In praise of free trade, 19th century British politician Richard Cobden described it as “God’s Diplomacy,” bringing people together to prosper. Taking a page from his book, the United States has successfully applied this idea in the region, using trade to further political ends even as America’s traditional Middle East diplomacy stumbles.
This regional success for America began with the launch of the Qualifying Industrial Zone (QIZ) model in the mid-90s, allowing joint Israeli-Jordanian output to enter the US duty-free, mandating 7 to 8 percent Israeli value-added input into a product as one condition for the trade privileges. QIZ resulted in massive Jordanian garment exports to America, reaching a peak of over a billion dollars annually. So successful was the model in promoting trade that Egypt got the same privilege — the Israeli component in the Egyptian case being 11.7 percent — and started in 2005 to sell textiles and apparel to the US, with those exports jumping to $764 million in 2009.
On the political side, QIZ has been another way for the US to both support Israel economically and effectively buy off Jordanian and Egyptian complicity with the Jewish state, thus furthering America’s political agenda in the region.
Investment in a QIZ is particularly attractive to industries such as textiles and clothing, which are subject to high US tariffs. Consequently, 80 percent of QIZ companies in Egypt and almost all of those in Jordan produce such articles, with big-name US buyers including, among others, Wal-Mart, Van Heusen and JC Penny. Around the States these past few months, I saw more of these products, labeled “QIZ made in Jordan” (or Egypt). This is a far cry from 15 years ago, when it was almost impossible to find Jordanian products on sale in the US, and very rare to see items from Egypt.
There were times when almost the only things our region exported to the rich markets of the West were crude oil and a few other minerals in raw form. By the 1980s, with the expansion of immigrant communities, some foods joined the list of regional exports, as Lebanese hummus and such became available on Western supermarket shelves.
The counterargument runs that selling these ethnic products is easy and ultimately a small niche, while exporting garments to be sold by Wal-Mart is a poor man’s game, so all this exporting hubbub is not really making people rich through higher value-added products.
Could this pattern now be changing? The answer from Egypt, Jordan, and a few other countries in the region seems to be yes. Egyptian QIZs are now kicking in with furniture, leather products, footwear, and glassware. Jordan, which has had a free trade pact with the US since 2000, goes beyond QIZ garment production and has started exporting a growing breadth of goods to America, including air conditioning equipment, branded pharmaceuticals and cosmetics, among many others.
Of course, the hummus and falafel mixes are still there, but in increasingly sophisticated form, and joined by higher-end goods such as spices, herbal tea, and burghul wheat — products that have also penetrated Europe Union with help from EU free trade deals with many Arab states. Not that this is a simple process: such hurdles as EU technical requirements and US Food and Drug Administration product guidelines have to be negotiated, but regional exporters are increasingly managing to comply with requirements of Western markets.
The image of a Middle East exporting only crude oil and crude hummus is fading as regional exporters manage to penetrate Western markets with a widening variety of higher value-added goods, thanks to free trade deals. The next big surprise on this score could even be the Syrians, whose commercial pact with the EU may be coming on stream soon, after which Syria’s industrial exporters will no doubt begin invading European markets.
Given the current state of the regional peace process, however, God’s Diplomacy may take a little longer to bridge the divide between Damascus and Washington.
RIAD AL-KHOURI is a senior economist at the William Davidson Institute at the
University of Michigan in Ann Arbor, and the dean of the business school at Lebanese French University in Erbil, Iraq