US Trade with Middle Eastern Countries - Case Study Example

U.S trade with Middle Eastern Countries U.S trade with Middle Eastern Countries The U.S has free bilateral trade (FBT), agreements with a number of nations in the Middle East including Israel, Bahrain, morocco, Jordan and in 2006, Oman (Chomo, Hall & United States International Trade Commission, 2002). This saw the trade between the US and the Middle East countries grow steadily and gradually as by year 2007, a 22% growth in trade was visible. Israel is the largest trading partner with a big number of imports and exports from both countries. Basing on the World Bank report (2005), the free trade agreement signed in 1985 between the two countries serves as the base for growing trade and investment between the two countries. This agreement has reduced trade barriers and created regulatory transparency. This was the first free trade agreement entered into by the United States, with its central oversight body being the united states-Israel joint committee. The agreement eliminated virtually all duties and restrictions on trade in goods as well as services. Under the agreement agricultural products were seen as major import and export commodity and the imposition of tariff and non-tariff barriers affected a certain portion of the United States agricultural exports and hence, there was creation of duty free trade plus other preferential treatments on certain agricultural products. This was extended from the year 1996 to December 2011. This agreement established steady market access liberalization for food and agricultural products. This saw an enhanced balance of trade in United States as exports rose from $2.5 billion in 1985 to $11.3 billion in year 2010.Monetarily, initial stages in the past years of the free trade agreement implementation saw the tripling up in bilateral trade starting $3.9 billion towards $12.4 billion with united states exports to Israel totaling to $6 billion and in the next fourteen years up to year 2009 the trade was at $32 billion. Even though provisions of the agreement immediately lowered all united state’s tariffs on Israel’ manufactured goods Israel was allowed to practice protectionism through a floating 20% customs duty on any of United States import of its choosing. In order to facilitate economic cooperation, the two states hold a joint economic development group each year to discuss more economic reforms and opportunities in particular, the trade and investment area. Due to success of the free trade area agreement, currently Israel has found itself amongst the 12 largest America’s export market place basing on the per capita. Despite the fact that the Middle Eastern region accounts for less than 5% of United States total trade and 1%of United States foreign direct investment (FDI). The largest exports by Israel to America comprises of precious stones which accounts to 38%, aircraft and parts (12%) and lastly, machinery (10%). These large exports have resulted into the growth of several U.S States e.g. Washington, New Jersey and California. Trade between Middle East and United States has been enhanced by the Free Trade Agreements (FTAs). This relation has steadily strengthened trade relations between the two, though however, united States face stiff competition from several other nations for example China, India and Europe. In an attempt to boost trade and more businesses in the mid-East, which would champion economic reforms in the region, in 2003, George W. Bush, the then United States president devised a plan to increase the businesses in the eastern middle countries. That great initiative had a plan to establish a Middle East Trade Area by 2013. Current United States business initiatives with Middle East countries resulted from earlier measures undertaken to enlarge the political and economic ties with this region. According to the website of Office of the United States Trade Representative, President Bush hatched a plan, by 2003, to form MEFTA, a United States-Middle East Free Trade Area. MEFTA targeted to promote economic growth and prosperity within Middle East via liberalizing trade as well as investment regionally but bilaterally with United States. This was also part of the broader plan to battle terrorism. The plan incorporated active support of membership in WTO, World Trade Organization, for nations in the region that were not yet members, and bargaining for formal BITs (bilateral investment treaties) with concerned countries as well as negotiating for an all-inclusive free trade agreements, among other provisions. The first FTA for the United States with an Arab state was with Jordan, which was established on December 17, 2001. The FTA targeted to scrap off all tariff and non-tariff barriers to bilateral trade in all goods and products. This FTA has been noticed to immensely boost United States exports of machinery and equipment to Jordan. In 2007, a total of $48million alone was accrued. This increase contributed to the total32%increase of total exports of 2007 compared to those of 2006. The total exports made in 2007 reached $857 million, and the exports made included aircraft, spacecraft and parts. By 2013, the United States had announced the conclusion of two bilateral agreements between them and Jordan, a “Joint Principles for International Investment” and “Joint Principles for Information and Communications Technology (ICT) Services.” These agreements are the same as the December2012 contracts signed amongst the US and Morocco. On January 1, 2006, Morocco joined the FTA. Since then, Morocco and U.S. have been trade partners in imports and exports. U.S. large imports to Morocco include aircraft, soybeans, corn and wheat. By 2007, total U.S. merchandise of exports made to Morocco totaled $1.34 billion, which if compared to year 2006 sales; an increase of 53% was incredibly accrued. Overall trade between the two states was expected to increase U.S. economy by $178 million annually. Several U.S. states have tremendously grown out of exports to Morocco for example Wisconsin (505%), Ohio (411%), Texas (345% and Virginia (319%). Morocco is also discussing a third, probable binding agreement on the trade facilitation between them and U.S. This was modeled after the negotiations within the World Trade Organization. In it, the agreement could contain new obligations reflecting electronic and some other developments in the trade facilitation because the U.S.-Morocco trade agreement had been signed in 2004. It has been into trade and really benefited therein. Exports made by U.S. to Bahrain mostly consisted of Vehicles (23%) and machinery (17%). 2007 sales if compared to 2006 sales, an increase of about 25% is noticed. Oman is another state where trade continues to grow even though it has not been fully implemented by FTA which is the relevant body in that. United States struck a deal with Oman in 2006. With trade going on between the two states, machinery, vehicle and aircraft are the largest exports made. According to (Head & Ries, 2012), it is expected that soon after FTA goes into effect with Oman, a great percentage of industrial and agricultural products will enter Oman duty free. Oman is expected to provide a safe and predictable framework for U.S, investors. The FTA’s are also encouraging economic development, transparent and accountable governance. A consideration is made by the congress for several unilateral business policy instruments to up keep and enlarge the US relations economically with the other nations and the other markets in the Middle East region. Policy tools of such kinds represent non-reciprocal trade gains that would not automatically need negotiations with the Middle East trading cohorts, and thus may be easier to execute in the short term. Nations that receive such trade gains often have to meet some criteria like worker rights as well as intellectual property protection prerequisite so as to be chosen as beneficiaries and to sustain such status while negotiating fresh trade and investment agreements, regionally or bilaterally. The United States could opt to center its negotiations on investment and trade agreements with selected nations presently undergoing political transitions, like Syria. According to certain experts, increasing the U.S. partnership with Syria through an FTA could assist to support economic development, political reform, and contribute to increasing living standards for Syrians. This will also play as a motivation for Syria to play a constructive responsibility in the region so as to strengthen its ties with other economic partners. An FTA with countries like Syria in the Middle East could also potentially advance the required reforms, such as those linked to transparency, regulatory standards, governance, and privatization which promote economic growth more broadly. Nonetheless, it is important to note that under a possible U.S. - Syria FTA, economic gain of greater investment and trade for Syria most likely would happen in the longer term. In addition, there is anxiety that, if no complementary reforms are carry out, the gains of an FTA might be constrained to a small section of Syrian society, and thus, not contribute to the general improvement of Syria’s economic conditions as well as the living standards. Some workers, firms, and industries could be badly affected if an increased foreign competition could results from FTA or even if specific provisions of the FTA doesn`t favor their interests. There exist several political and economic explanations why business amongst the section is restricted. Some of the nations in the section have same productions in their industries, hence limiting the chances for intra-regional businesses. Tensions emerging politically between the nations also may limit intra-regional businesses. Using an example of the Arabian League, a large organization involving higher than 20 mid- East and countries in Africa plus companies, has retained to boycott officially to the goods from Israeli firms since its foundation in 1948 (Myers, 1993). The United States utilizes policy tools to enhance trade and investment, both globally and with the Middle East nations, which may be categorized into two broad groups: i. Discussion frameworks and Formal agreements to liberalize investment and trade and advance rules-based trade, like bilateral investment treaties and free trade agreements. ii. Unite State federal government programs which target to promote international trade and investment, like export assistance and financing. International Trade Administration (ITA) is assisting to form economic opportunity for American businesses and workers. By promoting trade and investment, U.S believes they are promoting prosperity and so a better world. So as to increase development and trade, ITA assist U.S. companies to exploit foreign markets by helping to educate companies regarding how they can tailor their activities to specific market with regard to their product slate, marketing, financing, assembly and logistics. Whereas the United States exports much more than any other nation, making that first export can still be a frightening challenge for the small or medium sized firms. ITA assist equip these sort of firms with the required knowledge and tools which they need to manage that challenge, and still, enhance trade and investment which helps everyone. Conclusion In conclusion, trade between United States and Middle East has been enhanced by the formation of FTA. With USA becoming a major trading partner to the region with greater exports than imports, the profit margins are set to rise annually. Given the present uncertainty concerning U.S. relations with other countries in Mid-East, firms in U.S may speculate whether there is actually a market for their services and/or goods in the region. However, all that they need to know is that the exports which hail from U. S have become part of the daily life in Mid-East. In 2004, American firms exported goods and services worth over $23.5 billion to Middle East, with Israel and Saudi Arabia serving as the all time largest Middle Eastern consumers of American goods (Péridy, 2005). The United States carries on to actively encourage World Trade Organization accession efforts of Yemen, Algeria, and Lebanon and has even taken measures to refresh dialogues with other major trading partners in the Middle East, including Saudi Arabia. United States Trade Representative has unrelentingly worked with trading partners in Middle East to execute the MEFTA initiative. References Chomo, G. V., Hall, H. K., & United States International Trade Commission. (2002). Free trade agreements between developing and industrialized countries: Comparing the U.S.-Jordan FTA with Mexicos experience under NAFTA. Washington, DC: U.S. International Trade Commission, Office of Economics. Head, K., & Ries, J. (2012). Immigration and trade creation: econometric evidence from Canada. Canadian journal of economics, 47-62. http://trade.gov/press/publications/newsletters/ita_0408/middle-east_0408.asp http://www.fas.org/sgp/crs/misc/R42153.pdf http://www.ustr.gov/trade-agreements/other-initiatives/middle-east-free-trade-area-initiative-mefta Péridy, N. (2005). Towards a New Trade Policy between the USA and Middle‐East Countries: Estimating Trade Resistance and Export Potential. The World Economy, 28(4), 491-518. World Bank, “Middle East and North Africa Regional Brief,” September 2011. Read More