The setting up of the World Trade Organization (WTO) in the mid-1990s was supposed to have put the world economy on the path to multilateral trade liberalization. Yet, bilateral and regional free trade agreements (FTAs) have proliferated over the last decade or so.
In the 1990s, the European Union (EU) was a main proponent of bilateral accords. With the start of the Doha Round in 2001, however, the Europeans focused on the multilateral level, whereas the United States embarked on a major drive for regional and bilateral FTAs. Yet in 2006, with the Doha talks stalling, the EU developed a new strategy emphasizing bilateral free trade accords. While the EU and the US are among the more active players in this process of making trade agreements, others are similarly engaged.
Jordan provides the leading example of bilateral and regional trade liberalization since the late 1990s. Regarding trade agreements with the West, Jordan is the most heavily involved country in the Arab region. The US-Jordan FTA entered into force in December 2001. Previously, the two parties had also signed a Qualifying Industrial Zones (QIZ) trade agreement.
Relations between the EU and Jordan are governed by an Association Agreement signed in 1997 and implemented in 2002; and Jordan is a member of the ancillary Agadir Agreement with Egypt, Morocco and Tunisia. The kingdom is also part of the Arab Free Trade Area.
Bilateral FTAs with other countries have also been concluded or are being negotiated, notably with Canada, Israel and Singapore. Jordan’s trade liberalization has contributed to growing exports, including QIZ clothing sold to the US.
Jordan today is a highly open economy with diversified trade. The kingdom has undergone major economic reforms since the early 1990s, including rationalization of its fiscal policy, liberalizing trade, privatizing most state-owned enterprises and reforming customs, as well as other parts of the state administration.
Exports as well as imports have risen much faster than gross domestic product (GDP): the merchandise trade to GDP ratio reached 120 percent in 2008 (up from 82 percent in 1997) amounting to a staggering $9.1 billion.
Jordan’s National Agenda for 2006 to 2015 spelled out ambitious goals, including a cut in the net trade imbalance to $1.7 billion by 2012, and $900 million by 2017. This shortfall is financed by remittances, inflows of private capital, aid and some services income, such as that from tourism, which earned Jordan $2 billion last year. So the current external balance is not precarious: on the positive side, hard currency reserves in early 2009 stood at $8.3 billion, while foreign debt shrank. Expatriate remittances are estimated at $2.4 billion for 2008.
But the trend for the past few years has been for imports to rise faster than exports. The export to GDP ratio increased from 25 percent in 1997 to 35 percent today, while the comparable import ratio rose from 57 percent to 85 percent over the same period.
The structural characteristics of Jordan’s exports thus warrant attention. In 1997-2008, the kingdom’s total exports grew more than threefold, faster than global trade. Much of this growth is accounted for by exports to the US. The share of total Jordanian exports destined for the US increased from less than one percent in 1997 to more than 25 percent in 2008.
But the kingdom’s sales to America, heavily dominated by apparel, may decrease as Jordanian preferences in terms of US market access gradually erode. Jordan will thus need to diversify its exports to the US in order to compensate for flat or falling apparel figures.
Following a major liberalization effort in the context of its accession to the WTO in 2000, Jordan now has relatively low tariffs. Although the kingdom accepted and implemented the multilateral principles of the WTO, Jordan continues to support its external policies with a complex tissue of bilateral trade agreements.
Trade reforms have been implemented gradually since 1996 as governmental efforts addressed unilateral trade-related legislative adjustments in customs and taxes, as well as patent, copyright and trademark protection. Once full membership in the WTO was successfully reached in April 2000, Jordan agreed to assume all its market access commitments on goods. As for services, Jordan committed to removing 139 measures excluding market access, and 79 measures granting national treatment. The majority of commitments regard business services, transport, financial services and tourism, which are strategic to supporting the diversification of the kingdom’s economic structure.
Bilateral accords have also been important for Jordan in recent years. Since 1995, Jordan signed over two dozen bilateral agreements.
In conclusion, Jordan has moved over the past decade from being a closed economy to one that is very much in tune with the realities of globalized international trade. Yet, the results of this process have not always been positive, and the country still has some way to go in its quest to become a serious exporter.
Riad al Khouri is a Senior Associate Consultant, William Davidson Institute University of Michigan, Ann Arbor
