To free or not to free trade in Jordan?
The recent talks aspiring to the creation of a free trade area between Jordan and the US are, to say the least, thrilling - the weirdest things, as you can tell, thrill economists. This agreement is a source of excitement because Jordan's strategic choices will determine whether it is beneficial or not.
There is a parallel however, between this agreement and the one signed between Jordan and the EU in 1997. Both replace unilateral free trade agreements and both are comprehensive in that they address issues not focused solely on trade.
They also both stipulate short term adjustments for Jordan and bring to the forefront the matter of asymmetric treatment - Jordanian products have immediate or faster free access to the US market, while US products, akin to the deal with the EU, have to wait a while longer.
But is it wise to leave behind the Qualifying Industrial Zones (QIZs) which, under special conditions, give Jordan unilateral free duty and quota access to US markets to opt for an agreement that also opens the Jordanian market to US products at improved terms of trade? After all, our trade deficit is almost a quarter of a billion dinars; we do have over 15 percent unemployment, officially; and Jordan's GDP is less than one-thousandth the size of the US economy. Surprisingly, the answer is most likely yes. (I do seem certain don't I? Just be glad I did not use the economists' old trick of saying, "On the other hand!") In terms of the trade deficit, Jordan has a trade deficit with the EU that is four times as large as that with the US. Any gains the US producers may capture could easily be from EU and Japanese producers.
In other words, there is a substitution effect in trade with the lowering of the final cost (price plus shipping and customs) to the consumer of US goods. So let the other exporters to Jordan worry about this. What about the fact that US products have actually become cheaper? As long as the real income (income after inflation) in Jordan continues to fall, the threat of an enlarged trade deficit is somewhat minimized. So there really isn't much to worry about in terms of trade.
How about investment flows? US investors seeking cheap labor markets will definitely think twice about Jordan as a production base to produce and ship their goods to the US. Other investors looking for a cheap labor market and/or whose quotas have been filled in their home countries could also seek Jordan. With increased inward investment flows employment will rise and the unemployment rate will fall, albeit most of the jobs may be low paid, pay is better than no pay, plus, in the long term the increased demand and knowledge acquired by the workers could lead to higher skills and wages.
What about size? Trade is not a David and Goliath affair anymore.
Most of the time the game of trade has become one of cooperation as well as competition.
Goliath in our case is a friendly ally whose intentions toward Jordan have been determined for a long time now as altruistic. Also, Jordan has been known as a not so aggressive David, so it's a coordinated game, more of a ballet than a battle. Furthermore, because Jordan is small, any benefit that may seem small to the US could prove a large boon to Jordan. The QIZs may lose a lot of their magic though, c'est la vie, pardon my French. So, overall the assessment is positive.
Not completely true. A nation decides its future by making the right choices and by forging ahead not shackled by resources and inspired by true grit - nice cliche, don't you think? So let's keep up the reform, speed up the tempo, and remember that old economist's saying: let's not wait too long. ― (Jordan Times)
By Dr. Yusuf Mansur
© 2000 Mena Report (www.menareport.com)