RELAXING EU'S RULES OF ORIGIN

The Investor Jordan 2017  I  Economy I Analysis

“TRADE IS A VITAL ASPECT FOR STRENGTHENING LINKS BETWEEN JORDAN AND THE EUROPEAN UNION AND NOW IS THE PERFECT TIMING FOR THE KINGDOM TO STRENGHTEN ITS INDUSTRY WHILE PROVIDING JOBS TO JORDANIAN NATIONALS AS WELL AS SYRIAN REFUGEES.”

The unprecedented population growth, energy crisis, growing unemployment rates and declining investment levels are some of the major economic challenges that Jordan has been suffering from, particularly after the outbreak of political conflict in the region. Towards this end, the Jordan Compact, which was formulated during the London Donors’ Conference in February 2016, secures grants to support the implementation of the Jordan Response Plan 2016 and assist the Kingdom in absorbing the large population of Syrian refugees. As part of the compact, the European Union had pledged to provide Jordan with further assistance and facilitating trade between the Kingdom and European countries by relaxing the required Rules of Origin (ROO).

By definition, Rules of Origin (ROO) refer to “what an importing country considers the amount of value added in a good in a given exporting country sufficient for it to be counted as an export from that country” (Gibbon, 2008). According to the World Trade Organization (WTO), rules of origin are “the criteria needed to determine the national source of a product, and their importance is derived from the fact that duties and restrictions in several cases depend upon the source of imports” (WTO, 2016). According to Jordan’s Strategy Forum ”one of Jordan’s current economic challenges is that its exports to the EU have dropped significantly due to strict legislations and policies in regards to identifying the origin of products or the origin of raw materials used in the production of products.” Therefore, ROOs serve the purpose of securing local products in host countries (the EU, in this case), but create a trade barrier between host countries and potential exporters (such as Jordan), particularly when exporting countries lack the natural resources required for production. 

ROOs emphasize that products or raw material must originate either in the EU or from the country exporting to the EU. Jordan is a country that lacks sufficient raw material, and Jordanian manufacturers tend to import raw material from other countries for manufacture in Jordan. This therefore makes it very difficult for Jordan to export to Europe. For Jordan, relaxing the ROOs should mean easier access for domestic exports into the EU market, which would in return have a positive influence on Jordan’s trade transactions, hence spurring the Kingdom’s suffering economic growth levels.

Jordan is also one of the EU’s partner’s under the European Neighborhood Policy (ENP), through which the EU aims to support 16 neighboring countries in the areas of economic and democratic reform. Accordingly, EU-Jordan European Neighbourhood Policy Action Plan (ENP AP) was approved in 2005. This plan corresponded with the National Social and Economic Strategy at the time, and it was put in place to support economic and social development in the Kingdom. In 2010, the EU granted Jordan “advanced status,” which helped to further strengthen ties with Jordan and expanding areas of cooperation through facilitated market access and more open trade relations.

 

More recently, the EU issued the Single Support Framework for EU Support to Jordan, which would cover the years 2014-2017. This action plan focused on labor-market reform and job creation through the private sector, as well as addressing the budgetary strains that were brought about after the outbreak of the Arab Spring in 2011 and the emergence of the energy crisis in the Kingdom. According to the 2014-2017 Action Plan: “Strengthening trade ties is an important element of the second EU-Jordan ENP Action Plan and enhancing trade is an instrument to stimulate sustainable economic growth, improve competitiveness and support economic recovery.”

Trade is a vital aspect for strengthening links between Jordan and the European Union. As Jordan’s exports to the EU dropped by 47.6% between 2008 and 2015 this should be a great opportunity for the Kingdom to strenghten its industry while providing jobs to Jordanian nationals as well as Syrian refugees.