Bilateral Accords and U.S. Trade with the Middle East: A Track Record of Success
The United States has bilateral free trade agreements with five countries in the Middle East. U.S. exports to those five countries account for 38 percent of all trade to the region and show the value of such instruments in expanding U.S. exports.
by Abdul Quader Shaikh
Trade between the United States and the 18 countries of the Middle East and North Africa continues to grow at a steady pace, particularly with those countries that have signed free trade agreements (FTAs) with the United States. U.S. merchandise exports to the region—including both FTA and non-FTA countries—grew 22 percent from 2006 to 2007. That growth was spurred by the bilateral trade agreements, by a competitive dollar, and by high oil prices, which translated into rising purchasing power and greater imports. However, the United States faces stiff competition in those markets from China, India, and Europe.
(Story continues below.)
Middle East Free Trade Area
The United States has implemented FTAs with Bahrain, Israel, Jordan, and Morocco, and in 2006, the United States concluded negotiations with Oman. Those five FTAs are part of a larger promise. In May 2003, President George W. Bush proposed a plan to increase trade and investment in the Middle East and to advance economic reforms in the region. An important element of that plan was an initiative to establish a Middle East Free Trade Area by 2013.
The total U.S merchandise trade (both exports and imports) with the Middle East reached $158 billion in 2007. This trade included U.S. exports of $55.6 billion and imports of $102 billion. Total trade with FTA countries in the Middle East reached $41.3 billion (38 percent of total Middle East trade), with exports of $16.9 billion and imports of $24.4 billion.
(Story continues below.)
U.S. Exports to Middle East Free Trade Partners
Note: Dollar amounts represent trade in goods. Figures have been rounded.
Source: U.S. Department of Commerce, Bureau of the Census.
Israel: The First FTA
The first U.S. FTA was with Israel, and it took effect September 1, 1985. In 2007, total U.S. merchandise exports to Israel reached $13 billion, which represents an increase of 18 percent over 2006 and 42 percent over 2004. The largest exports were precious stones (38 percent), aircraft and parts (12 percent), and machinery (10 percent).
Since 2004, several U.S. states have experienced exceptional growth in their exports to Israel, including Washington (1,166 percent), New Jersey (112 percent), and California (75 percent).
Jordan: Six Years of Free Trade
The FTA with Jordan entered into force on December 17, 2001. It was the third FTA for the United States and was the first one with an Arab state. Within 10 years of its implementation, the FTA will eliminate all tariff and non-tariff barriers to bilateral trade in virtually all industrial goods and agricultural products.
In 2007, U.S. exports to Jordan reached $857 million, an increase of 32 percent over 2006. The largest exports include aircraft, spacecraft, and parts (24 percent); vehicles (15 percent); and machinery (10 percent). The U.S. International Trade Commission (USITC) has estimated that this FTA has been particularly successful at boosting U.S. exports of machinery and transport equipment—in 2007 by $48 million, or 39 percent over pre-FTA levels.
Many U.S. states have experienced significant growth in their exports to Jordan. For example, from 2004 to 2007, Ohio’s exports grew 369 percent, Arizona’s 193 percent, and California’s by 147 percent.
Morocco: Growth Foreseen
The FTA with Morocco entered into force on January 1, 2006. According to the USITC and the Peterson Institute for International Economics, the agreement is expected to bolster U.S. exports to Morocco by 88 percent, to increase U.S. imports from Morocco by 18 percent, and to increase overall U.S. economic activity by $178 million annually.
Leading U.S. exports to Morocco include aircraft, soybeans, corn, and wheat. Total U.S. merchandise exports to Morocco reached $1.34 billion in 2007, which, compared to $878 million in 2006, represents an impressive increase of 53 percent. In 2004, U.S. merchandise exports totaled $524 million in 2004; hence, a gain of 157 percent occurred over three years.
The most significant export sectors were cereals (31 percent); aircraft (12 percent); and mineral fuel, oil, and other related products (11 percent). Some U.S. states have seen tremendous growth in their exports to Morocco, including Wisconsin (505 percent), Ohio (411 percent), Texas (345 percent), and Virginia (319 percent).
Bahrain: A Proven Agreement
The FTA with Bahrain entered into force on August 1, 2006, and has already been beneficial in terms of stimulating trade. Total U.S exports to Bahrain were $591 million in 2007, which represents an increase of 25 percent over 2006 and 97 percent over 2004. In 2007, top U.S. exports to Bahrain included vehicles (23 percent) and machinery (17 percent).
The top U.S. states in terms of increased exports to Bahrain were Kansas (2,386 percent), Tennessee (550 percent), Louisiana (508 percent), and Texas (245 percent).
Oman: The Newest Accord
The United States concluded and approved an FTA with Oman in 2006. Although the FTA has not been implemented, trade with Oman continues to grow. In 2007, U.S. merchandise exports to Oman were $1.1 billion, an increase of 221 percent over 2004. The largest exports were machinery (34 percent), vehicles (21 percent), and aircraft (15 percent).
When the FTA goes into effect—at a date yet to be determined—100 percent of consumer and industrial products and 87 percent of agricultural tariff lines will enter Oman duty free. Oman will also be obligated to give substantial market access across its entire services regime, provide a secure and predictable legal framework for U.S. investors, ensure effective enforcement of labor and environmental laws, and guarantee the protection and enforcement of intellectual property rights.
Expanding the Circle of Opportunity
FTAs have proved to be one of the best ways to open foreign markets to U.S. exporters, and the agreements in the Middle East have strengthened the competitive position of the United States in that region. The FTAs are also encouraging economic development, transparent and accountable governance, and enhanced economic prospects for the citizens of those countries. In this way, FTAs are fulfilling the wish expressed by President Bush in 2003: a Middle East Free Trade Area not only will bring opportunity to U.S. businesses but also will “bring the Middle East into an expanding circle of opportunity [and] provide hope for the people who live in that region.”
Abdul Quader Shaikh, Ph.D., is an economist with the U.S. and Foreign Commercial Service.
Commerce Department Resources for U.S. Exporters
U.S. exporters looking for help entering or expanding in the Middle East can turn to the U.S. and Foreign Commercial Service (USFCS), an agency of the Department of Commerce, for counseling and assistance. The USFCS oversees a network of U.S. Export Assistance Centers that are located throughout the United States and in more than 80 embassies abroad. For more information, contact the Trade Information Center at 1-800-USA-TRAD(E) (1-800-872-8723) or visit www.export.gov/middleeast.
Exporters experiencing difficulties in their dealings with foreign governments in the Middle East can make use of the Department of Commerce’s Trade Compliance Center (TCC). The TCC monitors foreign compliance with more than 270 international trade agreements. It also provides U.S companies with a one-stop trade “complaint” center that makes it easy and inexpensive for exporters to get the U.S. government to focus on reducing or eliminating foreign trade barriers that obstruct market access abroad. For more information on the TCC, go to www.trade.gov/tcc. For more information on free trade agreements, go to www.tradeagreements.gov.