The EU had a great plan for Jordan – now it’s time to make it work

Apr 24, 2018 (updated:  Apr 25, 2018)

Two years ago, the European Union announced the Jordan Compact, a groundbreaking deal providing Jordan with $1.8 billion (€1.48bn) in grants and loans as well as preferential trade terms for certain products from Jordanian businesses employing at least 15% Syrian refugees.

In exchange, Jordan agreed to expand educational and economic access for Syrian refugees in the country, including 200,000 work permits for Syrian refugees in specific sectors.

The overall compact had a powerful strategic logic for the EU: by creating incentives for increased Jordanian exports to the EU and employment of Syrian refugees, the EU could both help support Jordan – a strategic partner feeling acute pressure from hosting 1.3 million Syrian refugees – and induce refugees to stay in Jordan with concrete job opportunities.

As the EU prepares to host another summit in Brussels to address the Syrian refugee crisis, it must acknowledge that the trade component of the Jordan Compact has failed: two years on, only four companies have exported roughly €2.3 million worth of products under the deal.

Why has the Compact failed to deliver? While some analysis has focused on the challenges in recruiting refugee workers, our assessment is that, fundamentally, the trade concessions that the EU offered are too modest.

The deal made it easier for certain Jordanian products to qualify for duty-free access to the EU by reducing the “local content” requirement (the portion of the product’s value that had to be generated in Jordan) from a high threshold of 70% to a more manageable threshold of 30% – an important concession as many of Jordan’s products use inputs from other countries. However, the benefits of the trade preference are severely circumscribed:

• The trade preference only extends to certain selected sectors – such as plastics, chemicals, and garments. By some estimates, almost two-thirds of Jordan’s current international exports are excluded from the deal.
• It’s limited to companies operating in 18 designated development zones (located far from the majority of Syrian refugees), excluding Jordanian firms with business operations elsewhere.
• It provides duty-free access to the EU market, which a large number of other countries already enjoy. In the garment sector, for example, both Turkey (with cheaper transportation costs to the EU) and Bangladesh (with lower labor costs) already have duty-free access – neutralising the advantage for Jordanian firms.
• The EU-Jordan deal has generated meagre benefits to date, even while the Jordanian government has made progress on its side of the bargain, issuing 83,500 work permits since the start of the compact. But the strategic logic that motivated the EU to enter the deal should compel it now to improve, not abandon, it.

First, the EU can strengthen the deal by expanding the scope of eligibility. It should start by acceding to the Jordanian government’s request to extend the trade preference to businesses operating anywhere in Jordan – an easy fix. It should go further and include a wider range of Jordan’s export sectors – the simplified rules of origin could be particularly beneficial in sectors where Jordanian businesses may have more of a European market demand and/or greater competitiveness, such as in food processing.

Second, the EU and European governments should play a hands-on role in trying to facilitate Jordanian firms’ access to the EU market. Buyer-supplier relationships are often “sticky” and European companies may be slow to increase their business with lesser-known Jordanian firms.

To accelerate Jordanian firms’ access to the EU market, the EC and European governments will need to play a role in brokering these relationships, and also help companies meet EU quality and regulatory standards.

Third, the EU should develop targeted tax incentives for EU businesses that make investments in Jordan generating jobs for Jordanian and refugees. With links directly to EU markets and expertise in meeting regulatory standards, European businesses are well-positioned to leverage the preferential trade arrangement and advance its goals of helping Jordanian host communities and refugees but may need additional incentives to set up new operations.

Even with the current EU deal, Jordan warrants strong consideration for multinational businesses both as a place to invest and to source goods and services. Jordan has a stable government, a business-friendly regulatory environment, and preferential trade access to the United States and Gulf, in addition to the EU.

The opportunity to help Syrian refugees, by hiring them directly or bringing them into their supply chains, should also be a consideration for multinational businesses – for humanitarian, strategic, and reputational reasons. But with the scale of what Jordan faces – Syrian refugees amounting to more than 10% of its population – the EU must improve its deal with Jordan, and deliver on its promise to boost Jordanian exports and refugee employment.