Jordan-Iraq trade protocol needs control

Published November 28th, 2000 - 02:00 GMT

The trade protocol with Iraq means, at least in theory, Jordanian exports of goods and services to Iraq to the extent of $450 million during 2001, amounting to around one quarter of all Jordanian exports of commodities. The protocol is too important to be left without strict control to ensure the realization of full benefits to the Jordanian economy. The procedure applied so far is seriously flawed. It deprives the national economy of most intended benefits, as it will be demonstrated further. The Ministry of Industry and Trade is to be blamed.  


What is going on so far is that most beneficiaries of the protocol are in effect suppliers of imported goods and not exporters of real Jordanian products. I am not referring here to the imported content of the Jordanian exports, that is natural and, of course, acceptable. I am simply referring to outright foreign products, whereby the role of the Jordanian supplier, or intermediary, is almost confined to packaging and dispatching.  


When a given supplier of foreign goods re-export these goods to Iraq, he may gain personally from the transaction, but the Jordanian economy may not benefit because the Jordanian value added on the products is minimal, if any at all. By value added we mean salaries, interest payable to local lenders, rents payable to landlords and return realized by entrepreneurs.  


The obvious solution to this unacceptable situation is that the Ministry of Trade and Industry should convince itself beyond doubt that the local value added on the products intended for export to Iraq forms at least 30 percent of the final price of the exported items before issuing an export license under the protocol and, consequently, authorizing the Central Bank to finance the shipment. The Central Bank should be asked to finance only real exports and not re-exports.  


The second problem, that our officials do not like to take note of, is the heavy overpricing of the Jordanian exports to Iraq, as reflected in the letters of credit received in favor of the suppliers. The Central Bank used to finance these blown-up amounts because the paper work would be in full compliance with the conditions of the letters of credit, even though the Central Bank was fully aware of the fact that the real value of exported material was much less than the amount stipulated in the invoices. 


The mark up will, most likely, be paid by other channels from the Kingdom's reserves of foreign exchange. In other words, we deceive ourselves and allow the effective reduction of our exports under the protocol to around one quarter of their nominal agreed value.  


The solution lies again in the hands of the Ministry of Trade and Industry, which must make sure that the prices are reasonable before issuing an export license under the protocol and authorizing the Central Bank to disburse funds at the debit of the protocol.  


Real exports of Jordanian products, to the tune of $450 million, can give the national economy in general, and the industrial sector in particular, a great push forward. However, unless the procedures are corrected, the real value added to this amount may not exceed 15 percent after taking into account the supplies of imported goods and the intentional exaggeration of pricing as reflected in the Performa invoices.  


The ball is in the court of the Jordanian government and not in the court of the private sector where businessmen seek profits in any form possible. Only a strict auditing regime to which documents should be subjected can translate the trade protocol with Iraq into real Jordanian products and allow the Jordanian economy to reap the results. — ( Jordan Times )  


Fahed Fanek

© 2000 Mena Report (

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