised his nation that a peace agreement with Israel will bring economic benefits. Is there a basis for this?

A: The economic success or failure of any national economy is dependent upon a its economic policies. Jordan can come out of its crisis if it can succeed in encouraging private investment from abroad. The fact remains that Jordan has not succeeded at this despite its more than 20 years of de facto peace with Israel. It turns out that internal economic conditions, like the size of the economy and bureaucratic limitations, have prevented success, and this has no connection whatsoever with peace, or with us.

Q: Can joint projects with Israel assist the Jordanian economy?

A: Certainly there are specific projects worthwhile for both of us. For instance, land and aviation infrastructure projects are joint projects capable of bringing savings to both countries. I am not convinced that the solution to these problems, including the difficult water issues, will bring a dramatic change for Jordan’s economy, or even for ours.

Q: What about trade between the two countries?

A: What do we have to buy from them? A very low level of compatibility exists between us and between the Arab nations, and even more so with Jordan. We can sell Jordan quite a lot of things, however they want reciprocity, and the problem is that they have nothing to sell to us. The Jordanians produce phosphates, vegetables, fruits, potash, and fertilizers. There is no demand for their products in Israel. The Jordanians also are very fearful of Israel’s dominant economy. They fear competition and say this publicly. In reality, they are not interested in trade and they will raise obstacles so that their businessmen are not harmed by our trade.

Q: In your opinion, how will the economy of the Autonomous region connect those of Israel and Jordan?

A: In January of this year, a free trade treaty was signed between Jordan and the PLO. In May, [ED. signed 29 April] the PLO signed a treaty with us cancelling a large part of their treaty with Jordan. The PLO has fears not only from us but also from Jordan. The Palestinians still do not have something which can be called an economy. Up until now, 90 percent of the imports to the West Bank and Gaza came via Israel. Now, in the sense that the Palestinians have self-rule and economic freedom, it is clear they will attempt to decrease their dependence upon us and Jordan.

2. Excerpts from "Trade Relations between Israel and Jordan: Risks and Considerations", a paper written by Prof. Nadav Halevi of Tel Aviv University and Prof. Ephraim Kleiman of Hebrew University.

Israel should not expect tremendous dividends from an agreement with Jordan. Likewise, Israel should not be overly worried about harm to local industry from Jordanian products. However, regarding agricultural products, if fresh Jordanian fruits and vegetables are allowed into Israel, problems facing local farmers from Palestinian produce will be compounded.

Jordan and Israel compete in different international markets with their exports of potash, phosphates and related products. Any trade treaty should address the issues of standardizing this competition. The professors write that allowing Jordanian ships access to Israeli Mediterranean ports will not harm the current demarkation of geographic markets between the two.

Any preferential trade agreement with Jordan must be well considered because other Arab markets including those of Egypt, and in the future Syria, and Lebanon offer more opportunities than that of the small Jordanian market.

Potential Jordanian exports to Israel are relatively minor. Only a few Jordanian export products such as leather, certain foodstuffs, marble, and scrap-metal could serve as replacements for goods imported into Israel from geographically distant points. On the other hand, there are a large number of Israeli products which could be exported to Jordan. These goods include processed food, paper and cartons, shoes, electronics, chemicals, textile yarn, and industrial machinery. Yet for these products the Jordanian market still remains small. According to the figures, all of Jordan’s imports of these products in 1992 represented only 5% of Israel’s exports for the items.

Jordan already enjoys preferential trade treatment as a result of the Israeli-Palestinian trade agreement. With the knowledge that some of the Jordanian goods will find their way into Israel, the Government should weigh, during the first stage, widening and extending the list and amount of goods allowed into the autonomous area which could reach Israel. In return, a similar setup should be worked out with Jordan for the entry of Israeli goods. With this preferential situation, both countries will benefit from the reduction of harm to local industries.

Israel must demand that Jordan drop its drastic Product Origin Regulations placed on products imported from the territories that prevent any products with Israeli components from entering Jordan.

It is not in Israel’s best interest to accede to requests for free passage of workers and produce between the nations, as is the case in the European Community.

Difficulties will be encountered in achieving an acceptable economic agreement due to the asymmetry between the Jordanian-Israeli-Palestinian economies. Though Jordan’s population is three-fourth the size of Israel’s, Jordan’s 1992 GNP came to $4.5 billion, equal to 7% of Israel’s GNP. Jordan’s GDP per person that year was $1,300, or about one-tenth that of Israel. Another factor showing the difference in economic activity was that in 1992 Jordan imported approximately $3.3 billion worth of goods, equal to only 17.5% of the amount Israel imported in 1992. Only one-third of this was financed by export sales while the remainder was financed by money sent back to Jordan by Jordanians abroad and by loans from other governments.

The Israel-PLO treaty provides preferential trade conditions to Israel and essentially creates a customs union between the Autonomy and Israel. Yet in the long run, it is expected that as the economy of the Autonomous region begins to be more independent, the Palestinians will slowly emphasize Jordanian connections and limit those with Israel.