International leaders gathered last week in Brussels for the fourth international conference on supporting Syria and the region. The first of these conferences took place in London, in 2016, where an innovative approach to dealing with displaced populations was adopted, the so-called Jordan Compact. And one of the most innovative features of the Compact was the relaxation of the Rules of Origin, to allow Jordan firms that employed Syrian refugees to export to the EU market at preferential rates. So, three years in, was it a good idea?
The design of the Jordan Compact was shaped by an article that appeared in Foreign Affairs in November 2015. The two authors, Alexander Betts and Paul Collier, had been long-time supporters of the idea of helping refugees in their own region. During a field trip to Jordan they went to Za’atari camp (the largest refugee camp for Syrians); and they passed by one of the abandoned Special Economic Zones (SEZ) which was located next to the camp. Then the idea came. What if the influx of refugees to Jordan was used as a development opportunity for Jordan? Refugees from Za’atari camp could work in the SEZ, and goods produced there could be sold in the EU market.
The political climate at the time was very conducive to such an idea. Europe was dealing (badly) with a large influx of more than a million refugees and irregular migrants in 2015, around half of whom were Syrians. Despite the fact that no evidence existed that Syrian refugees in Jordan would move in large numbers towards European shores, the panic that this might happen made the solution offered by Betts and Collier a very attractive one. And so the agreement was made: Jordan would allow refugees to work in 18 SEZs, the EU would give preferential trade access to goods produced in Jordan, and the World Bank would give loans at concessional rates to help create firms to operate in those SEZs. Hopes were high: the Jordan Compact argued that “the designated development zones could provide hundreds of thousands of jobs for Jordanians and Syrian refugees over the coming years”.
Three years later, was the idea a success? Well, on paper, everything happened as planned: EU commitments on relaxing the Rules of Origin and trade access were delivered in 2016. The World Bank gave millions of dollars in concessional funding, and Jordan ensured that Syrians could work in the 18 SEZs. And so, have the hundreds of thousands of jobs materialised? The short answer is no. As of last month, 13 firms were approved to benefit from the scheme. Together, they employ just over 1,000 people, 28% of whom are Syrians.
What went wrong?
First of all, one of the arguments for promoting an approach based on lowering tariffs to export to the EU, was that a similar agreement had been successful in securing Jordan’s access to the US market. But tariff barriers to the US were about 30%, whereas tariff barriers to the EU were only about 10%, and the advantages of lower tariffs had to be balanced against the costs arising from the complexity of complying with the agreement, the costs of firms moving to the SEZs and the costs of transport for the exports.
Second, Betts and Collier argued that “there is no reason why refugees could not work to improve a manufacturing sector rather than an agricultural one.” But actually there are plenty of reasons why not, most important of which was that the bulk of the Syrians coming to Jordan came from the governorate of Daraa, in southern Syria, primarily an agricultural area. Syrians simply did not have the skills and experience to work in manufacturing firms.
Plus, why would a Syrian choose to work in a factory when the salary for jobs in sectors such as construction and the restaurant industry was much higher, and the level of commitment much lower? Not to mention the competition for jobs with migrants from Egypt, Bangladesh and the Philippines (who are usually young men with no family, who reside inside the SEZ, have no transport costs and are willing to work for a much lower salary than Syrians and Jordanians).
As for the SEZs being an “ideal place to launch a development-based approach”, as the two authors argued, it was already obvious with the US model that most workers in these special zones were Bangladeshis and Filipinos, the raw materials were imported rather than produced in Jordan, and the development effect and linkages to other areas of the Jordanian economy were very limited.
And what about the products? The European market is very difficult to penetrate, and tariffs are only one barrier: the regulations, standards and legal requirements are burdensome, not to mention the need for marketing strategies and packaging to a very high standard.
The Rules of Origin scheme was thought to be a magic wand that would automatically and immediately enable hundreds of firms to export to the EU market, and produce multiplier effects in all sectors of the economy. It capitalised on the fear of large refugee influxes to Europe, and it was based on an article that was not backed up sufficiently by evidence.
But, even though the relaxation of the Rules of Origin has not produced significant results as of yet, not everything is lost. The challenges of benefiting from the Relaxation of the Rules of Origin have been recognised widely, including at last week’s Brussels conference, and more effort is needed over a much longer timescale to make sure firms can harness the benefits of the scheme.
Some steps have been taken in that direction. Since 2018, the agreement has been extended to cover the whole of Jordan instead of just the Special Economic Zones. The European Union and others are investing heavily in supporting firms to access EU markets, including helping them with marketing and identifying suitable niches for Jordanian products. And the Government of Jordan has simplified labour regulations, quota systems and the access to work permits to facilitate the process of Syrians getting jobs.
The Rules of Origin scheme was an innovative experiment. In retrospect it was too optimistic to expect benefits over such a short period. Substantial efforts are needed over the long term to help firms and employers to harness the benefits of the scheme. The scheme has now been extended to 2030 and that may be the right time to form a final judgement on whether it has been a success.
Giulia was part of the Agulhas team contracted by the European Union to draft a Monitoring and Assessment Framework for the Jordan Compact and Brussels meetings. The reports were done in preparation for the March 2019 Brussels III conference on supporting Syria and the region. The reports are available at this link.