International Business Law Term Paper

FREE TRADE AGREEMENT- JORDAN-U.S.

Middle East has been the most volatile and conflict-infested region of the world, which has not only led to political instability but has also adversely affected economic conditions of the area. While the rest of the world is encountering a slow down in the economic activity primarily due to external factors, Middle Eastern areas have no one to blame but their violent history, which is fraught with domestic conflicts. To protect the economic conditions from, further deceleration, Middle Eastern countries refrained from adopting the principles of free trade. Several investment barriers were placed on foreign firms to remove risks of competition and to help the local firms grow and prosper. While on the one hand it did help the local markets, it also resulted in economic problem emerging from lack of competition and lack of foreign investment in the region. Keeping this in view, the last decade of the 20th century saw Middle East opening its gate to foreign firms by entering into various kinds of trade agreements with the U.S. And Europe.

Egypt and Morocco entered into trade agreement with the United States, which gave a major boost to their local products as U.S., became the chief importer. United States has been trying to improve its ties with the Middle Eastern countries through economic route. It is one of few big foreign investors in Egypt and has concentrated mostly on oil and gas sectors. Substantial investment has also been made in other areas of economy including financial services and automobiles. In 1999, Egypt and U.S. signed Trade and Investment Framework Agreement (TIFA), which opened new doors of investment opportunities for the United States. Most trade barriers were removed and U.S. products and services were provided better access to Egyptian market. Similar treaties were signed with Morocco and Turkey to improve trade and to strengthen economic ties with the Middle East. For example American investors were offered some special protections under Morocco Bilateral Investment Treaty, which came into effect in 1991.

These treaties provided the required framework for Free Trade agreement between Jordan and United States, which is a sign of more liberal economic policies in Jordan. Kingdom of Jordan is not exactly an oil rich country and its reserves are limited. For this reason, it needs to develop its economic infrastructure and exploit resources other than gas and oil. Though Jordan is rich in minerals and metals, these are not enough to economic growth in the long run and under stiff competition. King Abdullah is thus rightly looking for new and better economic opportunities and is willing to liberalize economy. Siddiqi (2000) writes in Jordan Economic Report, "Even its large reserves of phosphates (1.5 billion tonnes), the world's second largest after Morocco, and some deposits of manganese and copper are not sufficient to lift it beyond the economic status of a lower-middle income developing nation, largely dependent on private and official capital inflows. King Abdullah II, who came to power in February 1999, following the death of his father King Hussein, is proving to be a dynamic, chief executive style monarch."

Due to new economic policies, Jordan acceded to World Trade Organization in April 2000. By accession to WTO, Jordan has virtually opened its gates for foreign investors and has agreed to follow the economic guidelines proposed by WTO. There are numerous benefits and some problems associated with accession to WTO as Josh Martin (2001) explains: "The reasons for joining were obvious: membership in the WTO provides developing countries easier access to markets and investment capital. But membership also mandates reduction of trade and investment barriers, which have threatened weaker Arab economies, where protected economies have helped, maintain economic and social stability. WTO-style globalization confers a number of strategic benefits on nations that are open and integrated into the world economy. "Those countries that are becoming more integrated with the world economy through expanding trade and investment linkages are those which will enjoy economic success," says Yasser El Guindi, an economic analyst with the National U.S.-Arab Chamber of Commerce. However, he warns that, as Arab countries move to meet their WTO obligations, lowering trade and investment barriers, their governments and business leaders "must understand the dynamics and rules of WTO accession," and what it means from a business point-of-view."

With entry into WTO, Jordan proved that it was willing to follow international trade regulations and thus signed Free Trade Agreement with the United States in October 2000, which came into effect a year later in December 2001. This agreement is meant to create free trade zone between the two nations.The agreement would last for at least 10 years during which products and services would move freely between the two countries. Apart from giving certain guidelines regarding labor laws and tariffs, this agreement has for the fist time taken into consideration such issues as Intellectual Property Rights, e-commerce, and environment.

Free Trade agreement is expected to act as a major source of growth and progress in Jordan and United States as investors would benefit from elimination of tariff during a 10-year period. All trade barriers have been removed to facilitate better movement of products and services. Better market access will strengthen Jordan exports, as they will be exposed to a bigger and more dynamic market. (Galal et al., 13)

The most important features of the FTS besides tariff and labor laws include provisions on Intellectual property rights, e-commerce and environment. It is important to mention here that it is the first time; e-commerce and intellectual pretty have become part of any agreement with Jordan.

Intellectual property rights: Under these provisions, Jordan will be required to adhere to International standards of copyright protection. Within the next years, Jordan will also be required to ratify, implement and follow two important treaties in this connection namely World Intellectual Property Organization's (WIPO) Copyright Treaty and WIPO Performances and Phonograms Treaty. These treaties focus on the distribution and use of copyrighted material mainly on or through the Internet.

Labor provisions:

In 1998, International Labor Organization proposed some general labor standards in Declaration on Fundamental Principles and Rights at Work, which are also part of the FTA between Jordan and U.S.. These standards seek to improve and strengthen labor rights in countries adopting free trade. For this reason Jordan is also required to follow them in order to safeguard rights of workers and protect them from unfair exploitation. Both sides have agreed to base its labor laws on these guidelines and these will be implemented within a certain fixed period after adoption of Free trade.

Environmental provisions: environmental protection is extremely important, as countries tend to relax their environmental laws for better profits and more economic growth. For this reason, FTA for the very first time has incorporated environmental provisions, which seek to put environment ahead of economic gains. Environmental laws have been formulated and enforced by the two sides as part of this agreement. Each side also agrees to offer highest possible protection to the environment. Special environment reviews will also be conducted to ensure complete adherence to environmental provisions of FTA. Cooperation in this area has resulted in the establishment of U.S.-Jordanian Joint Forum on Environmental Technical Cooperation, a body that is expected to keep a watchful eye on environmental problems and offer appropriate solutions. Environment provisions hold a pivotal place in the agreement as "[they represent] both an important step forward and only a small step toward our ultimate goal of making workers' rights and environmental protections an integral part of universally applied international trade rules." (Sweeney, 2001)

FTA is not the only agreement signed by Jordan to strengthen and liberalize its economy. Liberalization of trade has become of the most important issue on the political agenda and Jordan is making every possible attempt to engage in free trade with western countries. In 1997, it signed, EU-Jordan Association Agreement, which seeks to progressively liberalize trade between Jordan and European Union over a period of 12 years. Jordan is also an ardent supporter of Arab Free Trade Area, which ensures free trade between Arab countries. These treaties are expected to strengthen trade in regional and international level.

While the Free Trade Agreement is a positive step in the direction of better economic ties between the two countries, e cannot rule out possibility of various kinds of conflicts that would emerge from close association between the two countries. Potential conflicts would largely be political in nature since Jordan is closely bordered by Israel and Palestine and any intervention in Middle Eastern crisis on the part of U.S. is likely to hurt economic relations with Jordan. Apart from that many economic problems can also surface because of inherent differences between the two regions. Conflicts will surface due to the globalization problem that free trade will only strengthen. Friedman writes: "The driving idea behind globalization is free-market capitalism -- the more you let market forces rule and the more you open your economy to free trade and competition, the more efficient and….....