VOL. XLVI
No 6
TRADE AND COMMERCE
US Trade Policy Hampering ‘War On Terror’, Says Report
The trade policy of the US towards the Muslim world is a major factor working against the ‘war on terror’ being waged by the US against radical Islamists, according to a recently published paper by Edward Gresser, Director of the Project on Trade and Global Markets of the Progressive Policy Institute in Washington, entitled Blank Spot on the Map: How Trade Policy Is Working against the War on Terror. The paper notes the alarming stagnation of the economies of much of the Muslim world over the 1980s and 1990s, and says this poor situation has been exacerbated by the lack of trade and investment into the region. It predicts that the improvements in the economic situation in the Muslim world are likely to be hampered by US efforts to forge closer ties with other parts of the world such as Africa, Latin America, China and India between 2005 and 2015. The unintended consequence of this, says the paper, could be to hold back growth in the Muslim world, driving the growing number of unemployed and disaffected young people in the region into the arms of the radical Islamic groups the US is trying to tackle.
Muslim Countries’ Share Of World Exports Falling
Over the past two decades, the population of the western Muslim world (joining the Arab states with Iran, Pakistan, Afghanistan and Central Asia) has grown from 350mn to about 600mn and at the same time rapid urbanization has occurred. This has been accompanied by collapsing shares of world trade and investment. In 1980 about 13.5% of world exports came from Muslims countries; now the figure is around 4%. Investment trends are much the same, a point which is startlingly illustrated by the comparison of foreign direct investment (FDI) flows into Sweden compared to the Muslim world. Of total world FDI flows in 2001 of $735bn, FDI into Sweden (with a population of nine million) reached $12.7bn, while FDI into Muslim countries (with a total population of 1.274bn) was scarcely higher at $13.6bn. These factors have contributed to a fall of over 25% in per capita GDP in the Arab Muslim world from $2,300 in 1980 to $1,650 today.
Region Hurt By Tariffs, Sanctions And World Trade Policy Isolation
The structural trade environment created by local policies has also caused problems, with high trade barriers, weak participation in global trade policy, and deep isolation of a few countries, says Mr Gresser. Tariff rates in the Muslim world are often over 20%, non-tariff barriers are pervasive, and investment restrictions are frequent. Pakistan imposes tariffs of over 40%, the highest in the world, while rates in Egypt, Syria and Saudi Arabia are typically over 20%. Sanctions and boycotts have also had a debilitating effect, forcing four major economies – Iran, Iraq, Libya and Israel – out of regional trade and investment almost completely. Policy isolation is also identified as a major problem for Arab Muslim countries in particular, with half of the Arab League states outside the World Trade Organization (WTO), including major regional economies such as Saudi Arabia, Algeria and Iran.
The paper sees some positive signs in the (albeit slow) progress of Turkey towards entry into the EU, followed by Bosnia, Albania and Azerbaijan, and the active involvement of Malaysia, Indonesia and Brunei in the WTO and the ASEAN Free Trade Area, but it suggests that the economic problems of the Muslim world are at their worst in the Arab Muslim world and the Muslim countries of western Asia. The Arab Human Development Report 2002 (MEES, 15 July 2002) said there were particular constraints on growth in the Arab world, and that while in a number of small countries, particularly in the Gulf, tentative reforms were being put in place, much remained to be done.
Unintended Consequences Of US Trade Policy
Despite some exceptions (such as the 2000 bilateral Free Trade Agreement with Jordan negotiated under President Bill Clinton and negotiations under way for a similar agreement with Morocco), President Bush has not integrated trade into Middle East policy, the larger relationship with Muslim countries, or the intellectual framework for the war on terror. The US’ trade regime has begun to tilt against Muslim countries by creating preferential agreements with competitors such as Latin America and Africa, and the trend is set to continue under current policy. This is not a deliberate decision, Mr Gresser points out, but the unintentional result of the fact that large Muslim countries rely more heavily on exports of light manufactured goods than most other countries. These goods face higher trade barriers in the US than natural resources and more sophisticated products, and they are the only manufactured goods subject to import quotas. Despite this, the US remains an important market for the Muslim world. The prospect, therefore, of further trade agreements due to be signed and coming into effect between 2005 and 2015 with the likes of Chile, Singapore, Thailand and the Philippines, will only put the Muslim world at a further disadvantage, argues the report. Competition from India and China is also expected to increase with the abolition of the US quota system for clothes and fabric.
Plan For New US-Muslim Trade Strategy
In order to combat the negative repercussions that such a tilt against the Muslim world could have, the report argues that it is not too late to develop an initiative to include Muslim economies in the broad US trade strategy with a three-pronged approach:
· Give greater priority to WTO membership for the countries of the Middle East and Central Asia.
· Expand the program of bilateral agreements like that signed with Jordan in 2000.
· Initiate a general duty free program along the lines of the program for Latin America – the Caribbean Basin Initiative (CBI). This would cover those countries not already eligible under the African Growth and Opportunity Act or the Enterprise for ASEAN Initiative. The benefit to Muslim countries would be unfettered access to the US market, while conditions attached to the agreement could relate to anti-terror efforts and other economic and political reforms.
The size of such an initiative would not be prohibitive due to the relatively small amount of trade it would cover, says the report. Excluding crude oil and precious metals (for which there a no real trade barriers to the US), total exports from the western Muslim world totaled $13bn in 2001, only slightly more than current total imports from Central America. The effect of the program on domestic US employment would be slight since goods subject to high tariffs support less than 1% of total US employment, but the beneficiaries would receive advantages over other countries such as China and India which have a more diversified export base.
In the immediate aftermath of the 11 September 2001 attacks on the US, Trade Representative Robert Zoellick argued in an article ‘Fighting Terror with Trade’ in The Washington Post that trade policy can help fight terrorist groups by promoting growth and economic integration. A similar sentiment was voiced by a young Arab graduate who said that “in a situation where people can make a living trading peacefully, violence becomes an absurdly costly choice.” Mr Gresser points out that owing to the economic malaise in much of the Muslim world the pool of potential recruits to the cause of Islamic terrorism “seems no smaller than before”, and while the success of such an initiative is by no means certain, the price of making the attempt seems low compared to the potentially high price of current policy trends.