U.S.-Jordan Free Trade Agreement
Released: 2001-12-13T00:00:00

Introduction

On June 6, 2000, President Bill Clinton and King 'Abdullah II announced that the United Statesand Jordan would begin negotiations for a bilateral free trade agreement (FTA), (1) eventually leadingto reciprocal duty-free trade in goods. The United States and Jordan conducted three main roundsof negotiations before signing the FTA on October 24, 2000. The first round took place inWashington during the week of June 26, 2000 and was headed by then United States TradeRepresentative (USTR) Charlene Barshefsky and Jordanian Deputy Prime Minister and Minister ofState for Economic Affairs Dr. Muhammad al-Halayqah. The second and third rounds were heldin Amman, Jordan during the week of August 1, 2000, and in Washington during the week ofSeptember 11, 2000, respectively. During the October 2000 summit meeting at Sharm al-Sheikh,Egypt, King 'Abdullah reportedly expressed to President Clinton his desire to conclude thenegotiations as rapidly as possible. (2) Soon after, thetwo negotiating teams completed their talks andthe FTA was signed on October 24, 2000. (3)

According to the agreement, the FTA's entry into force is "subject to the completion of necessary domestic legal procedures by each Party." The Clinton Administration submitted theagreement to the 107th Congress on January 6, 2001, and bills to implement the FTA were introducedin the Senate ( S. 643 ) on March 28, 2001, and in the House ( H.R. 1484 )on April 4, 2001 (for further details, see the sub-section entitled U.S.-Jordan FTA in the Congressional Interest section). The Jordanian parliament reportedly ratified the FTA by a vote ofacclamation on May 9, 2001. (4) The agreement willenter into force two months after the Partiesexchange written notification that the necessary domestic legal procedures have been completed.

Congressional Interest

Congressional Interest in Free Trade in the Middle East

If the FTA wins U.S. congressional and Jordanian parliamentary approval, Jordan will become only the fourth country in the world to have a bilateral free trade agreement with the United States.Previous FTA's were concluded with Canada and Mexico, forming the North American Free TradeArea (NAFTA), and with Israel.

In 1985, Congress strongly supported the U.S.-Israel FTA negotiated by the Reagan Administration. Congress began its approval process of the FTA on April 29, 1985 when the UnitedStates-Israel Free Trade Area Implementation Act (H.R. 2268) was introduced in theHouse. The House passed the bill unanimously on May 7, 1985 and the Senate passed it withoutamendment on May 23, 1985. President Reagan signed the bill into law ( P.L. 99-47 ) on June 11,1985. U.S.-Israeli bilateral trade has increased substantially since the conclusion of the FTA. Whenthe agreement was signed in 1985, total U.S.-Israeli bilateral trade amounted to $4.7 billion. Sincethen, the volume of bilateral trade has increased steadily, reaching more than $20.7 billion in 2000,representing more than a four-fold increase in total bilateral trade. (5)

In 1996, Congress amended the United States-Israel Free Trade Area Implementation Act through the GSP Renewal Act of 1996 ( P.L. 104-234 ). (6) This legislation expanded the geographicscope of the U.S.-Israel FTA in two ways. First, it extended the FTA to cover goods produced ormanufactured in the West Bank and Gaza Strip. By providing Palestinian exporters with duty-freeaccess to the U.S. market, Congress hoped that such a 'peace dividend' would strengthen thePalestinian economy and thereby reinforce support for the peace process. The extension of theU.S.-Israel FTA to the West Bank and Gaza Strip has had a modest impact on direct Palestinianexports to the United States. In 1995, there were no such exports, but by 2000, the United Statesdirectly imported $4.8 million of Palestinian goods. (7) These figures might understate the actualamount of Palestinian exports to the United States in recent years because of Israel's continuing rolein heavily intermediating Palestinian trade with the rest of the world. In other words, somePalestinian goods may be exported indirectly to the United States via Israel, and therefore appear inU.S.-Israeli bilateral trade statistics.

Second, P.L. 104-234 also granted the President additional proclamation authority to extend the U.S.-Israel FTA to cover products from qualifying industrial zones (QIZs) between Israel andJordan, and Israel and Egypt. QIZs are designed to further Arab-Israeli economic cooperation byproviding goods produced with certain levels of Israeli, Jordanian, Egyptian, or Palestinian contentduty-free access to the U.S. market. (For further details on Jordanian-Israeli QIZs, see the followingsection on Congressional Interest in the Jordanian Economy and CRS Report RS20529, UnitedStates-Israel Free Trade Area: Jordanian-Israeli Qualifying Industrial Zones , by [author name scrubbed],updated March 29, 2001.) Egypt has yet to express interest in participating in the QIZ program,probably because it entails a level of Arab-Israeli economic cooperation that Egypt would prefer toengage in only after the conclusion of a comprehensive regional peace.

Although Egypt, for the time being, has decided not to participate in the QIZ program, some analysts have suggested Egypt as a potential candidate to be one of the United States' next free tradepartners. (8) Some Members of Congress haveexpressed interest in this idea as well. On August 4,2000, 26 Senators sent President Clinton a letter urging him to negotiate an FTA with Egypt thatwould form the basis for a Middle East Free Trade Region that would include Israel, the West Bankand Gaza Strip, Jordan, and Egypt. (9) On November1, 2000, 45 Representatives sent PresidentClinton a similar letter. While the conclusion of FTAs with Jordan and Egypt could form the basisfor a wider Middle East free trade region with the United States, negotiations for such anintra-regional zone would probably be politically unfeasible until a comprehensive regional peaceis achieved.

Congressional Interest in the Jordanian Economy

In the early 1990s, before Jordan and Israel achieved substantive progress on their bilateral track of the peace process, Congress did not undertake any large-scale initiatives to assist the Jordanianeconomy. U.S. foreign assistance to Jordan was limited, largely due to U.S. concern over Jordan'srefusal to join the U.S.-led coalition against Iraq during the 1990-1991 Gulf War. However, afterJordan and Israel signed the Washington Declaration, which terminated the state of belligerencybetween Jordan and Israel, on July 25, 1994, and a peace treaty on October 26, 1994, (10) Congress andthe Clinton Administration took a number of initiatives intended to benefit the Jordanian economy. These steps have included increasing the level of bilateral economic and military assistanceprovided to Jordan, forgiving Jordan's debt to the United States, and establishing qualifyingindustrial zones (QIZs) in Jordan and Israel. The primary Congressional motivation behindattempting to improve the Jordanian economy has been to provide Jordan with a 'peace dividend'-aneconomic reward designed to demonstrate the benefits of peace to a Jordanian population that hassometimes criticized and protested its government's pace and depth of normalization of relationswith Israel.

In recent years, one of the most visible aspects of Congressional interest in the Jordanian economy has been in the realms of foreign assistance and debt forgiveness. In the wake of theWashington Declaration, President Clinton promised King Hussein that he would work towardsforgiving Jordan's debt to the United States. Congress responded with subsidy appropriationsmainly in FY1994 and FY1995 that forgave the equivalent of roughly $700 million of Jordanian debtto the United States. Beginning in FY1996, Congress agreed to increase first military and theneconomic assistance to Jordan. In FY1999 and FY2000, at the request of the ClintonAdministration, Congress also earmarked $300 million for Jordan in its supplemental appropriationsfor funding the 1998 Israeli-Palestinian Wye River Memorandum. Congress provided Jordan withWye River funds in gratitude for King Hussein's prominent role in mediating the agreement and tohelp Jordan withstand internal and regional opposition to its supportive role. Table 1 providesasummary of U.S. assistance and debt forgiveness to Jordan since FY1993. (For further details onU.S. assistance to Jordan, see CRS Issue Brief IB93085, Jordan: U.S. Relations and Bilateral Issues ,by [author name scrubbed], updated regularly.)

Table 1. U.S. Foreign Assistance to Jordan, FY1993 to FY2001 (All figures in Millions of U.S. Dollars)

a. Economic assistance includes Economic Support Funds (ESF), Development Assistance, Food Assistance, and Peace Corps.

b. Military assistance includes Foreign Military Financing (FMF), Drawdowns of MilitaryEquipment, International Military Education and Training (IMET), and De-Mining Operations.

Debt forgiveness amounts represent subsidy appropriations, which under the scoring proceduresemployed forgave $702.3 million of Jordanian debt to the United States. Figures for FY1999 and FY2000 include additional appropriations that Jordan has received orwill receive for its role in helping to mediate the Israeli-Palestinian Wye River Memorandum. Some FY2000 Wye River appropriations might not be obligated until FY2001 or FY2002.

Apart from foreign assistance and debt forgiveness, Congress has also promoted jointJordanian-Israeli economic ventures through the Qualifying Industrial Zones (QIZ) program. In1996, Congress adopted this program as an amendment to the United States-Israel Free Trade AreaImplementation Act of 1985 (H.R. 3074) and President Clinton signed the bill into law( P.L. 104-234 ) in October 1996. Under this legislation, products with a certified minimum contentof Jordanian and Israeli inputs that are manufactured in specially designated qualifying industrialzones are eligible for unilateral duty-free access to the U.S. market. To date, the United States TradeRepresentative (USTR) has designated ten QIZs in Jordan, which have had a modestly successfuleffect in boosting Jordanian exports to the United States, spurring Jordanian-Israeli businesspartnerships, promoting job creation in Jordan, and encouraging foreign direct investment (FDI) inJordan. (For further details, see CRS Report RS20529, United States-Israel Free Trade Area:Jordanian-Israeli Qualifying Industrial Zones , by [author name scrubbed], updated March 29, 2001.)

U.S.-Jordan FTA: Letters and Legislation

Some Members of Congress began to consider the idea of negotiating a U.S.-Jordan FTA seven years ago in the immediate aftermath of the signing of the July 1994 Washington Declaration. ThenHouse Majority Leader Richard Gephardt sent President Clinton a letter urging him to expand theU.S.-Israel FTA to include countries that sign "comprehensive peace agreements with Israel." Theletter was co-signed by an additional 42 Representatives. (11) However, both in Congress and in theClinton Administration, the idea of establishing a U.S.-Jordan FTA lay dormant for the most part,until King 'Abdullah II ascended the Jordanian throne upon the death of his father, King Hussein,in February 1999, and made the U.S.-Jordan FTA one of his top priorities.

The high priority that King 'Abdullah has attached to economic reform in general, and to the U.S.-Jordan FTA in particular, helped to rekindle Congressional interest in this issue. Toward thisend, between March and May 2000, over 45 Members of Congress sent President Clinton letters (12) urging him to enter into negotiations for an FTA with Jordan as soon as possible. In these letters,Members provided several interrelated rationales for supporting a U.S.-Jordan FTA: 1) it wouldstrengthen bilateral relations and express the United States' appreciation for Jordan's role infurthering the Middle East peace process and actively cooperating in international counter-terrorismactivities; 2) it would promote economic growth in Jordan and regional economic cooperation,thereby enhancing stability and security in Jordan and the Middle East; and 3) it would assist infurther promoting economic reform and liberalization in Jordan.

About a month after formal U.S.-Jordanian negotiations on the FTA began, on July 17, 2000, a bipartisan group of 41 Senators sent President Clinton a letter urging his Administration to"promptly conclude negotiations" so that the Senate could consider and pass the FTA during the106th Congress. (13) EighteenDemocratic Members of Congress wrote a letter to President Clinton onOctober 24, 2000, expressing their "congratulations and strong support" for the U.S.-Jordan FTAand pledging "to work hard to pass the implementing bill for this free trade agreement in the 107thCongress." (14)

President Clinton submitted the U.S.-Jordan FTA to the 107th Congress on January 6, 2001, and the Senate Finance Committee held a hearing on the FTA on March 20. On March 28, SenatorMax Baucus, then ranking minority member on the Senate Finance Committee, introduced a bill toimplement the U.S.-Jordan FTA ( S. 643 ), which was referred to the Senate FinanceCommittee. The committee held a mark-up session for the bill on July 17 during which it approvedan amendment in the nature of a substitute offered by Senator Baucus correcting various technicaland typographical errors spotted in the original bill. The committee also rejected an amendmentoffered by Senator Phil Gramm that would have restricted the scope of the dispute resolutionmechanism in the treaty to deal with labor and environmental issues. On July 26, the SenateFinance Committee approved S. 643 by a voice vote.

Representative Sander Levin, ranking minority member on the House Ways and Means' TradeSubcommittee, introduced a similar bill ( H.R. 1484 ) in the House on April 4, which wasreferred to the House Ways and Means and Judiciary Committees. On April 19, the bill was referredto the Subcommittee on Trade of the Ways and Means Committee and the Subcommittee onImmigration and Claims of the Judiciary Committee. On July 26, the House Ways and MeansCommittee approved similar legislation, H.R. 2603 (Thomas), an amendment in thenature of a substitute, by a voice vote.

Approval of the implementing legislation by House and Senate subcommittees on July 26, as indicated above, came after the ambassador of Jordan and Robert Zoellick, the U.S. TradeRepresentative, exchanged identical letters which (1) pledged to resolve any differences that mightarise between the two countries under the agreement, without recourse to formal dispute settlementprocedures; and (2) specified that each government "would not expect or intend to apply theAgreement's dispute settlement enforcement procedures . . .in a manner that results in blockingtrade." In House floor debate, the letters were viewed alternately as (1) part of "a cooperativestructure. . . to help secure compliance without recourse to . . .traditional trade sanctions that are theletter of the agreement (Thomas); and (2) "a step backwards for future constructive action on trade"(Levin).

The House approved H.R. 2603 by a voice vote on July 31, 2001. The Senate approved H.R. 2603 by a voice vote on September 24, 2001. It became law as P.L.107-43 on September 28, 2001. During the Senate debate, Senator Phil Gramm warned that he willoppose any effort to turn the U.S.-Jordan FTA into a model for how future trade agreements shoulddeal with worker rights (and environmental protection issues). He argued that they should not bepart of trade deals. Conversely, Senate Finance Committee Chairman Max Baucus indicated hehoped the U.S.-Jordan FTA would set a precedent for how future trade agreements would addressissues like labor and the environment. He also refuted a statement made by Senator Graham that theprovisions would undermine U.S. sovereignty or prevent lawmakers from enacting and enforcingU.S. labor and environmental laws.

Reactions to the Proposed Free Trade Agreement

Clinton Administration: Economic and Environmental Impact Studies

Prior to the signing of the agreement, the Clinton Administration expressed its support for a U.S.-Jordan free trade agreement (FTA) in terms similar to those employed by Members of Congresswho urged the President to undertake this initiative. The Clinton Administration viewed the FTAas a potential catalyst to sustained economic growth in Jordan, providing its people with along-awaited 'peace dividend,' which in turn would reinforce support for the peace process. ThenUnited States Trade Representative (USTR) Charlene Barshefsky recently stressed the link betweeneconomic growth and regional peace, stating that the FTA "can be a step toward the creation of afuture Middle East which is peaceful, prosperous, and open to the world; whose nations worktogether for the common good; and whose people have hope and opportunity." (15)

As noted above, President Clinton and King 'Abdullah agreed to begin negotiations on an FTA on June 6, 2000. Shortly thereafter, on June 15, the United States Trade Representative (USTR)gave official notice of the United States' intent to conclude an FTA with Jordan. (16) The USTR alsorequested the United States International Trade Commission (USITC) to study the economic impactof a U.S.-Jordan FTA on the U.S. economy. Consequently, USITC initiated investigation No.332-418, entitled "Economic Impact on the United States of a U.S.-Jordan Free Trade Agreement." (17) The economic impact study was completed and submitted to the USTR on July 31, 2000, and wasdeclassified and released to the public on September 26, 2000. (18)

In this investigation, the USITC concluded that a U.S.-Jordan FTA "would have no measurable impacts on total U.S. exports, total U.S. imports, U.S. production, or U.S. employment." USITCarrived at this conclusion after conducting 16 qualitative industry sector analyses of U.S. exports toand imports from Jordan. By running partial equilibrium analyses, in which tariffs levels werehypothetically reduced to zero and all other factors influencing levels of trade flows were heldconstant, USITC concluded that had zero-level tariffs been in place in 1998, U.S. exports to Jordanwould have increased in three sectors. Under this model, U.S. exports of cereals (other than wheat)would have increased by 14% (or $2.9 million); U.S. exports of electrical machinery would haveincreased by 104% (or $22 million); and U.S. exports of machinery and transportation equipmentwould have increased by 39% (or $48 million). USITC also predicted that the FTA "will likely leadto an increase in U.S. imports of textiles and apparel from Jordan." However, USITC did not runa partial equilibrium analysis for this Jordanian export sector, and therefore, was unable to quantifythe potential increase. Though USITC concluded that the overall impact of the FTA on the U.S.economy will be negligible, it did infer that the FTA could occasion a modest increase in bilateraltrade.

The Office of the USTR, through the Trade Policy Staff Committee (TPSC), is also conducting an environmental impact study of the U.S.-Jordan FTA. This environmental review responds to anew U.S. commitment to "factor environmental considerations into the development of its tradenegotiating objectives," embodied in Executive Order 13141, issued by President Clinton onNovember 16, 1999. (19) Some view this ExecutiveOrder as the Clinton Administration's responseto criticisms of the environmental effects of United States trade policy expressed before and duringthe November 1999 Seattle Round of the World Trade Organization (WTO) talks. (Coincidentally,violent confrontations between the police and protesters in Seattle curtailed the agenda of the WTOtalks, forcing Jordan's accession to the WTO to be deferred until April 2000. (20) ) Many individualsand groups concerned with the nexus between trade and environmental issues watched theU.S.-Jordanian negotiations with great interest since their results could serve as a model for futureU.S. trade negotiating strategy on environmental issues.

In September 2000, the USTR released a draft environmental review of the proposed U.S.-Jordan FTA. (21) In this draft review, the USTRstated that "the U.S. Government (USG) expectsthat the FTA with Jordan will not have any significant environmental effects in the United States. While it is conceivable that there may be instances in which environmental effects are concentratedregionally or sectorally in the United States, the USG could not identify any such instances."

U.S. Private Sector Comments Received by the USTR

When the Office of the USTR gave official notice of the United States' intention to enter into free trade negotiations with Jordan, it also solicited comments from private sector corporations andassociations on the objectives to be pursued during these negotiations. (22) In total, twenty corporationsand associations filed public comments with the USTR-seventeen of which concerned the economiccomponents of the FTA and three of which dealt with the environmental aspects of the agreement. (23) (For a brief overview of the positions taken by these corporations and associations, see AppendicesA and B .)

In general, those private sector corporations and associations that responded to the USTR's call for public comments on the FTA expressed their support for the idea. Manufacturers, importers, andmarketers of textile and apparel products accounted for the plurality of public comments receivedby the USTR (six of seventeen public comments filed on the economic aspects of the FTA primarilydealt with textiles and apparel, while another one secondarily dealt with these sectors as well). Theinterest that U.S. textile and apparel companies have shown in the U.S.-Jordan FTA is unsurprisingsince these sectors could prove to be the largest potential area of growth for Jordanian exports to theUnited States under an FTA.

Some of these textile manufacturers, such as BCTC Corporation and certain members of the American Apparel Manufacturing Association (AAMA), have recently invested in Jordan'squalifying industrial zones (QIZs) and therefore have an interest in expanding Jordanian textile andapparel access to the U.S. market. Those supportive of greater Jordanian textile and apparel accessto the U.S. market tended to urge the USTR to adopt the U.S.-Israel FTA 'rules-of-origin' in theU.S.-Jordan FTA. The 'rules-of-origin' clauses in the U.S.-Israel FTA allow Israeli exports toqualify for duty-free access to the United States if Israel added at least 35% (of which up to 15% canbe from the United States) to the value of the product.

Those who fear that greater Jordanian textile and apparel access to the U.S. market could harm textile and apparel manufacturers and workers within the United States, such as the American TextileManufactures Institute (ATMI), urged the USTR to apply North American Free Trade Agreement(NAFTA) 'rules-of-origin' standards to the U.S.-Jordan FTA. NAFTA 'rules-of-origin,' includingthose for textile and apparel, are stricter than those in the U.S.-Israel FTA, and if applied to theU.S.-Jordan FTA would probably result in a smaller growth potential for Jordanian exports oftextiles and apparel to the United States. (For further details on NAFTA 'rules-of-origin,' see CRSInfo Pack IP445N, NAFTA: The North American Free Trade Area , updated as needed.)

Another topic that elicited multiple responses is the issue of protecting intellectual property rights (IPRs). In particular, pharmaceutical and motion-picture interests urged the USTR to ensurethat the FTA addresses Jordan's implementation of all WTO and Trade- Related Aspects ofIntellectual Property Rights (also known as "TRIPS") commitments. Other respondents who filedpublic comments either export to Jordan or import from Jordan particular commodities and urgedthe USTR to negotiate immediate zero-level tariffs for these commodities in the FTA.

As noted above, USTR also received three public comments specifically relating to the environmental aspects of the U.S.-Jordan FTA. Two of these comments, filed by the WorldResources Institute and the American Lands Alliance, expressed support for conducting anenvironmental impact study and incorporating environmental standards within the proposed FTA. The American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), in itspublic comment on the economic aspects of the FTA, also supported the introduction of coreenvironmental standards in the FTA. However, the United States Council for International Businesshas opposed the introduction of environmental standards within the framework of the FTA andargued instead for bilateral environmental agreements to be concluded outside the framework of theFTA.

At the same time that it called for public comments on the FTA, the USTR also announced that it would be negotiating labor standards within the text of the proposed FTA. As a result, threeorganizations filed comments with the USTR that dealt with the advisability of including laborstandards within an FTA. Women's Edge and the AFL-CIO both supported the idea of includingcore international labor standards within the text of the agreement. The United States Council forInternational Business countered that the purview of an FTA should not include international laborstandards.

Jordanian Environmental Impact Study and Private Sector Reactions

Like the USTR, the Jordanian government has also called for the Jordanian private sector to file comments on the environmental aspects of the U.S.-Jordan FTA. (24) The Jordanian delegationnegotiating the FTA, led by Deputy Prime Minister and Minister of State for Economic Affairs Dr.Muhammad al-Halayqah, incorporated these public comments into a separate Jordanianenvironmental review of the FTA. The Jordanian negotiating team completed its preliminaryenvironmental review of the agreement in July 2000. (25) Although the Jordanian negotiating team wasunable "to be very detailed or quantitatively precise about the likelihood of specific impacts on theenvironment" resulting from the FTA, it did identify a number of potential environmentalconsequences-both positive and negative-that the FTA might occasion. On the positive side, theFTA could lead to expanded agricultural imports to Jordan, which would decrease the demand forwater for agricultural purposes and lessen the strain on this depletable resource. On the negativeside, increased trade is likely to lead to greater amounts of solid wastes, which could prove to beproblematic, especially in the Jordanian mineral and natural resources sectors. Also, increased tradewould likely increase maritime traffic in the Gulf of Aqaba, posing risks to the fragile ecosystem ofthe Red Sea, famed for its coral reefs.

In general, the Jordanian private sector responded enthusiastically to the idea of the U.S.-Jordan FTA. For instance, the Jordanian American Business Association (JABA) surveyed prominentbusiness leaders from both private and public sector organizations and found that "overall sentimentran strongly in favor of increased economic ties between Jordan and the United States. Manyexpressed an expectation especially that foreign direct investment into Jordan will increase and thatthe FTA will help expand this into multiple sectors, from textiles to technology and from financialservices to tourism." (26) However, JABA also notedthat some of those surveyed worried that an FTAcould lead to an expanded level of U.S. imports that could have a detrimental impact on Jordan'smanufacturing sector. Some also expressed concern that Jordan's reorientation of its trade relationstoward the United States (and toward Europe with the signing of an EU-Jordanian partnershipagreement) could come at the expense of its trade relations with neighboring countries. In theimmediate aftermath of the signing of the FTA, several prominent Jordanian private sectorpersonalities, including the President of the Union of Jordanian Chambers of Commerce, the VicePresident of the Amman Chamber of Commerce, and the Chairman of the Administrative Councilof the Amman Chamber of Industry, welcomed and endorsed the FTA. (27)

Selected Provisions of the U.S.-Jordan FTA

As noted above, the U.S.-Jordan FTA was signed on October 24, 2000. This section highlightsselected provisions of the FTA and is based on the text, annexes, schedules, and relatedunderstandings of the agreement as published by the USTR. (28) This section does not offer a legalinterpretation of the rights and obligations that the FTA entails. Those who are interested in furtherdetails on specific provisions of the agreement are urged to consult the full-text of the agreement,which is accessible via the hyperlink provided in the footnote below. The subsequent sectiondiscusses some of the potential economic and political effects of the FTA.

Trade in Goods and Services. The FTA provides for a 10-year transitional period during which duties on almost all goods will be phased-out, leadingto duty-free trade in goods between the United States and Jordan. The duties on many goods willbe phased-out prior to the end of the 10-year transitional period. The FTA also provides for aliberalization of bilateral trade in services, stating that "each Party shall accord to services andservice suppliers of the other Party, in respect of all measures affecting the supply of services,treatment no less favorable than that it accords to its own like services and service suppliers."(Article 3.2(b)) The Parties undertook specific market-opening commitments in various servicesectors, such as business, communications, construction and engineering, distribution, education,environment, finance, health, tourism, recreation, and transportation.

Intellectual Property Rights (IPRs). The FTA obligates the United States and Jordan to give effect to various articles in several World IntellectualProperty Organization (WIPO) multilateral agreements. The FTA provides protections fortrademarks, copyrights, and patents, and specifically mentions the protection of software andpharmaceuticals, two categories of products whose copyrights and patents are especially prone toviolation. The FTA also provides for the enforcement of the IPRs that it protects: Article 4.24states, in part, that each country "shall ensure that its statutory maximum fines are sufficiently highto deter future acts of infringement with a policy of removing the monetary incentive to theinfringer." The agreement stipulates that the protection of some of the IPRs will take effectimmediately from the date of entry into force while others will take effect between six months andthree years from that date. The United States and Jordan also signed a Memorandum ofUnderstanding on Issues Related to the Protection of IPRs, specifying that Jordan will raise itscriminal penalties for the infringement of IPRs to approximately $8500 (6000 Jordanian dinars) inorder to deter future infringements.

Environment. In the FTA, the United States and Jordan recognize the principle that it is "inappropriate to encourage trade by relaxing domesticenvironmental laws. Accordingly, each Party shall strive to ensure that it does not waive orotherwise derogate from, or offer to waive or otherwise derogate from, such laws as anencouragement for trade with the other Party." (Article 5.1) The agreement also recognizes the rightof each country to establish its own levels of domestic environmental protection, policies, andpriorities. The FTA states that "a Party shall not fail to effectively enforce its environmental laws,through a sustained or recurring course of action or inaction, in a manner affecting trade between theParties." (Article 5.3(a)) The United States and Jordan also issued a Joint Statement onEnvironmental Technical Cooperation. The joint statement establishes a Joint Forum onEnvironmental Technical Cooperation, which will work to "advance environmental protection inJordan by developing environmental technical cooperation initiatives, which take into accountenvironmental priorities, and which are agreed to by the two governments, consistent with the U.S.country strategic plan for Jordan, and complementary to U.S.-Jordanian policy initiatives." Anannex to the joint statement details ongoing and future U.S.-Jordanian environmental technicalcooperation programs.

Labor. (29) Under the FTA, the United States andJordan reaffirm their obligations as members of the International Labor Organization (ILO) and theircommitments under the ILO Declaration on Fundamental Principles and Rights at Work and itsFollow-Up. Mirroring the language used in the section on environmental standards, the FTA statesthat "the Parties recognize that it is inappropriate to encourage trade by relaxing domestic labor laws. Accordingly, each Party shall strive to ensure that it does not waive or otherwise derogate from, oroffer to waive or otherwise derogate from, such laws as an encouragement for trade with the otherParty." (Article 6.2) The agreement also recognizes the right of each country to establish its owndomestic labor standards, laws, and regulations, striving to ensure that these are consistent withinternational recognized labor rights. The FTA states that "a Party shall not fail to effectivelyenforce its labor laws, through a sustained or recurring course of action or inaction, in a manneraffecting trade between the Parties." (Article 6.4(a))

Electronic Commerce. The FTA states that the United States and Jordan will seek to refrain from deviating from the existing practice of notimposing customs duties on electronic transmissions or imposing unnecessary barriers on electronictransmissions.

Safeguard Measures. The FTA contains safeguard measures to ensure that if the implementation of the agreement leads to "a substantialcause of serious injury, or threat thereof" to a domestic industry, either country may temporarilysuspend further tariffs reductions on the affected goods. If either country decides to implement asafeguard measure, its duration cannot exceed 4 years or the 10-year transitional period, and nomeasure shall be maintained "except to the extent and for such time as may be necessary to preventor remedy serious injury and to facilitate adjustment." (Article 10.2.(a)(i)) The FTA also recognizesthe special challenges faced by "infant industries" during a period of trade liberalization and thattherefore neither country should create obstacles to "infant industries" that seek the imposition ofsafeguard measures.

Joint Committee. The FTA establishes a Joint Committee whose functions include reviewing the general functioning of the agreement; improvingtrade relations; avoiding and settling disputes; amending the agreement; developing guidelines,explanatory material, and rules on the implementation of the agreement; and reviewing theenvironmental impact studies conducted by both countries. The Joint Committee will be headed bythe USTR and by "Jordan's Minister primarily responsible for international trade" and will make alldecisions by consensus. The committee will consider "the views of interested members of the publicin order to draw upon a broad range of perspectives in the implementation of this Agreement" and"seek the advice" of non-governmental organizations (NGOs).

Dispute Settlement. The FTA sets out a multi-step procedure for dispute settlement. First, the United States and Jordan "shall make everyattempt to arrive at a mutually agreeable resolution through consultations" if a dispute arises. If theParties do not resolve the dispute within 60 days through consultations, either Party has the right torefer the dispute to the Joint Committee. If the Joint Committee does not solve the dispute within90 days, the dispute may be referred to a specially appointed three-person dispute settlement panel. The dispute settlement panel is authorized to make non-binding recommendations to resolve thedispute. After the dispute settlement panel issues its recommendations within 90 days, the JointCommittee "shall endeavor to resolve the dispute, taking the report into account." If the JointCommittee stills fails to resolve the dispute within 30 days, then "the affected Party shall be entitledto take any appropriate and commensurate measure." The United States and Jordan also signed aMemorandum of Understanding on Transparency in Dispute Settlement, obligating the Parties to"solicit and consider the views of members of their respective publics in order to draw upon a broadrange of perspectives." According this memorandum, if a dispute panel is established, anysubmission made to it shall be made available publicly; oral presentations before the panel shall beopen to members of the public; the panel shall "accept and consider" amicus curiae submissions byindividuals, legal persons, and NGOs; and the panel shall release its report to the public.

Potential Effects of the U.S.-Jordan FTA

Trade in Goods

Throughout the 1990s, bilateral trade between the United States and Jordan was modest. Between 1992 and 1999, yearly bilateral trade flows between the United States and Jordan stayedfairly constant, registering a low of $275 million in 1992 and a high of nearly $430 million in 1997. In 2000, Jordan ranked as the United States' 98th largest trading partner in the world with roughly$385 million in trade turnover (imports plus exports). (30) Trade between the United States and Jordanhas been predominantly uni-directional, with the United States enjoying a healthy trade surplus. Inmany years, U.S. exports to Jordan have dwarfed U.S. imports from Jordan by a magnitude of morethan 10:1. Table 2 provides an overview of the bilateral trade flows between the United StatesandJordan between 1992 and 2000.

Table 2. U.S.-Jordanian Bilateral Trade and Trade Balance,1992-2000 (All figures in Millions of U.S. Dollars)

Source : "U.S. Trade Balance with Jordan," United States Census Bureau, Department of Commerce.

In 2000, total bilateral trade between the United States and Jordan was roughly $385 million. U.S. exports to Jordan accounted for approximately 80% ($310 million) of this total. Table 3 presents an overview of the top ten commodities that the United States exported to Jordan in 2000,ranked by ten-digit Schedule B classification and commodity description. Table 3 also shows theJordanian tariff rate in effect since Jordan's accession to the WTO in April 2000, which was usedas the base for the phased-in elimination of tariffs in the FTA, as well as the staging category for theelimination of tariffs as negotiated in the FTA.

In 2000, cereals accounted for three of the top ten leading U.S. exports to Jordan. Exports of durum wheat, wheat and meslin, and barley totaled $62 million and accounted for about 20% of totalU.S. exports to Jordan. Under the prevailing tariff rates, these commodities already enter Jordanduty-free, reflecting the sensitivity of food pricing in Jordan. Food prices have tended to be avolatile domestic political issue in Jordan since the government began to lower food subsidies in the context of its structural adjustment reform program. (31) Therefore, the free trade agreement islikely to have only a marginal impact on the volume of U.S. cereal exports to Jordan and on cerealpricing for Jordanian consumers since tariffs on leading cereal exports are already zero.

Other leading U.S. exports to Jordan, such as airplane and helicopter parts, woodpulp, vessels, and aircraft turbines face low (0-10%) tariffs, while radio transceivers face moderately high (30%)tariffs. Tariffs on these leading export commodities will be phased-out according to the FTA, withthe exception of smoking tobacco, which, at $14 million and 5% of total exports, was the fourthlargest U.S. export to Jordan in 2000. Smoking tobacco faces a high tariff (70%) but its removal wasnot negotiated by the USTR in order to comply with the Clinton Administration's interpretation ofthe "Doggett Amendment" to the Departments of Commerce, Justice, and State, the Judiciary, andRelated Agencies Appropriations Act, 1998, and subsequent legislation (see Table 3 Notes forfurther details on this legislation).

In 2000, U.S. imports from Jordan totaled $73 million and accounted for approximately 20% of total bilateral trade. Table 4 presents an overview of the top ten commodities that the UnitedStates imported from Jordan in 2000, ranked by ten-digit Harmonized Tariff Schedule (HTS)classification and commodity description. Table 4 also shows the U.S. tariff rate in 2000, which wasused as the base for the phased-in elimination of tariffs in the FTA, as well as the staging categoriesfor the elimination of tariffs as negotiated in the FTA. Table 4 furthermore subdivides thesecommodities into imports that entered the United States duty-free under the qualifying industrialzones (QIZ) program.

Approximately 40% (or $30 million) of all Jordanian exports entered the United States duty-free under the QIZ program in 2000. (For further details on the QIZ program, see CRS Report RS20529, United States-Israel Free Trade Area: Jordanian-Israeli Qualifying Industrial Zones , by[author name scrubbed], updated March 29, 2001.) An additional 14% (or $10 million) of all Jordanianexports received preferential access to the U.S. market under the Generalized System of Preferences(GSP) program in 2000. (For further details, see CRS Report 97-389, Generalized System ofPreferences , by [author name scrubbed], updated January 8, 2001.) Leading Jordanian exports to theUnited States in 2000 included textiles and apparel, suitcases, briefcases, and jewelry. At least halfof all exports in six of the ten leading export categories benefitted from QIZ status (textiles andapparel, suitcases, and briefcases) and all exports in two categories benefitted from the GSP program(jewelry).

Table 3. Top 10 U.S. Domestic Exports by FAS Value to Jordan, 2000

Source: United States Trade Representative, United States International Trade Commission, JordanCustoms Department.

Notes:

A=Duties to be eliminated in two equal annual stages.

E=Duties already eliminated or to be eliminated in accordance with existing WTO duty-eliminationcommitments.

N/A=Non-applicable.

* The USTR did not negotiate the reduction of tariffs on tobacco products to comply with theClinton Administration's interpretation of the "Doggett Amendment" to the Departments ofCommerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Act, 1998( H.R. 2267 , signed into law as P.L. 105-119 , November 26, 1997). The DoggettAmendment, Sect. 618, states that "none of the funds provided by this Act shall be available topromote the sale or export of tobacco or tobacco products, or to seek the reduction or removal by anyforeign country of restrictions on the marketing of tobacco or tobacco products, except forrestrictions which are not applied equally to all tobacco or tobacco products of the same type."Similar language has appeared in subsequent appropriations acts for these agencies. For instance,see Sec. 616, H.R. 5548 , incorporated into H.R. 4942 , signed into law as P.L. 106-553 , December 21, 2000.

Table 4. Top 10 U.S. Imports for Consumption by Customs Value from Jordan, 2000

Source: United States Trade Representative, United States International Trade Commission.

Notes: U.S. tariff rates do not apply to designated products of qualifying industrial zones(QIZs),which enter the United States duty-free.

C=Duties to be eliminated in five equal annual stages.

D=Duties to be eliminated in ten equal annual stages.

E=Duties already eliminated or to be eliminated in accordance with existing WTO duty-eliminationcommitments.

F=Duties to be retained until year ten and eliminated effective year ten.

G=Duties to be eliminated effective year one.

Since many Jordanian exports to the United States already qualify for duty-free or preferential access under the above-mentioned programs and the regular tariff rates (in the HTS), the FTA isunlikely to have a large impact on the volume of Jordanian exports to the United States. However,one sector that shows growth potential under a future U.S.-Jordan FTA is the textile and apparelsector. This sector occupies a significant position in Jordanian industrial production. For instance,in 1993, 1,750 textile and ready-made apparel firms employed over 7,500 people. Excluding mineraland petrochemical production, textiles and apparels were Jordan's second leading worldwideindustrial export (roughly $50 million) in 1994. (32) Since 1994, the textile and apparel sector hasbecome an even more important part of Jordanian manufacturing since several American, Israeli, andother multi-national textile and apparel firms have relocated some of their operations to Jordanboth within and outside the context of the QIZ program. However, only a few firms have qualifiedtheir products for QIZ status. Therefore, most of the Jordanian textile and apparel industry still facesfairly substantial tariffs when exporting to the United States. A general phasing-out of these tariffswithin the context of an FTA would presumably increase Jordanian non-QIZ textile and apparelexports to the United States.

Foreign Direct Investment (FDI) in Jordan

Although a U.S.-Jordan FTA might not have a large and immediate impact on the volume of bilateral trade in goods and services, many predict that the FTA could substantially increase foreigndirect investment (FDI) in Jordan, both from the United States and from the rest of the world. In thecontext of an FTA, multinational companies seeking greater U.S. market access could relocate someof their operations to Jordan in order to take advantage of its eventual duty-free access to the UnitedStates. In addition, U.S. companies that currently import inputs or finished products from othercountries could reroute their purchases to Jordanian suppliers in order to reduce production or importcosts stemming from tariffs. Already, some U.S., foreign, and multinational companies haverelocated their operations to Jordan in order to benefit from the QIZ program, thereby attractinglarger amounts of FDI to Jordan. A U.S.-Jordan FTA could promote a similar pattern on acountry-wide scale.

In recent years, U.S. direct investment in Jordan has been limited. Table 5 presents available data on U.S. companies' direct investment position in Jordan between 1994-1999. It also presentsthe capital outflows and profits stemming from these investments. In 1999, U.S. FDI in Jordanincreased to $30 million, up from $15 million in 1995, probably as a result of U.S. textile andapparel manufacturers investing in the al-Hassan Industrial Park QIZ in Irbid, Jordan. However,even with this increase, Jordan is still a rare destination for U.S. FDI in the Middle East. In 1999,U.S. FDI in Jordan represented less than 0.3% of total U.S. FDI in the region.

Table 5. U.S. Foreign Direct Investment in Jordan,1994-1999 (All figures in Millions of U.S. Dollars)

Notes: Entries designated (D) are suppressed in order to avoid disclosure of data of individual companies.

Source: "International Accounts Data: U.S. Direct Investment Abroad," Bureau ofEconomic Analysis, Department of Commerce.

To stimulate bilateral investment flows, the United States and Jordan negotiated a Bilateral Investment Treaty (BIT) on July 2, 1997. (33) TheUnited States has negotiated similar treaties withdozens of other countries, designed, according to the USTR, to (1) protect U.S. investments abroad,(2) encourage market-oriented economic reform, and (3) support international law standardsregarding foreign investment. (34) (For furtherinformation on Bilateral Investment Treaties, see CRS Report 98-39(pdf) , Foreign Investment Treaties: Impact on Direct Investment , by [author name scrubbed],January 12, 1998.) On May 23, 2000, President Clinton transmitted a message to the Senate seekingits advice and consent for ratification of the U.S.-Jordan BIT (Treaty Document No. 106-30). (35) Onthe same day, the Senate referred the treaty to the Committee on Foreign Relations by unanimousconsent. (36) The Senate considered the treaty andgave its advice and consent to ratification onOctober 18, 2000.

Economic Reform in Jordan

Since ascending the throne in February 1999, King 'Abdullah has made economic reform a top governmental priority. As a result, Jordan has undertaken a number of structural adjustment reformswithin the past year. For instance, in the context of its accession to WTO membership in April 2000,Jordan harmonized its General Sales Tax (GST) rates on domestic and imported goods, amended itscustoms law, and enacted new legislation protecting intellectual property rights (IPRs). In July 1999and April 2000, Jordan also lowered tariff levels, further liberalizing its trade regime. Outside therealm of trade, Jordan has begun to corporatize some public sector companies in preparation for theireventual privatization. Public sector telecommunications and cement companies, in addition tocompanies in other sectors, have been partially or wholly privatized as well. (37) Jordan's accessionto the WTO, combined with a free trade agreement with the United States, will likely increase themomentum for further economic reforms in Jordan.

Political Implications

Should Congress and the Jordanian parliament agree to the FTA, Jordan would become the first independent Arab country to have concluded an FTA with the United States. This would beinterpreted by many as a sign of the strength of U.S.-Jordan bilateral relations and of the importancethat the United States attaches to this relationship. The U.S.-Jordan FTA would also be interpretedas a demonstration of the United States' confidence in and approval of King 'Abdullah's leadershipin general and of his economic reforms in particular. In addition, the FTA could modestly reorientJordan's trade pattern towards the United States and therefore implicitly away from Iraq. If, as aresult of the FTA, Jordan could generate substantial export revenues from the United States, it couldeventually decrease its reliance on Iraq as a major trading partner. (38) If the FTA results in a significant'peace dividend' through increased levels of foreign direct investment (FDI) and exports, potentiallyleading to job creation and sustained economic growth, support for the peace process within Jordancould increase. In addition, this could provide tangible proof to other countries in the region that thepeace process can yield economic benefits for their people as well.

Bibliography

Jordanian American Business Association (JABA), "The Proposed Free Trade Agreement betweenthe United States of America and the Hashemite Kingdom of Jordan: Expected Impact andBenefits."

Office of the U.S. Trade Representative. Draft Environmental Review of the Proposed Agreement on the Establishment of a Free Trade Area Between the Government of the United States andthe Government of the Hashemite Kingdom of Jordan.

-- The U.S.-Jordan Free Trade Agreement.

U.S. Agency for International Development, Access to Microfinance and Improved Implementation of Policy Reform (AMIR Program). "Economic Impact and Implications for Jordan of theU.S.-Jordan Free Trade Agreement," February 2001.

-- "Environmental Review of the Jordan-U.S. Free Trade Agreement-A Preliminary Appraisal: Final Report," July 2000.

U.S. International Trade Commission. "Economic Impact on the United States of a U.S.-Jordan Free Trade Agreement." ITC Investigation No. 332-418.

U.S. Senate. Committee on Finance. Hearing on the U.S.-Jordan Free Trade Agreement , March 20,2001.

CRS Products

CRS Report 98-39(pdf) , Foreign Investment Treaties: Impact on Direct Investment , by [author name scrubbed],January 12, 1998.

CRS Report 97-389, Generalized System of Preferences , by [author name scrubbed], updated January8, 2001.

CRS Issue Brief IB93085, Jordan: U.S. Relations and Bilateral Issues , by [author name scrubbed], updatedregularly.

CRS Info Pack IP445N, NAFTA: The North American Free Trade Area , updated as needed.

CRS Report RS20529, United States-Israel Free Trade Area: Jordanian- Israeli Qualifying Industrial Zones , by [author name scrubbed], updated March 29, 2001.

CRS Report RS20968 , Jordan-U.S. Free Trade Agreement: Labor Issues , by [author name scrubbed], July19, 2001.

Appendix A. Public Comments Received by USTR on U.S.-Jordan FTA

Source : United States Trade Representative Reading Room.

Appendix B. Public Comments Received by USTR on Environmental Impact of U.S.-Jordan FTA

Source: United States Trade Representative Reading Room.