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Tuesday, January 24, 2012

U.S. Trade and Investment in the Middle East and North Africa: Overview and Issues for Congress

Rebecca M. Nelson
Analyst in International Trade and Finance

Mary Jane Bolle
Specialist in International Trade and Finance

Shayerah Ilias
Analyst in International Trade and Finance

In order to support democratic political transitions and stability in the Middle East and North Africa (MENA), policymakers in Congress and elsewhere are discussing potentially using U.S. trade and investment to bolster long-term economic growth in the region. For example, President Obama has called for the creation of a “Trade and Investment Partnership Initiative” in the MENA region, and some Members of Congress have called for deeper economic ties with Arab countries undergoing profound change. This report analyzes policy approaches that the Congress might consider concerning U.S.-MENA trade and investment. 

MENA Economies 

Economic performance in the MENA region as a whole lags behind other regions in the world in terms of GDP per capita (living standards), employment, and economic diversification, despite the fact that several MENA countries are major producers of oil and natural gas. Substantial diversity also exists among economies within the region. 

Integration in the Global Economy 

The MENA region’s lack of integration in the global economy is frequently cited as an obstacle to overall economic development in the region. MENA’s trade with the world is concentrated in a small number of products (oil exports and imports of manufactured goods) and among a small number of trading partners (particularly the European Union). Tariffs also remain high in some MENA countries. With regard to the United States, the MENA region accounts for less than 5% of U.S. total trade and 1% of U.S. foreign direct investment (FDI) outflows. U.S. businesses face a number of non-tariff barriers, such as lack of transparency, bureaucratic red tape, corruption, weak rule of law, and differences in business cultures. The United States has free trade agreements (FTAs) with five MENA countries: Bahrain, Israel, Jordan, Morocco, and Oman. 

Policy Approaches and Challenges 

Congress and other policymakers might consider a number of approaches regarding U.S. trade and investment in the MENA region, including: 

         maintaining the status quo until the impact of the political changes in MENA countries is clear; 
         creating a U.S. trade preference program that grants preferential market access in the United States to exports from MENA countries; 
         increasing assistance from U.S. federal export agencies to the region; 
         negotiating new trade and/or investment agreements with countries in the region that do not already have them. Egypt and Tunisia have been mentioned by some U.S. policymakers as the most likely candidates for FTAs; and 
         providing technical assistance to countries working towards World Trade Organization (WTO) membership. 
The link between increased economic openness and democracy is debated. Some analysts maintain that new trade and investment agreements develop better governance and institutions and support sound economic growth. Other analysts argue that the empirical record between economic openness and democracy is weak. Additionally, some observers question whether the protestors in different Arab countries favor more economic liberalization, which they sometimes associate with inequality.

If a policy agenda to promote increased U.S. trade and investment with the MENA region is pursued, Congress will face a host of questions. A few examples include: 

         Should the U.S. government promote expanded trade and investment in the nearterm in order to support democratic transitions, or should it wait until the political situation stabilizes in various countries? Does waiting risk losing commercial opportunities for U.S. businesses in MENA to other countries? Does acting early risk supporting governments whose compatibility with U.S. interests remains ambiguous? 
         To what extent should the United States balance, on one hand, pursuing a regional approach of increased trade and investment, while, on the other hand, tailoring policies to the specific needs of individual countries in the region? 
         To what extent should the United States cooperate with the European Union or others on trade and investment in the MENA region? 
Are existing U.S. trade and investment agreements with MENA countries benefitting the region, and achieving the intended objectives? What lessons can be learned from past U.S. efforts to promote trade and investment?

Date of Report: January 20, 2012
Number of Pages:
Order Number: R421
Price: $29.95

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