Jordan-EU trade deal may benefit economy and refugee crisis

Jordan-EU trade deal may benefit economy and refugee crisis
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The recent trade deal between Jordan and the EU is a bold proposal to attract foreign capital and employ Syrian refugees.

The European Union (EU) recently finalized a trade deal with Jordan, granting the Hashemite Kingdom relaxed rules of origin for 52 product groups manufactured in special economic zones. These zones—which are subject to less government regulation and taxes compared to the rest of Jordan’s economy—will be able to export made-in-Jordan products that include over 70 percent of non-local production inputs to European markets tariff-free.

In exchange for these relaxed rules, factories exporting products to the EU under the deal must derive 15 percent of the labor from Syrian refugees. This rate will increase to 25 percent in the deal’s third year. Once 200,000 Syrian refugees are employed, the deal’s relaxed rules will further extend to other product groups across Jordan.

According to the Jordanian Deputy Prime Minister for Economic Affairs and Minister for Industry, Trade and Supply Jawad Anani, the deal aims to attract foreign capital, boost employment, and strengthen competitiveness in Jordan. This could occur particularly by turning Jordan’s 650,000 Syrian refugees from a resource burden to an economic asset.

Benefiting Jordan’s economy  

Jordan GrowthJordan’s economy is currently struggling. The Kingdom’s debt-to-GDP ratio is 90 percent and unemployment is around 15 percent with youth unemployment nearly double that. The influx of Syrian refugees has further strained the economy, increasing youth unemployment by 30 percent and growing demand for basic commodities by 40 percent.

This deal could accordingly prove equally beneficial to Jordan’s society and economy. Special economic zones have often drawn significant foreign investment and infrastructure development, and easier access to European markets make those investments especially attractive. This has already led to companies like Asda, a British Walmart subsidiary, and IKEA, a Swedish home-furnishing store, signaling their interest in this opportunity. Should this deal succeed in attracting capital, Jordan could further become a leading destination for Gulf states seeking to invest their oil wealth abroad. All this could compensate the Hashemite Kingdom for economic losses resulting from instability in Syria and Iraq.

New manufacturing prospects in Jordan could also improve job growth. Jordanians would have access to greater employment opportunities, especially in managerial roles. Syrians could formalize their businesses from the informal economy and replace much of the foreign labor that sends most of their remittances abroad. With steady and secure wages, a larger permanent workforce would boost consumer spending in the Jordanian economy and drive wages upward. Syrian workers and their employers would also pay work permit fees and taxes, generating needed government revenue.

Yet even the deal’s successful implementation will not be a magic bullet for Jordan’s economic woes, and there are risks. It is unclear whether the strong incentives for foreign investment will be sufficient to overcome the dangers of investing and operating nearly adjacent to the turbulence in Iraq and Syria.

Like many Jordanian economic projects this one also relies on foreign investment and international aid, forcing the Kingdom to focus on short-term outcomes instead of long-term, sustainable economic reform. Sustainable reform must include trimming deficit-enabling redundancies in government, gradually waning unsustainable commodity subsidies, and improving ease-of-business for small-to-medium sized Jordanian enterprises—which make up 95 percent of Jordan’s private sector yet are largely exempt from the benefits that large and multinational enterprises receive from special economic zones.

Containing the refugee crisis in Jordan

Screenshot 2016-08-17 at 8.17.13 PMMore tangibly, the trade deal’s implementation offers a way to improve the livelihoods of Jordan’s Syrian refugees. Many disempowered Syrians have found employment in illegal markets or are easily recruited by criminal organizations, militias fighting in Syria, or terrorist groups. This creates high rates of violence and sexual abuse in refugee camps and threatens Jordan’s security. Access to legitimate employment and education would provide Syrians a safer and viable alternative, containing the security risks associated with a swelling refugee population.

Upcoming special economic zones like the King Hussein Bin Talal Development Area (KHBTDA) are important in this regard. KHBTDA is about ten miles from the Za’atari refugee camp, the largest in Jordan which hosts nearly 80,000 Syrian refugees. The Jordanian government has already invested $140 million in developing KHBTDA’s infrastructure, and projects that the zone could employ every worker in Za’atari and be only half full.

Developing KHBTDA—as with other special zones—with Syrian workers could accordingly generate an incubated Syrian economy in preparation for the Syrian conflict’s eventual end. Jordan could qualify for needed international aid designated for peacemaking and post-conflict reconstruction to further assist Syrian refugees. The existence of economic safe havens for Syrian workers in Jordan could also encourage additional Syrian businesses to leave Syria, undermining Damascus’s tax base and generating international leverage for a peaceful end to Syria’s civil war.

These benefits rest on the assumption that Syrians will gravitate to special economic zones for work, which is still uncertain. A recent pilot project for the trade deal’s implementation had limited participation. This was because many jobs were far from home and did not pay that generously compared to the informal or illegal economy. Many Syrians are educated and highly skilled, yet would only receive minimum wage for menial labor in the formal economy. They may consequently wish to stay with current occupations since they get to keep more of their pay and are not subject to costly work permits or taxes.

Political risks remain

Implementing this deal is still politically risky. With Jordan’s record high unemployment rate, granting work permits for Syrian refugees could generate wide-ranging public anger. The deal could be viewed as unjustly privileging Syrians over Jordanians, fostering political volatility in the short to medium term. Building public support for this deal and developing further opportunities for Jordanian employment will be critical for the Kingdom in this regard.

Another concern is human rights. Special economic zones in Jordan have been accused for exploiting and unfairly treating low-wage workers in the past, and similar concerns are arising here. Rights violations in this instance could be especially politically detrimental to all parties involved in this deal given the international concern toward Syrian refugees. Adherence to ethical labor practices is accordingly vital.  

The Jordan-EU trade deal has the potential to be net positive for Jordan’s economy and its refugee crisis, yet key obstacles and risks must be effectively navigated.

About Author

Azhar Unwala

Azhar Unwala is an analyst for government and corporate clients in the Washington, D.C. area. He was formerly a researcher at a Department of Defense-sponsored think tank and the Editor-in-Chief of the Georgetown Journal of International Affairs' International Engagement on Cyber series. In addition to studying and extensively traveling in the Middle East, he holds a B.S. in International Politics and Arab Studies from Georgetown University's School of Foreign Service.