Arab Thumbs Down on Free Trade

By Reese Erlich, AlterNet, 16 July 2003

Beirut, Lebanon In recent weeks the Bush administration has hyped formation of a free trade zone with Arab countries as a means to reward those that fight terrorism. At a major economic forum held in Jordan recently, the U.S. dangled the possibility of $1 billion in economic aid to cooperating countries.

But a funny thing happened on the way back from the forum. Many Arabs are saying no thanks to this gesture of American munificence.

In the wake of the occupation of Iraq and shortcomings in NAFTA, the Bush administration is having a harder time selling globalization as an economic panacea for the third world. Syrian textile merchant Samir Kassem, whose business would theoretically benefit from a free trade agreement with the U.S., nonetheless strongly opposes it. Why should the U.S. suddenly want to help Arabs with 'free trade?' he asks. The American administration doesn't have any interest in helping developing countries. It cares about maintaining its position as a superpower.

Jordan's Not-so-free Trade Pact

In late June, the administration trotted out its plans for a Middle East Free Trade Area (MEFTA) during the World Economic Forum held in Shuneh, Jordan. The U.S. trumpeted its free trade agreement with Jordan, signed in 2000, as a model for future deals with other Arab countries.

Thanks to that trade pact, claimed U.S. Trade Representative Robert Zoellick, Jordan had expanded exports by a factor of thirteen, attracted new foreign investment and created some 30,000 new jobs over the past three years. Secretary of State Colin Powell touted the U.S. trade deals as a road map for economic development. We want peace in the region, he said. With peace you need economic development of people, or people will not benefit from peace.

But critics of MEFTA say U.S. claims about the Jordanian success story are misleading. Jordan has mainly attracted South Asian textile and luggage manufacturers who assemble parts that are purchased abroad a economic pattern that does little to stimulate local production. Moreover, about half the workers in the country's duty-free zone aren't even Jordanian and many receive less than the official minimum wage of $3.50 a day.

Elie Yachoui, an economics professor at St. Joseph's University in Beirut, says the U.S.-Jordan agreement isn't much of a model for the rest of the Arab world. According to Yachoui, the agreement mainly benefits the Jordanian elite and was bestowed by the U.S. as a reward for political loyalty. Everybody knows that Jordan is completely aligned with the American policy in the region, he says.

And there is one important aspect of the U.S.-Jordan deal that is unpalatable to other Arab countries. While not widely publicized, the U.S. requires that at least 7 percent of all of Jordan's duty-free exports to the U.S. originate in Israel. Jordanian manufacturers must import Israeli yarn for their textiles, or have the garments sewn in the Occupied Territories. Absent a comprehensive settlement of the Israeli-Palestinian issue, most Arab countries would reject any trade deal that included such a provision.

It's one of the reasons why, despite the rhetoric at the Shuneh forum, the U.S. is currently negotiating only one new free trade agreement in the Arab world. The deal is with Morocco, which is hardly a Middle East economic powerhouse.

Profits for the Select Few

If any country in the Middle East should welcome a free trade agreement, it's Lebanon. This country of 4 million people has a relatively open, free market economy. Goods from Europe and the Far East flood the malls and street corner stalls. And some Lebanese export industries would clearly benefit economically from a U.S. free trade agreement.

The workforce at the Laniere National textile and garment factory in Beirut has shrunk from about 400 in 1993 to a mere 80 today. Owner Sleiman Khattar says he would like to expand exports to America, but the U.S. currently charges a 17 percent import duty on all Lebanese textiles and garments. I think this will be a great opportunity for the Lebanon textile sector to have a bigger share in the American market, he says.

But most Lebanese remain skeptical of the potential impact of such a free trade agreement. Prof. Yachoui says the U.S. would easily dominate any free trade zone. The American economy is a giant economy, he said. The Lebanese economy is really nothing. American products will invade our little market.

And there lies the rub. While a small number of export industries might benefit from a more liberal trade relationship with the U.S., many domestic businesses will inevitably suffer.

The U.S. was able to push through NAFTA in Mexico, largely with the support of powerful Mexican economic interests who hoped to profit from increased American business. But the U.S. has used a variety of regulations to exclude Mexican businesses and workers. Mexican shipping companies, for example, are still waiting for the U.S. to allow them to drive long-haul trucks in the U.S. as agreed under NAFTA.

The situation is even more complicated in the Middle East because the region's elites are so dependent on oil an industry that is already under globalized control. Oil trades freely on world markets with no significant customs barriers. Because Middle East oil executives wouldn't get any additional benefits from free trade agreements, there's less domestic support for a free trade zone.

Even more significantly, most Arab governments have little political trust in the U.S. right now. The U.S. invasion of Iraq without UN backing and its continued support for the Israeli occupation of Palestine make it suspect in Arab eyes. While the U.S. is trying to persuade the Arab world that it has changed tactics with the road map for peace, most Arab leaders remain skeptical of U.S. motives and policies.

Roy Badaro is a garment factory owner and official with the Lebanese Chamber of Commerce who supports MEFTA. But even Badaro admits that the U.S. won't sign many agreements until it shifts away from its current Israel policy. Lebanon will not sign any agreement unless there is a full and comprehensive peace, said Badaro. And you know this is not (going to happen) in the very short term.