Jordan is less than a few months into a high-profile add-on to its free trade deal with the European Union, and while supporters tout it as a model, others warn of overblown expectations. Oliver Cornock, managing editor at Oxford Business Group, explains.

At issue is a sweeping relaxation of EU regulations regarding dozens of product categories – some of which already contribute significantly to Jordan’s export revenues – combined with an ambitious job creation program aimed at some of the country’s more than one million Syrian refugees. Critics, however, argue that the trade benefits come with conditions that most Jordanian employers will not be able to meet and, even if they could, would threaten to undermine whatever benefits may result.  

 

The roots of the deal go back to Jordan’s Association Agreement with the EU, which took effect in 2002 and gradually established an official free trade area over the next dozen years. An earlier amendment sweetened the deal by making it easier for Jordanian agriculture products to reach European consumers as of 2007, but the relationship has remained largely lopsided. In 2015, for example, Jordanian exports accounted for just €350 million ($393 million at current exchange rates) of the €4.4 billion in total trade between the two sides.      

 

Signed on July 20, the new features are considerably more ambitious – and far more complex. 

 

The EU did indeed pledge to streamline its “rules of origin” for 52 product groups for the next 10 years, and the preferential treatment applies to many things that Jordan-based companies actually sell abroad, including clothing, chemicals and Dead Sea beauty products, extending the same easy market access as that granted to imports from the world’s most impoverished countries.  

 

Closer inspection, however, reveals that in order to obtain preferential treatment, the items in question must be produced at one of “18 specified industrial areas and development zones” – and to qualify, companies that make them must demonstrate that Syrians make up 15% of their workforce in year one, rising to 25% in year three. 

EU policymakers hope Jordan will be a successful proving ground for using employment as the ultimate tool for integrating refugees in host nations, although they also view the experiment as a means of reducing the flow of desperate Syrians to Europe’s own shores. The program dovetails nicely, too, with an approach championed in a recent report by the International Monetary Fund that called for labour markets to be made more flexible, and with the official position of the UN High Commissioner for Refugees, which views integration as one of three “durable solutions.” The World Bank is on board too: in March it earmarked $300 million, including a soft loan of $100 million, to help create 100,000 for jobs for Syrians in Jordan – provided that Amman issued some 200,000 work permits for refugees.

On the ground, however, prospects may not justify the hype. Until February, Syrians were essentially banned from obtaining legal employment in all but a few job categories, and subsequent attempts to open up the labour market have had decidedly mixed results. Experience shows that many Syrians regard the jobs usually on offer at Jordan’s Special Economic Zones (SEZs) and Development Areas – most of whose employees are currently migrant labourers from Bangladesh, Sri Lanka and other poor countries in South Asia – as too low-paying to bother with. Ironically, this fits with Amman’s own efforts to prevent labour competition for its own nationals, which include only issuing work permits in sectors that most Jordanians disdain because of low wages and/or poor conditions. 

 

Not surprisingly, the vast majority of Syrians have preferred to work in the informal sector, freeing them to toil for more than one employer and sparing them both the official cost (JD300-500, or $420-700) of work permits and the kickbacks (another JD300-400) sometimes extracted by brokers, sponsors or other middlemen. Even when the government offered a three-month grace period (later extended to six months) during which Syrians could obtain permits for just JD40 in processing fees, there were few takers: so far this year, only 26,000 of an estimated 650,000 eligible adults have availed themselves of the opportunity. 

 

There are other obstacles too. Making sure that refugees find employment is one thing for affluent Western countries focused on helping newcomers fit into their new surroundings, and is quite another for Jordanian officials who take a very different view of integration and may be more concerned with ensuring that the refugees eventually go home. Cultural differences also have an impact, in part because many of the Syrian women who might be able to find jobs in a clothing factory, for instance, are unaccustomed to working outside the home, and many have young children they need to care for.

 

Despite all of this, the potential synergies are impressive. The ultimate example is the King Hussein Bin Talal Development Area (KHBTDA), which is just a short drive from both Amman (60 km) and the Zaatari refugee camp (15 km), whose 80,000 Syrian inhabitants make it Jordan’s fourth-largest city and the most populous facility of its kind anywhere. This location puts any businesses at KHBTDA close to the country’s most important transport links, and to a large pool of cheap labour; in fact, by some reckonings the site could employ every working-age person at Zaatari and still be half-empty.  Unfortunately, geography also puts KHBTDA just 30 km from the Syrian border and the various threats on the other side, which helps explain why relatively few companies have set up shop there.

 

Nonetheless, the potential benefits of greater EU access, more jobs and reduced social tensions have prompted the government to double-down on the King Hussein area, setting aside some $140 million in new investment that should increase its attractiveness. In addition, it is counting on the World Bank and Britain’s Department of International Development to help it establish several new zones, many of them also in close proximity to Syria. Apart from special measures to guard against any encroachment by Syrian-based militia groups, the key will be to secure the right kinds of tenants.

 

As at all of Jordan’s official SEZs and Development Areas, KHBTDA offers resident companies lower income taxes and fewer bureaucratic requirements than those prevailing in the broader economy, plus the option of full foreign ownership. Most also offer exemptions from various taxes, customs charges, and land fees, few or no capital restrictions, long-term leases, easier utility hook-ups and other perks. 

 

The typical tenant at such facilities, however, is a garment manufacturer where the pay is reportedly too low to attract either Jordanian nationals or any but the most destitute Syrian refugees, and Alternet, a left-of-center news site, has likened such factories to “sweatshops.”  Now, however, the government is working to bring about an influx of higher-end employers, including pharmaceutical companies, chemical makers, and food and beverage processors, which would in turn attract both more qualified job-seekers and greater foreign investment.

 

If all goes well, the strategy described above could help kick-start a virtuous circle of greater employment for nationals and refugees alike, reduced social tensions, a broader tax base, and higher overall revenues. The potential benefits of the undertaking are clearly enormous, and while there are no guarantees of success, neither Jordan nor its aid, trade, and investment partners have the option of standing idly by. If it really wants the plan to succeed, though, Amman may well need to find a way to involve local small and medium-sized enterprises, which constitute 95% of Jordan’s private sector but are largely frozen out of the advantages that special zones confer on multinationals and other larger companies. 

All Rights Reserved - Living Well 2017