Blank Spot on the Map How Trade Policy Is Working Against the War on Terror
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Policy Report February 2003 Blank Spot on the Map How Trade Policy is Working Against the War on Terror by Edward Gresser In late September 2001, U.S. Trade tilts more steeply against Muslim states, U.S. trade Representative Bob Zoellick asserted in The policy may not complement the war on terror à la Washington Post that trade policy can help fight Zoellick, but actually work against it by reducing terrorist groups by promoting growth and the Muslim world’s growth opportunities and abil- economic integration.1 In practice, though, the ity to reach world markets. Muslim world is the blank spot on the Bush This perverse result is not inevitable. Without administration’s trade agenda—and because of vastly disruptive shifts in trade flows or the policy this, that trade agenda risks undermining, rather agenda, a strategic initiative for the Muslim world than supporting, the war on terrorism. could end, or at least ease, the tilt. At minimum, If the administration achieves its trade policy such an initiative—analogous to programs now goals, the result will be that between 2005 and 2015 available for Central America, the Andean nations, (when all U.S. manufacturing trade barriers van- and Africa—could avert creation of a trade regime ish), a series of preferential agreements added to that complicates the campaign against terrorism. the existing trade regime will create essentially At best, by encouraging reform and integration for a three-tiered system. The top tier, facing no Muslim countries, it could play its own role by trade barriers, will be made up of highly devel- sparking growth and creation, and so reducing the oped European and Asian economies, plus 70 to attraction of radicalism and religious fundamen- 90 countries in Africa, Latin America, and per- talism. haps Southeast Asia enjoying wide-ranging duty- free privileges. On the second tier, two very large economies (China and India) will use abolition Economic Roots of the Muslim Crisis of clothing and fabric quotas to take full advan- tage of their size and economies of scale for the Amb. Zoellick was not alone after Sept. 11 in first time. The third tier, squeezed between connecting trade expansion with a successful war these two daunting groups of competitors, will on terror. Drafting a new introduction to her 1992 consist of a few very poor Asian countries and book Islam and Democracy, the Moroccan writer the western Muslim world: the 30 states and 750 Fatima Mernissi recalled a conversation with a young million people from Morocco through the Middle economics graduate from Rabat University named East to Pakistan, Central Asia, and Bangladesh. Karim. Like many recent Middle Eastern university This trade regime in turn could unintention- graduates, Karim had found no permanent job and ally worsen an economic crisis affecting almost all was making ends meet through part-time work in of the western Muslim states. With little outside newspaper shops and Internet cafes. He told her: notice, they have already seen their share of world “I wish I could advise Mr. Colin Powell. ... A good trade and investment collapse since 1980. The eco- military leader is one who can imagine turning a nomic result has been stagnant growth and falling conflict into equal opportunities for both adversaries. income; the social consequences are unemploy- In a situation where people can make a living trading ment, political tension, and rising appeal for reli- peacefully, violence becomes an absurdly costly gious extremists. And, as America’s trade regime choice.”2 Progressive Policy Institute www.ppionline.org Table 1: Foreign Direct Investment (FDI) Stock and Flows, 20015 Population6 FDI Flows, 2001 World 6n.057 billion $735 billio Sweden 0n.009 billion $12.7 billio All Muslim 1n.274 billion $13.6 billio Countries7 Source: UN Conference on Trade and Development, World Investment Report 2002, http://r0.unctad.org/wir/. Four thousand miles east, Pakistan’s Minis- of events beyond national borders, and ter of Commerce Abdul Razak Dawood echoed banization in the western Muslim world his thoughts. “If you want Pakistan to be a lib- have been accompanied by collapsing eral and modern state,” Dawood told the Finan- shares of world trade and investment. In cial Times, “you are not going to get that unless 1980, about 13.5 percent of world exports you’ve got people employed.”3 came from these countries; today the The minister’s view, and Karim’s personal figure is about 4 percent. Investment experience, are especially poignant in light of trends are similar. As Table 1 notes, by recent history. For the western Muslim world, 2001 the entire Muslim world— the last two decades have been years of not representing 1.3 billion people from growth and globalization, but of economic Morocco to Indonesia—received barely as stress and marginalization. Three long-term much foreign direct investment as trends are at the heart of this: Sweden alone. 4 Population growth. The population of the As a result, in sharp contrast to East Asia, western Muslim world—joining the Arab Latin America, or Central Europe, many Mus- states with Iran, Pakistan, Afghanistan, lim countries are poorer and more isolated than and Central Asia—has nearly doubled since they were in 1980. Per capita GDP in the Arab 1980, rising from about 350 million to 600 mil- world, for example, has fallen by nearly 25 per- lion. cent, dropping from $2,300 to $1,650.8 This is a portrait of a civilization under stress. 4 Urbanization. This growth has occurred Larger and better-educated states are isolated mainly in cities. In 1980, the Middle East and from the global economy, economically regress- Muslim South Asia were rural; only 25 percent ing, and unable to help their young people to 40 percent of their people lived in cities. realize their hopes. Anywhere in the world Today, the figure is 40 percent to 60 percent.4 this would raise political tensions. Interwo- Morocco’s population, for example, has grown ven with the conflicts of the Middle East, eco- from 19.4 million to 28.7 million since 1980; nomic struggles are helping to produce an eight of the new nine million live in cities. explosive political environment. And such a This means a population filled with people context makes it far easier for terrorist groups like Karim—more educated, more aware to find recruits. 2 Progressive Policy Institute www.ppionline.org Reasons for Stagnation countries have very little ability to shape the world trade environment in their own Why has this happened? One cause is a interest—without WTO membership, they structural trade environment created by local cannot use the Doha Round to open markets policies: routinely high trade barriers, weak to their goods, use the dispute settlement participation in global trade policy, and deep system to defend themselves against arbitrary isolation of a few countries. trade restrictions, or use trade agreements to reform ineffective policies and outdated 4 Trade barriers. Post-colonial economic bureaucracies at home.9 nationalism has survived longer in the Middle East and South Asia than in Southeast Asia, Positive Signs China, or Latin America. Throughout the western Muslim world, tariff rates often top Such an environment is designed to almost 20 percent, non-tariff barriers are pervasive, block growth. But it is important to note that and investment restrictions frequent. it is not static, and the policy problems that According to the World Bank, Pakistan’s create it are not universal. tariffs are more than 40 percent, the highest Muslim countries outside the Middle East in the world. Typical rates are 20 percent or and western Asia have been successful in higher in Egypt, Syria, Saudi Arabia, and integrating with the global economy. In other major regional economies. Such Europe, Turkey is progressing toward EU policies depress living standards and block membership; Bosnia, Albania, and Azerbaijan the economies of scale that attract have similar, if less advanced, aspirations. investment in the Association of Southeast Further east, Malaysia, Indonesia, and Brunei Asian Nations (ASEAN), India, and China. are active WTO members and participants in the ASEAN Free Trade Area, whose share of 4 Sanctions and boycotts. Southeast Asia, global trade and investment has risen as that Latin America, and Africa have developed, of the Middle East and South Asia has dropped. and with varying success implemented, re- In the Middle East, too, parts of elite opinion gional economic integration plans such as the seek change in current policies. Writing in the ASEAN Free Trade Area, Mercosur, and United Nation’s Arab Human Development more recently, The New Partnership for Report 2002, a group of mainstream Arab Africa’s Development (NEPAD) plan. In the scholars and former government officials note Middle East, the opposite has occurred, as a that, “Most countries in the region formerly series of international and local sanctions and adopted, and some long adhered to, now boycotts have forced four major economies— discredited, statist, inward-looking models. Israel, Iraq, Iran, and Libya—out of regional These models may have been appropriate in trade and investment almost completely. earlier years, but now serve neither governments which need rapid economic 4 Policy isolation. Finally, countries in the growth … nor people who seek more good jobs western Muslim world (especially the Middle with decent wages.”10 East and Central Asia) are less likely to These assessments can spark review and participate in the World Trade Organization improvement of policies throughout the Middle (WTO) than countries in any other region. East and the wider Muslim world. And in Half of the Arab League’s 22 members, several smaller countries—Bahrain, Jordan, including such major economies as Algeria, Oman, Qatar, and the United Arab Emirates— Lebanon, Saudi Arabia, and Syria, remain reforms are already in place.