Defense Secretary Donald Rumsfeld, in describing the campaign against
terrorism, spoke aptly of the need to "drain the swamp" -- destroying
terrorist groups of global reach and reducing the chance that new ones
will emerge. But draining the swamp should be complemented by another
stabilizing element: a trade initiative that would encourage dramatic
economic reform in the Middle East.* Some leftist thinkers have speculated
that anti-Americanism in the Middle East has its roots in popular resentment
of globalization. But the facts are the reverse. Economic discontent may
help terrorist groups recruit their foot soldiers, but the source of such
resentment lies not in globalization but in its absence.
Since 1980, many regions once torn by warfare -- Southeast Asia, Central
and South America -- have succeeded in stabilizing regional politics by
opening their economies to trade and foreign investment. Middle Eastern
governments, by contrast, have not. This policy failure has left the region
with high trade barriers, investment restrictions, economic fragmentation,
and policy isolation.
Trade barriers. Most Middle Eastern countries maintain trade barriers that are among the highest in the world. Egypt, for example, imposes a
54 percent tariff on clothes; Syria bans imports of processed foods, puts
a 250 percent tariff on cars, and requires a license for all imports.
Investment restrictions. Restrictions on foreign investment in
most Middle Eastern countries slow the growth of the manufacturing industry.
Thus, 80 percent of the region's export revenue still comes from oil,
subjecting economies to destructive boom-and-bust cycles as energy prices fluctuate.
Economic fragmentation. Many parts of the world have adopted trade
integration programs such as the North American Free Trade Agreement,
South America's Mercosur, the European Union, and the Association of Southeast
Asian Nations (ASEAN) Free Trade Area. Middle Eastern nations have done
the opposite by imposing trade restrictions and sanctions on one another.
The high trade barriers common throughout the Arab world block routine
intraregional trade. The Arab League's boycott of Israel, the region's
natural source of technology and capital, further worsens the environment.
Three major economies -- Iran, Iraq, and Libya -- have brought international
sanctions on themselves through aggression and extremism.
Policy isolation. Finally, relatively few Middle Eastern nations
participate in world trade policymaking. Eleven of the Arab League's 22
members, and Iran as well, remain outside the World Trade Organization
(WTO). This means Middle Eastern export priorities receive little attention
in global trade negotiations.
As a result, globalization has bypassed the Middle East, and the region
may be more isolated from the world economy than at any time in its 5,000
years of recorded history. Since 1980, as the region's population has
doubled, its share of world investment has fallen by half and its share
of world trade by two-thirds. The consequences are obvious on street corners
from Algiers to Cairo and Damascus. Crowds of unemployed young men sit
around wondering why they have no jobs, why their families are poor, and
who is to blame. In such an environment, the appeal of virulent nationalism
and religious extremism naturally grows.
It is a bleak picture, but also one offering some cause for optimism.
The region's violence and tension are not solely the result of ancient
political or cultural conflicts. Rather, they have strong roots in identifiable,
correctable, economic policy mistakes. Such mistakes can be fixed, and
the experience of Jordan is a case in point.
Arguing that the Middle East "cannot afford to be left behind by
a world that is rapidly moving towards economic integration and globalization,"
Jordan's King Abdullah II has overseen a rapid and comprehensive reform
of his country's economic and trade regime. Since 1999, Jordan has sharply
cut tariffs and other trade barriers, and it joined the WTO last year.
It also launched an economic integration project with Israel, through
which the United States gives duty-free treatment to clothes, jewelry,
and other goods from joint Jordanian-Israeli factories. Most recently,
Jordan completed a full free trade agreement with the United States.
The results are striking. Jordan's exports to the United States have
risen tenfold since 1998, creating 20,000 manufacturing jobs in three
years. This is faster growth than in any country in the world except special
cases like Yugoslavia and the Comoros Islands. It may be no coincidence
that Jordan is one of the region's most peaceful nations and has one of
its most open societies.
Experience suggests that there is nothing unique about the Middle East.
With the right policies, the region can expect the same results that Southeast
Asia or Central America have seen since 1980 -- job creation, economic
stability, reduced social tensions. Middle Eastern governments must make
the reforms themselves, of course, but American policy can help them in
three ways.
First, we can encourage them to join the WTO. This will both reform their
trade policies and help them succeed in export industries. The Clinton
administration began this process, helping Jordan, Oman, Bahrain, and
several other countries complete their accessions to the WTO. The Bush
administration can follow the same strategy with larger economies such
as Saudi Arabia, Algeria, and perhaps even Iran.
Second, we can promote reform and regional economic integration through
trade preference programs. For example, countries that cooperate in the
fight against terrorism and renounce boycotts of Israel could receive
duty-free treatment and freedom from quotas for labor-intensive goods
like textiles and apparel.
Finally, we could extend our existing free trade agreements with Israel
and Jordan to other countries, if they are willing to make the necessary
reforms. Tunisia, Turkey, and Egypt have all expressed interest in such
a step.
This program would demand political commitment from the United States
as well as Middle Eastern governments. But if the commitment is there,
the program's reforms -- export growth, new jobs, and economic progress
-- could be rapid and profoundly important for the region, and for the
larger campaign against terrorism.
