Remarks by Holly Vineyard
Deputy Assistant Secretary for Africa, the Middle East and South Asia
Second Annual Islamic Banking, Insurance and Finance Conference:
Islamic Banking and Finance in the Global Financial Crisis
U.S. Chamber of Commerce
April 27, 2009
As prepared for delivery
Good afternoon. I understand you have spent the day discussing how the current global financial crisis is impacting the Islamic finance industry and what the future holds for the industry. With that in mind, I would like to share with you the value and current status of the U.S.-Bahrain trade relationship -- and suggest that the U.S.-Bahrain Free Trade Agreement (FTA) offers a window of opportunity for the Islamic finance community.
For many years, the trade relationship between the United States and Bahrain has grown consistently. In 2005, total bilateral trade was approximately $782 million; in 2006 it was $1.1 billion surpassing the $1 billion mark for the first time. By 2008 total trade exceeded $1.34 billion, an increase of 71% in just four years. While some of this growth can be directly attributed to the FTA, much of it is a result of years of choices that have transformed Bahrain into a leader in the region, and positioned it to take advantage of economic opportunities. The United States chose Bahrain as its first FTA partner in the Gulf because of its advanced commercial, economic and legal framework. Its open economy and desire to do business according to international norms made Bahrain an obvious choice. The FTA between our countries was not the beginning of our trade relationship, it was a natural evolution — an affirmation of the wise decisions that Bahrain’s leaders have been making for years. These decisions have given Bahrain one of the strongest legal and regulatory frameworks in the region and a welcoming business climate. Our growing trade relationship has benefited both our countries. But trade does not result in just a one-time gain to the traders. Trade and investment have a cascading effect. They stimulate economic growth, which in turn creates jobs, which generates wealth, which raises standards of living.
The FTA has already produced real gains. On August 1, 2006, the day the FTA entered into force, most U.S. and Bahraini businesses that were already engaged in bilateral trade witnessed immediate benefits from the FTA with the end of practically all import/export duties. Bahraini companies exporting to the United States no longer pay millions of dollars in duties that they once did. Instead, that money remains in Bahrain’s economy, helping drive domestic growth.
In the first full year of the FTA, U.S. exports to Bahrain increased 27%, up from $414 million to $529 million. In the second full year of the FTA, U.S. exports to Bahrain increased another 36%, up from $529 million to $720 million. The total percentage increase in U.S. exports to Bahrain in the first two years of the FTA was 73%, up from $414 million to $720 million.
Foreign direct investment (FDI) in Bahrain for 2006 and 2007 was among the highest levels ever recorded for Bahrain. According to the 2008 World Investment Report, Bahrain now ranks #1 in the GCC and #12 in the world for inward FDI. While all of this FDI is likely not a direct result of the FTA, the FTA serves as a signal to investors both from the United States as well as other countries regarding the investment climate in Bahrain. We are just beginning to see the gains that new investment will bring.
A year ago, Kraft Foods opened its new manufacturing plant in Bahrain. It was Kraft’s first production plant in the Middle East, and represents an investment of $40 million. But that is only a part of the story— Kraft estimates that this plant will contribute $120 million annually to the Bahraini economy in the form of wages, packaging materials, and operating expenses. That is not just a $40 million one-time gain, but $120 million dollars that will occur year after year — jobs that will be there year after year.
These investments have created hundreds of jobs for Bahrainis, translating into positive and tangible differences in the lives of the Bahraini people. These are the real gains — gains that did not appear just because an FTA was signed, but gains that resulted from a favorable investment climate, of which the FTA is one integral part. Gains that don’t only accrue to a few select individuals, but gains that are felt from top to bottom in Bahrain.
I personally believe the FTA is still somewhat misunderstood. Two years after entering into force, many businessmen and women still have little idea of how to take advantage of the FTA to grow their businesses and improve their bottom lines. I am often asked what government officials are doing to implement the FTA to create economic growth. Those questions reflect a fundamental misunderstanding of the FTA — the FTA does not create economic growth on its own. The FTA provides opportunities — opportunities to grow existing businesses and develop new ones. The FTA is already fully in force. Businesses need to take advantage of the opportunities that the FTA presents. Businesses must find ways to transform the opportunities under the agreement into real business activity that produces tangible benefits. People need to recognize the FTA for what it is – a great opportunity. Not just an opportunity for large corporations, but an opportunity that can lead to more jobs, better services, and higher living standards for all Bahrainis and Americans led by entrepreneurs and owners of small and medium sized businesses. Although already significant, the benefits of the FTA are just beginning to be seen.
The U.S. Government, in cooperation with the Government of Bahrain, has been supporting a number of programs related to the U.S. – Bahrain FTA over the past several years. Funded by the State Department’s Middle East Partnership Initiative, we have engaged with the Ministry of Environment to improve understanding of environmental provisions in the agreement. Several studies were produced that highlighted economic benefits and recommended specific sectors related to the U.S. – Bahrain FTA. Training has been conducted in a number of areas including customs, intellectual property rights, and labor issues.
Recently, we have seen a number of positive engagements between the United States and Bahrain as a result of the FTA. The State Department has contracted an industry expert who has been serving as an advisor to the Ministry of Commerce and Industry since November 2008 and in a short time period, he has brought a Bahraini delegation to the Consumer Electronics Show in Las Vegas in January, helped to establish a Gem and Jewelry Association, and consulted with dozens of Bahraini businesses interested in the American marketplace.
Steven Garrett from my staff will participate in an FTA seminar in Manama next month, May 6-7. We will share firsthand accounts of successes achieved in other U.S. FTA partners, they will receive an FTA Toolkit, and they will receive a series of targeted presentations. These presentations will include the legal and regulatory environment for trade, understanding U.S. Customs documentation and other requirements, the importance of intellectual property rights, and a detailed explanation of U.S. product standards. Then they will breakout into three sectoral groups that will focus on either gems & jewelry, tourism, or food processing.
As a practical matter, the FTA with Bahrain has helped serve as a problem-solving tool. With any trading relationships, problems will arise. What really matters is how those problems are tackled – and how quickly they are resolved. We have seen a commitment from our Bahraini counterparts to work with us when companies have told the Commerce Department about any difficulties. There is a true spirit on both sides to make it as easy for a Bahraini businessperson to do business in the United States as it is for an American to conduct business in Bahrain.
One of the greatest opportunities for businesses that the FTA presents — trade in the services sector— is just beginning to be realized. The U.S.-Bahrain free trade agreement provides one of the highest degrees of services sector market access of any U.S. free trade agreement to date. It covers audiovisual, telecommunications, computer services, healthcare, construction, architecture, engineering, and a host of professional services. The FTA obligates both the United States and Bahrain to allow businesses to provide cross-border services, with or without a local presence. This provision of the FTA is particularly promising in the financial sector. Providers can offer cross-border services in important areas such as finances, insurance, data processing, financial information, and financial advising. Some major U.S. companies are using Islamic financing for some of their international transactions.
Bahrain’s economy is growing fast. Bahrain is a gateway to the region. Situated at the heart of the GCC, Bahrain offers international businesses a central location in a quickly developing market of 130 million people with a combined GDP of almost a trillion dollars. We need to work harder to create effective partnerships between American and Bahraini businesses that will attract new investment and take advantage of the trading opportunities presented by our FTA.
During a visit to Bahrain in 2006 I had the opportunity to visit the Bahrain Institute of Banking and Finance (BIBF), and was very impressed with the Center for Islamic Finance. They explained to me how Islamic finance is fast becoming a prominent, financial alternative on the world financial stage, and that their center was established in 1997 to assist in fostering the growth of the Islamic banking community throughout the Middle East and in other traditional commercial banking communities. Further, I learned about its workshops and academic programs which draw upon the experience of experts worldwide to ensure that its seminars are relevant, contemporary and practical. Organizations like the BIBF demonstrate the entrepreneurial spirit of the Bahraini people and their ability to become leaders in the global financial industry.
In closing, in these trying economic times it is important that we maintain a focus on our bilateral trade cooperation. In the current economic situation, as we seek to solve today’s problems and create a more prosperous tomorrow, free and fair trade is more important than ever. I hope that you will keep sharing with us your ideas on how to improve this relationship as we move from over 100 years of friendship to a true partnership.