The Newest Jordan: Free Trade, Peace and an Ace in the Hole

Pete W. Moore

(Pete W. Moore teaches political science at the University of Miami in Florida.)

June 26, 2003

In the 1950s, Jordan was to kick-start its own modernization through phosphates and potash. In the 1970s, it was to be "the new Beirut" -- the banking and financial center of the Arab world. In the 1980s, it was to be "the Hong Kong of the Levant." By the 1990s, international donors and US officials were referring to Jordan as a model for economic reform in the Middle East. After the extraordinary World Economic Forum (WEF) meeting at the Dead Sea resort of Shouneh from June 21-23, 2003, one can add another formulation to this list of wishful descriptions. Jordan is now to be the linchpin of the Bush administration's Middle East Partnership Initiative (MEPI) and the schwerpunkt for its envisioned Middle East Free Trade Area (MEFTA).

Organized about two months ago, the WEF meeting in Jordan was designed to promote these US policies under the banner of "Visions for a Shared Future." At the meeting, Secretary of State Colin Powell and Trade Representative Robert Zoellick waxed eloquent about what MEPI and MEFTA could achieve, praising Jordan for its willingness to serve as a testing ground for the grand initiatives. MEPI and MEFTA, the newest acronyms to enter the neo-liberal lexicon, are the policy extension of the Bush administration's belief that freer trade is a low-cost silver bullet that can slay anti-American radicalism while delivering sustainable growth and securing regional peace. Speaking at the Forum, Zoellick quoted a February 2003 speech in which George W. Bush stated: "Old patterns of conflict in the Middle East can be broken if all concerned will let go of the bitterness, hatred and violence, and get on with the serious work of economic development." For many in Jordan and the Arab world, this statement sounds like: "Let go of your grievances about justice, human rights and double standards. Focus instead on making money."

While the administration has been quick to promote its vision as a new approach, the mechanisms of MEPI and MEFTA are well-worn elements of US policy toward the developing world: targeted assistance to the private sector, bilateral free trade agreements, free trade zones and aid, lots of it. For a country as small as Jordan, the political stakes are huge. Since 1993, Jordan has been central to Washington's effort to use free trade incentives and market reform to refashion the Middle East. The kingdom signed a peace treaty with Israel in 1994, launched qualified industrial zones in 1997 and signed a free trade agreement with the US in 2000. Thus, there is ample experience in Jordan from which one can draw lessons about the larger US agenda for the region. What are we to make of this Jordanian trade experiment? Is it a model for the rest of the region? Answering these questions requires a review of what David Makovsky, an analyst at the Washington Institute for Near East Policy, has described as "the peace dividend that sets [Jordan] apart."

DOES TRADE EQUAL PEACE AND DEVELOPMENT?

On the heels of the 1994 Israeli-Jordanian peace treaty, US and royal court officials began encouraging meetings among Israeli, Palestinian and Jordanian businesspersons. The US logic was simple: creating Arab-Israeli business links encourages and strengthens the private sector, a natural supporter of peace and a bulwark against radicalism. The 1995 Amman Economic Summit (a template for the WEF meeting) witnessed the creation of the Regional Business Council (RBC). The RBC was managed by American officials and served as a kind of regional chamber of commerce to facilitate meetings, multilateral exchanges and joint business ventures among leading Jordanian, Palestinian and Israeli businesspersons. To provide incentives for these exchanges, US officials offered the Qualified Industrial Zone (QIZ) program.

The program establishes zones in Jordan in which manufacturers who locate there can export -- tariff and tax-free -- to the US market by meeting precise rules of origin. The rules specify that a minimum of 35 percent of the exported goods must be composed of local content: 11.7 percent of the local content must be Jordanian, 7-8 percent must be from Israel and the remainder can come from any combination of the US, Jordan, Israel or the West Bank and Gaza. By creating incentives for Israelis and Arabs to trade, the reasoning goes, the rewards of peace will expand and sustainable development will follow.

Officials at the WEF meeting were quick to highlight QIZ achievements. Jordan's exports to the US have risen from less than $20 million in 1999 to over $200 million by 2002. More than 20,000 jobs have been created in the QIZs, with a reported 70 percent of the jobs going to women. The success of the QIZ program is crucial, since it was the foundation of the more ambitious US-Jordan Free Trade Agreement. Under the FTA, tariffs between the two countries will be phased out over a ten-year period. Jordanian products exported to the US will be required to meet a 35 percent domestic value-added requirement, thereby making the entire country a kind of QIZ, albeit with a higher domestic component. This is the official story, one which WEF participants were happy to repeat. Similar to Amman's past efforts at economic reinvention, however, the real QIZ story bears unpleasantly little resemblance to the slogans.

The much touted peace dividend has turned out to be a bait and switch for ordinary Jordanians. Unemployment remains high (around 20 percent of the labor force), population growth is rapid, and despite peaks and valleys, per capita income has essentially remained locked at its 1984 level. In the face of these pressures, professional and working-class Jordanians have seen prices steadily rise in tandem with Israeli-Palestinian violence. By 1997, the RBC collapsed, as continued violence in the Occupied Territories soured Jordanian public opinion on the peace process. Exchanges with Israeli businesses made easy targets for the protests and boycotts of secular and Islamist opposition groups. Even Jordan's weak and dependent official business representatives went along with opposition boycotts of Israeli-attended trade fairs.

Behind the official QIZ numbers, there are other numbers and trends that went without comment at the WEF meeting. For instance, more than 80 percent of the firms located in Jordan's 12 zones (two new zones were approved at the WEF meeting) are South Asian textile and luggage manufacturers. Nearly half of the 20,000 workers are not Jordanian. Though a minimum wage of $3.50 per day is official policy, QIZ managers commonly express ignorance as to whether this is actually enforced by QIZ firms. Complaints about working conditions and lack of government action to increase domestic employment are on the rise. Given Israeli closures of the West Bank, QIZ exports do not currently include Palestinian components. Moreover, manufacturers struggle to ensure that Israeli contributions meet the minimum 7 percent. Jordanian QIZ managers report that Israeli inputs commonly amount to little more than labels, zippers and packaging added during export at the Israeli port of Haifa. Since much of the cloth is imported and wages are extraordinarily low, QIZ firms find it difficult to meet the 11.7 percent domestic content requirement, and thus there have been calls to lower the threshold. What all of this means for Jordan is that while (mostly foreign) QIZ investors, owners and managers may realize nice returns, the zones have backfired as contributors to productive development, employment growth or Israeli-Jordanian normalization. These outcomes are ominous for Washington's larger free trade designs.

MODEL OF WARNING

If Jordanian investors are currently having trouble meeting the 11.7 domestic content requirement, how will they meet a requirement of 35 percent under the FTA? By 2005, the Multi-Fiber Agreement (MFA) will be abolished and US textile quotas will be eliminated. Since many of the South Asian firms in the QIZs have leases that expire by 2005, their commitment to a post-MFA Jordan would appear to be questionable. The fear among businesspersons in Jordan is that if the QIZs survive, they will likely remain as islands of re-export and assembly with few benefits for other domestic businesses. Add to this Zoellick's call at the WEF for QIZs and FTAs in Turkey, Morocco, Bahrain and even post-war Iraq, and Jordanians see a future wherein their small, low-income country will be locked into a debilitating competition in which it has few political or economic advantages.

Jordan's experience with US-led free trade, peace and development is a model of warning for the rest of the region. The effort to link trade and peace negotiations in Jordan has failed. Joint Arab-Israeli business ventures have been shallow, freer trade has yielded minimal developmental returns and the Jordanian public continues to reject normalization in favor of a comprehensive political settlement. Jordan's experience underlines the fact that trade alone cannot transform a country's political, social and economic institutions, especially in line with the controversial directions Washington desires. Instead, the evidence shows free traders seek to exploit already resident resources (in the case of Jordan, cheap labor, minimal labor standards and easy access to the US) and ensure an exclusive distribution of rewards.

NO CONSENT

Little of this is lost on a skeptical Jordanian public. This newest, "free trade Jordan" has necessitated a steady reversal of the political liberalization welcomed by Jordanians in the late 1980s and early 1990s. Most recently, the government's public relations campaign called "Jordan First" made official the effort to put economic reform first and everything else, especially meaningful political participation, second. What has certainly not come first are the civil society associations that protest the trade policies or voice support for Palestinian rights. It is no surprise, then, that in Jordan's parliamentary elections leading up to the WEF meeting, voter turnout in Amman was low and regime loyalists prevailed. For many Jordanians, this disjuncture between the economic and the political is what really matters.

In a Washington Post op-ed on June 23, Robert Zoellick cited a Qur'anic verse, "Let there be trading by mutual consent," to legitimate the administration's plans for Jordan and other countries in the Arab and Islamic worlds. Indeed, the problem is that there appears to be no consent, at least not from professional Jordanians, the middle class, Islamists or parts of the business community. Compromise to achieve the consent of those most likely to be affected is not part of Washington's free trade vision, and is certainly not a reality in the countries that are the targets of this vision.

ACE IN THE HOLE

There is a popular card game among Jordanians and Palestinians called "hand." One tradition encourages players to cheat by hiding valuable cards until a crucial juncture in the game. In much the same way, US and Jordanian officials have retained their own ace in the hole -- American cash. Since 1993, direct US financial and military aid has approached $3 billion, including the most recent payment of $700 million for Jordan's role in the Iraq war. This money has directly increased Amman's foreign currency reserves and bracketed austerity measures that would damage the interests of key regime supporters. As a short-term strategy, aid payoffs give Jordan's political leaders the ability to stay in the game, but such easy money hardly guarantees victory. At some point, the consent that has been muted and the public grievances that are currently ignored will have to be addressed.

To achieve a real peace and craft conditions for productive and sustainable regional development, US policy needs to put the political before the economic. At a minimum, the hard work of securing a comprehensive peace, making the necessary political sacrifices and expanding meaningful political participation needs to be pursued as vigorously as freer trade.