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Jordan-USA free trade agreement - Essay Example

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Jordan-USA Free Trade Agreement Jude Bataneh 260402086 Econ 314 According to Hassanien (2010) reported that on the 24th of October 2000 the USA-Jordan Free Trade Agreement (FTA) was signed making it the first FTA to be signed between the Unites States of America and an Arab nation…
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Download file to see previous pages Moreover, its location amongst other developing nations further restricts its potential for growth (Chomo, 2006). These factors increase the need to sign trade agreements with more developed countries. Trade agreements may involve two countries reducing tariffs on each other’s goods or reducing bureaucracy by simplifying the procedures on import and exports (Miller, 2004). Relatively speaking, Jordan is small for a country that has undergone considerable processes aiming towards opening up the economy. This makes a good example of developing nations that have employed successful economic strategies. An example of a major process undergone by Jordan would be significantly lowering its trade barriers to entry by signing the Free trade Agreements (FTAs) with countries such the United States and the European Union (EU). This was also accomplished by its concurrence to the World Trade Organization (WTO) (Busse & Groning, 2012). Ultimately, the trade barriers are expected to result in an increase in trade flow as both production and consumption improve in efficiency. The benefits of signing the FTA with the U.S. does not stop at increasing trade flow, but it also attracts investment in the export sectors by improving domestic competition and productivity which could only result in substantial economic development. By a developing nation signing a trade agreement with an economy that is industrialized, it gains improved access to markets for those products that match the developing nation’s relative factor-abundance compared with the industrialized trading partner (Maria,2000). Supposedly, a small developing country should not loose its industrial base by signing a FTA with a nation that is industrialized. Both the U.S.-Jordan FTA and the North American Free Trade Agreement (NAFTA) gave concessions to developing country members like Mexico and Jordan. Chomo (2006) found out that it caused the developing nations to become reliant on the custom duties as the major source of tax revenue. The U.S.-Jordan FTA addressed the aforementioned issue by allowing special concession on the Jordanian tariffs on automobiles. Indeed, Jordan’s imports and exports have considerably increased since the commencement of the liberalization process. The expansion of the imported goods has been larger in as compared to the rise in exports leading to substantial increase in its trade deficits. According to Busse and Groning (2012) are of the opinion that whilst in 2007 Jordan has small deficits in its account of US $68 million, it had a surplus of US $ 2,779 in its current transfers and US $835 million in its income account. In 2007, the nation faced a deficit of US $2,776 in its current account. Irrespective of the growing importance of services, almost all of Jordan’s accession to the U.S.-Jordan FTA has majorly focused on trade liberalization in goods only. Jordan adopted the Investment Promotion Law in 1995 which offered non-discriminatory treatment to the foreign investors (Chomo, 2006). Additionally, certain locations such as the Aqaba Special Economic Zones were designated for investment. In 1997, it revived the 1981 Agreement for Facilitation and Promotion of Trade which was signed by the members of the Arab league which Jordan is member (Malkawi, 2008). When the agreement went into full force in 1998, it foresaw a yearly reduction in tariffs of 10 % thereafter in 2008 reducing the tariffs to zero. Moreover, this agreement allowed for Jordan to cooperate with the neighboring on both ...Download file to see next pagesRead More
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