Jordan signed the Association Agreement (AA) with the EU in 1997, two years after the Barcelona declaration. The AA, which entered into force in 2002, covered areas of political, commercial, economic, social and cultural cooperation. Additionally, 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 the requirements for certificates of origin for certain goods produced in Jordan for a period of 10 years, until December 31, 2026. Now that 20 years have passed, it is fair to wonder whether the AA has added value and had a noticeable impact on employment and foreign direct investment (FDI) in Jordan, and, if not, what remedies/changes can be made to fix the AA. اضافة اعلان

The EU is Jordan’s largest trading partner, accounting for 14.7% of Jordanian trade in 2020. The EU imported goods from Jordan worth €0.4 billion and its exports to Jordan reached 3.0 billion euros.

However, Jordan’s trade with the EU is no more than 3% of its total trade. Interestingly, there is a sort of rule in economics that says that for a small country to benefit from trade with a large country, the latter must be altruistic towards the smaller one. It is no coincidence that the EU is the largest foreign investor in Jordan, accounting for 55% of the stock of foreign direct investment (FDI) in the Kingdom, and that the EU has become a major donor to Jordan after the signing of the AA (EU aid to Jordan averaged €130 million per year between 2014 and 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), points out that the impact on jobs, value added and FDI has been mixed (a hodgepodge of a few winning and losing sectors) and soft (disappointing in the authors’ words) in the Jordanian economy.

Jordan needs to do more than just sign a free trade agreement to benefit from trade. It must set up 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 refugees from Syria, may have more impact than the AA.

So what can be done to make AA more beneficial for Jordan (and the other three countries, Tunisia, Morocco and Egypt)?

According to the CMI report, three things can be done: the liberalization of service sectors (such as business services, information, telecommunications and financial services), which contribute to increasing value added in the manufacturing sector; attract FDI in the manufacturing sector to promote knowledge-intensive production, especially in labor-intensive sectors; improving the competitiveness of industry and tackling non-tariff barriers (which are sometimes more prohibitive to trade than customs tariffs).

It is clear that one must agree with the report that by simply signing a free trade agreement, a country does not immediately benefit from trade, especially if it is the smallest partner, which is the case of Jordan .

Jordan needs to do more than just sign a free trade agreement to benefit from trade. It must set up and implement a strategy to develop its manufacturing industry. It should facilitate the manufacturing sector’s access to financing, which remains a challenge today.

Jordan must focus on adding value everywhere (services, industry and agriculture). It is imperative to help companies become exporters to the EU market (market access). In other words, there is a whole set of activities that should be carried out internally to ensure that local producers improve their competitiveness and benefit from trade.

Yusuf Mansur is CEO of Envision Consulting Group and former Minister of State for Economic Affairs.

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