Mideast building trade ties with US

Los Angeles Times, March 28, 2005

Mideast Building Trade Ties With U.S.

By Evelyn Iritani, Times Staff Writer

It seemed like a no-brainer: selling water conservation devices in Morocco, an arid country where nearly half the population lives off the land. But high tariffs and cumbersome customs procedures kept San Diego-based Terawet Corp. from making headway in the market.

That soon should change. A U.S.-Morocco free-trade agreement, expected to take effect by early summer, will lower or eliminate tariffs on 95% of consumer and industrial products shipped between the two countries.

"We hope that’s going to be the heart of our Middle Eastern business," said Terawet President John Abt, referring to anticipated sales of his company’s products for a massive Moroccan reforestation project.

In Morocco and across the Middle East, freer trade is gaining traction.

Eager for more business with America, the region’s governments are slashing tariffs, reducing red tape and strengthening intellectual property laws and labor protections. These measures are boosting trade in textiles and apparel, farm goods and machinery. California farmers stand to benefit; Hollywood might find places like Morocco more attractive for film shoots.

A flurry of activity is exactly what the Bush administration hoped for two years ago when it unveiled an ambitious proposal to create a Middle East Free Trade Area within a decade.

The plan: to negotiate a series of trade agreements that would eventually fuse one of the world’s most economically and politically unstable regions into a giant free-trade zone.

President Bush described the initiative as part of a larger effort to bring the Middle East into "an expanding circle of opportunity" by using free markets and trade to "defeat poverty" and teach "the habits of liberty."

Since then, the Bush administration has negotiated trade pacts with Bahrain and Morocco, and this month launched negotiations with the United Arab Emirates and Oman. Congress has yet to approve the Bahrain deal.

The U.S. also signed a deal with Egypt that created industrial zones in which goods produced with Israeli components could be exported to the U.S. duty-free. The U.S. already had trade pacts with Jordan and Israel. The Palestinian Authority is included in the Israeli agreement.

The Middle Eastern effort fits into a broader Bush administration plan to strike bilateral trade deals across the globe. But many Middle Eastern economies are relatively small, as is their trade with America. For example, the U.S. conducted just $1 billion worth of business last year with Morocco, equal to one day’s worth with Canada.

Thus, the most significant effect of the trade deals is delivering a message of U.S. support for the region, analysts say.

"It’s a step in the right direction and it has some symbolic political value," said Nimrod Raphaeli, a senior analyst with the Middle East Media Research Institute. "It has no tremendous economic value for many of these countries."

Rewarding close allies is a key part of this strategy. In addition to having relatively strong economies and stable political regimes, the beneficiaries of the first round of trade pacts were supporters of the U.S.-led war on terrorism.

"When Bahrain started [its trade talks], even though it was small, it woke up the neighborhood," said Catherine Novelli, the assistant U.S. trade representative responsible for the Middle East. "It got others to come to us and say, we’re interested in this too."

Saudi Arabia, America’s leading export market in the Middle East and its top oil supplier, also has shown interest in a trade pact with the United States, Novelli said.

However, the Saudis complained that America’s bilateral pacts with other countries gave U.S. firms preferential status that undermined a regional free-trade agreement signed by the six members of the Gulf Cooperation Council.

Such tensions highlight the challenges facing Washington as it seeks to unite a region encompassing some of the world’s richest and poorest countries and longtime adversaries, including Israel and its Arab neighbors.

Middle Eastern economies still depend largely on oil exports, and many countries have large, youthful populations and high unemployment.

Given the political hurdles, the chances of creating a free-trade area uniting the entire region are "very slim," said David Mack, a Middle East expert who served as ambassador to the United Arab Emirates during the Reagan administration.

But Mack, a senior vice president at the Middle East Institute, a Washington think tank, said he supported the Bush administration’s policy of "rewarding those who are moving forward the fastest" because it helped spur other governments to make painful changes, such as strengthening banking laws and cracking down on piracy.

Some countries clearly are moving to open their economies for global free trade. Half of the Arab League countries are not members of the World Trade Organization, although Saudi Arabia and Lebanon are taking steps to liberalize their economies so they can join the global trade group.

Iraq, whose war-torn economy is just starting to emerge from more than a decade of economic sanctions, has also begun the WTO application process, which the U.S. supports as a way to bolster Iraq’s reconstruction. Under pressure from Europe, the Bush administration has agreed to drop its opposition to Iran’s WTO membership with the hopes of persuading that government to abandon a nuclear enrichment program.

Algeria, Yemen and Libya also are taking steps to join the WTO.

Although Europe remains the Middle East’s chief trading partner, competition from China has persuaded many Middle Eastern countries to start exploring new markets, as well as expanding trade with the United States.

Middle Eastern officials are eager to attract more business from California. Morocco’s ambassador to the U.S. held a breakfast meeting in Beverly Hills last month to promote his country as a film destination. The enticements include gorgeous beaches and ancient castles, tax breaks, new sound stages and cut-rate donkey and camel rentals.

"We need economic development," Ambassador Aziz Mekouar told the Hollywood executives he was trying to recruit to the board of the newly formed Moroccan-American Trade and Investment Council. "We have a young population and we have to create jobs."

Laura Lane, vice president of public policy for Time Warner Inc., said tougher protections for foreign investors and lower tariffs have made Morocco a "more hospitable place" to film movies. Time Warner used that country as a base for filming "Syriana," a political thriller starring George Clooney and Matt Damon set for release this fall.

California producers of beef, poultry products, nuts and grapes will also get expanded access to the Moroccan market, where nearly all agricultural tariffs will be phased out within 15 years. The U.S. and Morocco have approved the pact.

Not everyone, however, thinks the Middle East is ready for Western-style business. David Marguleas, a senior vice president at Sun World International, a Bakersfield-based agricultural producer, said his firm was expanding "very cautiously" in the Middle East because of concerns over inadequate intellectual property protections for horticultural goods.

Sun World awarded a firm in Morocco a license to grow some of its patented high-yielding grapevines and ended up in court because of alleged contract violations.

"Clearly, they have tremendous potential as producers of high-value crops in selected countries, but the intellectual property concerns need to be addressed as well," he said.

source: LA Times