The Clipboard: U.S. Free-Trade Deals Include Few Muslim Countries

From an article¹:

But Bahrain, an island nation with a population of 678,000, is an exception in securing access to the giant U.S. market. Excluding oil, imports from Muslim countries have increased by just 3.2 percent since 2000, their growth suppressed by tariffs of 20 percent or more on key goods such as textiles, according to an analysis of U.S. trade statistics.

Meanwhile, countries in the Andean region, sub-Saharan Africa and elsewhere -- granted preferential, duty-free access to the U.S. market -- have enjoyed a comparative boom, with exports to the United States rising nearly 40 percent in some cases.

The figures reflect a bias in U.S. trade rules that work against strategic allies such as Pakistan, Egypt and Turkey. Under current rules, for example, T-shirts made in Lesotho or Peru or El Salvador come into the country duty-free, while shirts from Turkey or Pakistan are hit with a 20 percent tariff. Looking at trade statistics in light of the 2001 terrorist attacks, some analysts question whether U.S. trade policy is adequately backing the country's national security goals.

"It is hard to argue that the greater Muslim world is of less strategic interest to the U.S. than the Andean region or sub-Saharan Africa," said Brink Lindsey, vice president for research at the Cato Institute, a free-market-oriented think tank. "Our de facto discrimination against Muslim imports sends a terrible signal, and indicates we're just not putting our money where our mouth is, in terms of using every lever at our disposal to make this a safer world." (link)

From a Republican administration, this is especially telling. The disjoint between rhetoric and reality with Bush never ceases to astonish and disgust me.

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Complete text of the article, U.S. Free-Trade Deals Include Few Muslim Countries, by Paul Blustein

The war on terrorism was high on the mind of U.S. Trade Representative Robert B. Zoellick as he signed a free-trade agreement with the Persian Gulf kingdom of Bahrain in mid-September. "A contest for the soul of Islam" is raging, and "we can help" by striking trade deals that generate jobs and reduce poverty, Zoellick said.

But Bahrain, an island nation with a population of 678,000, is an exception in securing access to the giant U.S. market. Excluding oil, imports from Muslim countries have increased by just 3.2 percent since 2000, their growth suppressed by tariffs of 20 percent or more on key goods such as textiles, according to an analysis of U.S. trade statistics.

Meanwhile, countries in the Andean region, sub-Saharan Africa and elsewhere -- granted preferential, duty-free access to the U.S. market -- have enjoyed a comparative boom, with exports to the United States rising nearly 40 percent in some cases.

The figures reflect a bias in U.S. trade rules that work against strategic allies such as Pakistan, Egypt and Turkey. Under current rules, for example, T-shirts made in Lesotho or Peru or El Salvador come into the country duty-free, while shirts from Turkey or Pakistan are hit with a 20 percent tariff. Looking at trade statistics in light of the 2001 terrorist attacks, some analysts question whether U.S. trade policy is adequately backing the country's national security goals.

"It is hard to argue that the greater Muslim world is of less strategic interest to the U.S. than the Andean region or sub-Saharan Africa," said Brink Lindsey, vice president for research at the Cato Institute, a free-market-oriented think tank. "Our de facto discrimination against Muslim imports sends a terrible signal, and indicates we're just not putting our money where our mouth is, in terms of using every lever at our disposal to make this a safer world."

The Bush administration has hardly been stingy in providing financial assistance to its less-wealthy allies, particularly those in the forefront of confronting Muslim radicalism. Washington last year helped put together a $3 billion, five-year aid package for Pakistan, and engineered the recent deal among rich nations to forgive 80 percent of the $38 billion owed to them by Iraq.

But when it comes to trade, officials of some Muslim nations complain that the United States is failing to provide meaningful export opportunities because of protectionist pressure from U.S. industries.

"Having enhanced market access would be of enormous benefit to Pakistan," Humayun Akhtar Khan, Pakistan's commerce minister, said in an interview this fall. "The European Union has been much more forthcoming" than the United States in granting trade concessions over the past couple of years, he said. "We need help from our friends."

Khan estimated that every $1 billion in exports yields 200,000 jobs and supports 1 million Pakistanis. "Trade is a much more cost-effective way [than aid] to help a country," he said.

The United States has free-trade agreements with Jordan, Morocco and Bahrain, and has begun negotiations for similar deals with Oman and the United Arab Emirates -- smaller Arab countries whose industries would pose little threat to U.S. manufacturers.

But the United States has specifically rejected granting trade concessions to Pakistan and Turkey, larger countries that are felt to be critical to the anti-terrorism effort. After the 2001 attacks, both countries asked for the right to export more textiles to the United States, hoping to bolster an industry important to economic growth, and which employs about 60 percent of Pakistan's industrial workforce. Both were turned down. Negotiations for a free-trade agreement with Egypt, meanwhile, have stalled.

According to calculations by Edward Gresser, a trade specialist at the Democratic Party-affiliated Progressive Policy Institute, those decisions and tariff policies kept growth in non-oil imports from Muslim nations to 3.2 percent from 2000 to 2003. For example, imports from Indonesia, a hot spot of fundamentalism and the world's most populous Muslim country, fell to $9.1 billion from $9.8 billion from 2000 to 2003, though they appear on track to bounce back this year. Gresser examined U.S. trade statistics at The Washington Post's request.

Some key non-Muslim countries did not fare well either. While the Philippines has been battling an Muslim insurgent group with U.S. assistance, imports from the country other than oil fell from $13.7 billion to $10 billion from 2000 to 2003.

The past few years were ones of sluggish growth generally for global trade. Overall, non-oil imports by the United States rose only 2.1 percent since 2000. From that perspective, the imports from Muslim countries fared better than the norm.

But trade rules also appeared to be a factor. Peru, Bolivia, Ecuador and Colombia can export most goods to the United States duty-free under the Andean Trade Preference Act, and imports from those countries jumped 16 percent. Central American nations, given preferential access to the United States under the Caribbean Basin Initiative, enjoyed an increase of around 5 percent. Imports from the 38 sub- Saharan countries covered by the African Growth and Opportunity Act, meanwhile, rose 39 percent.

The U.S. reluctance to grant concessions may soon have even more adverse consequences, Lindsey said, when international textile and apparel quotas expire on Jan. 1.

Once the quota system expires, creating more of a free-for-all in the industry, China is expected to grab an enormous share of the global textile and apparel market. India is also poised to vastly expand its share. Many developing countries fear that the only way their industries can survive Chinese competition is with preferential tariffs that give them a price advantage in the United States and Europe.

"Many countries in the Muslim world are facing a trade shock" when the quotas are lifted, Lindsey said.

A senior State Department official said that although "it's certainly true that some countries are going to have difficulties as quotas come off," Pakistan and Turkey are unlikely to be hit hard. Many industry experts forecast that Pakistan and Turkey will be among the winners in a quota-free world, both because of their competitiveness and, in Turkey's case, its proximity to the European market.

Pakistani and Turkish officials question whether such optimism is justified, and other populous Muslim countries -- Egypt, Bangladesh and Indonesia, for example -- could well be among the losers. Already, Muslim countries have suffered in competition with the Chinese in products such as baby clothes, for which quotas have been eliminated. According to Gresser, the share of U.S. imports of such goods from the Muslim world dropped from 16 percent in 2001 to 11 percent in 2003, and appears headed still lower this year.

The Bush administration says it hopes to reach a free-trade agreement with Egypt, but only after the government there shifts from its long-standing policies of protectionism and heavy government control of its economy. More ambitiously, President Bush in May 2003 announced plans to join the nations of the Middle East -- including Israel -- in a free-trade arrangement by 2013.

In an interview, Zoellick said that the proposed Middle East Free Trade Area (MEFTA) has already sparked progress toward free markets and the rule of law in Arab countries that are prospective participants. In countries that are not yet members of the World Trade Organization, including Saudi Arabia and Algeria, the United States is trying to help make the economic policy changes necessary for entry. With Qatar and eight other nations, the United States has negotiated "trade and investment framework agreements," which set broad principles for bilateral commercial ties. For the nations most advanced in changing their economic policies, free-trade agreements are in order.

"MEFTA is designed so we can customize our engagement based on their state of development," Zoellick said.

Critics point out that MEFTA would not cover countries such as Pakistan, Bangladesh and Indonesia, and they view it as too much of a drawn-out process. "If the administration gets what it says it wants, the benefits won't be phased in, in a meaningful way, until something like 2020, so whatever good is to come of this initiative is a long way off," Gresser said.

In Gresser's view, Washington should unilaterally grant duty-free status to goods from Muslim countries -- if they are allies in the war on terrorism -- and be patient until those nations are ready to lower their trade barriers. That idea was incorporated into legislation introduced last year by Sen. John McCain (R-Ariz.) and Sen. Max Baucus (D-Mont.), known as the "Silk Road Bill."

The model for that approach is Jordan. In the mid-1990s, the country was allowed to ship goods -- mostly clothing -- duty-free to the United States from "qualified industrial zones," if the goods had a modest amount of Israeli content, such as zippers. The zones helped boost Jordanian exports to the United States from $16 million in 1998 to $673 million last year. They provide jobs to more than 30,000 people, helping to hold down Jordan's high unemployment.

Bush administration officials have declined to support the Silk Road Bill, partly reflecting the clout of the U.S. textile industry. It has lost hundreds of thousands of jobs in the past several years, and its executives have long warned that opening the U.S. market further would create even more unemployment among people who typically lack job skills or higher education.

The support of lawmakers from the Carolinas, where the U.S. textile industry is concentrated, is essential to pass almost any controversial trade legislation. If the administration were to propose giving Muslim countries tariff-free access for their textiles, textile-state legislators would almost certainly unite to block it and other trade bills the White House hopes to enact.

"In addition to the politics, there are policy issues," Zoellick said in explaining the administration's lack of support for granting unilateral concessions to Muslim countries. "You really want to work toward greater two-way trade," which can make economies more competitive. Moreover, bilateral free-trade agreements of the sort Washington negotiates typically require partner countries to enforce the rule of law more faithfully.

The U.S. industry's power was also evident in the administration's tepid response to Egypt's recent request to establish a number of Jordan-like qualified industrial zones. Egypt is entitled to set them up, but the Egyptian government has long resisted them because of the requirement for Israeli participation. When Egypt finally said a couple of months ago that it wanted to take advantage of the program, the Bush administration sought to limit the number of Egyptian zones, drawing sharp criticism from free-trade advocates.

U.S. and Egyptian officials said they expect an agreement on the issue by year-end.

Gresser argued that a more comprehensive approach is needed that would grant quick trade benefits to the entire Muslim world. He said that while some "frontline" countries such as Pakistan benefit from programs meant to encourage trade with developing nations, those programs typically exclude industries that employ the most people. Among Pakistan's top 100 exports to the United States, for example, only five currently qualify for duty-free treatment -- gold jewelry, flags, molasses, swords and toenail clippers.

In general, Arab and Muslim partners of the United States "get aid and oil money, which are not bad things at all," Gresser said. "But oil money goes into a big national oil company, which is controlled by a few thousand people, and the government may not do a good job of spreading it around. It's not the same as the textile industry, which puts lots of people to work."

reference=http://www.washingtonpost.com/wp-dyn/articles/A30078-2004Dec2.html