America's $94 Billion Arab Market Export Loss
The U.S. share of world merchandise exports to the Arab Middle East slid
from 18% in 1997 to 13% in 2001. This occurred during import demand growth averaging 1%
per year and voracious demand for high value-added capital goods among Arab economies. The
hardest hit U.S. export sectors include civilian aircraft, agriculture, heavy
transportation, as well as telecommunications and industrial equipment. On the demand
side, the broad U.S. export downturn is driven by growing Arab boycotts against U.S.
consumer and industrial goods. These occur as a response to the perceived loss of U.S.
regional foreign policy legitimacy as seen through the eyes of Arab buyers. On the supply
side, the increasing restrictions on Arab business travel to the United States, and
surging U.S. fear, xenophobia and legal campaigns leveled against Arab business are
positioned to accelerate the toll on future trade. The IRMEP estimates that America has
already lost U.S. $31 billion in exports between 1998 and 2002. If the trend continues,
the U.S. stands to lose an additional U.S. $63 billion through 2007 for a ten year export
loss of U.S. $94 billion. (see Exhibit 1)
Forecast Actual, Potential and Lost U.S. Exports to Arab Markets 1998-2007
(Source: IRMEP 2003)
This paper examines the actual vs. potential U.S. merchandise exports to Arab
markets by industry category. IRMEP suggests strategies for overcoming export obstacles to
members of the U.S. business community and government. More effective engagement can
reverse U.S. export damage while sowing the seeds of broader U.S. interests across the
I. By the Numbers: Lost U.S. Merchandise Exports
Are you still smoking American cigarettes? one Arab asked another beneath a
billboard filled with the imagery of a bloody Israeli military intervention into the
occupied territories. The question calls for the boycott of American consumer goods for
U.S. complicity in supporting Israel, U.S. military interventions, and regional policies
few Arabs feel are just. Questions like this have been asked many times in Arab markets.
Now, the constant and growing pressure to boycott the U.S. has begun to quantifiably
damage American exports. Although overall import demand across Arab Middle East markets is
robust and growing, the U.S. share continues to drop.
Some skeptics point to isolated successes such as the increase in total U.S. exports to
Gulf heavyweight United Arab Emirates (UAE) as proof that the boycott is neither a broad
nor growing phenomenon. However, analysis of recently released Census Bureau Foreign Trade
Division and U.S. Department of Commerce data reveals otherwise. While total UAE imports
grew from U.S. $29.2 billion in 1999 to $35.9 billion in 2002, the U.S. market share
actually decreased from 8.1% in 1999 to 7.4% in 2002. U.S. exports to UAE are suffering as
much as exports to other Arab markets.
High value-added U.S. industries are among the hardest hit. Between 1998 and 2002 exports
of civilian aircraft represented 13% of total U.S. exports to the region. Aircraft exports
were U.S. $3.9 billion in 1998 and U.S. $1.4 billion in 2002. Although the U.S. export of
aircraft to global markets was experiencing a cyclical downturn of -3.4% over this period,
the mean annual decline in U.S. aircraft exports to the Arab Middle East reached -11.8%.
Other hard-hit industries experiencing damage far beyond normal cyclical demand
fluctuation included industrial machines, transport equipment, telecom equipment, spare
parts and military gear. The trucks, buses and special purpose vehicles category, which
represented 3% of total U.S. exports to the region, was $663 million in 1998 and to $215
million in 2002. The America Inc. consumer brand is in danger of extinction in
Arab markets. Branded U.S. consumer goods, de facto subsidiaries of America
Inc. such as cigarettes and beverages have suffered massive losses. In March 2003,
Coca-Cola announced it was permanently relocating its Middle East headquarters,
established a decade ago in Bahrain, to Greece as Arab demand for non-U.S. branded colas
Although the Bush Administration has signaled that a free trade agreement with
preferential tariffs is the new U.S. approach to the region, in reality, tariff barriers
within Arab markets and the U.S. have already been declining steadily.
Tariffs in Egypt declined 3% from 1995 to 1998. Saudi Arabia, while in the midst of a
project to increase domestic production and industrial growth for jobs creation
Saudization only saw mild increases in tariffs, amounting to 0.1% between 1994
and 1999. Also, positive regional common external tariffs and trade agreements between
Gulf Cooperation Council (GCC) members is improving. (see Exhibit #2)
Arab Market and U.S. Mean Tariff Declines
(Source: World Bank and IRMEP 2003)
Weighted Mean Tariff
Average Annual Tariff Declines
The U.S.'s largest regional challenge is not tinkering
with tariffs, but rather stimulating waning Arab market demand for U.S. merchandise. Total
Arab market imports (see the end note for countries included in this report) have grown
from U.S. $117.67 billion in 1997 to $119.42 in 2001. If this steady growth rate continues
(and some economists believe it may accelerate), total regional import demand will reach
U.S. $126.6 billion by 2007.
IRMEP believes that a conservative expected mean share of U.S. exports to the region in
1998-2002 should have been 19.05% of the total Arab market rather than the 14.95% actually
achieved. 19.05% is the actual 1998-2002 market weighted mean share of U.S. exports to
non-Arab UNCTAD petroleum exporting category countries that annually import more than U.S.
$1 billion in American merchandise. This benchmark rate of American export penetration
applied to past and future Arab import demand yields U.S. $229.91 billion in 1998-2007
American exports to the region.
If the preceding half-decade's trend continues (four years of export declines for
every year of advances), the U.S. will lose Arab market share at the rate of -7.3% per
year. Analyzed this way, the U.S. has irrecoverably lost U.S. $31 billion in Arab export
opportunities. And while past losses cannot be recouped, $63 billion in losses have yet to
be realized. IRMEP conservatively forecasts total non-cyclical U.S. export losses between
1998 and 2007 will exceed U.S. $94 billion. The most heavily damaged U.S. export
categories are high value-added industries including civilian aircraft, passenger cars,
military aircraft and drilling/oilfield equipment. Affected industry categories also
include agricultural output and many consumer packaged and non-durable goods. (see Exhibit
1998-2007 Forecast U.S. Arab Market Losses (U.S. $Billion) by Export Category
(Source: IRMEP 2003)
The 19.05% benchmark rate is an achievable U.S. total market share
goal. Amidst global oversupply and building deflationary pressures, U.S. industries must
strive to return to their fair share of Arab markets. Within a larger framework of
productive engagement, increased U.S. exports can be a catalyst that solidifies the
realization of broader American interests in the region. However, American industry
associations and leading corporations must begin to confront and roll back a number of
entrenched and narrow interests that actively harm exports.
II. Negative Factors Impacting U.S. Exports
Supply-side obstacles have less of an impact than demand side issues, but will accelerate
the damage to future U.S. exports if left unchecked:
Supply Side Issues
The following two factors have negatively affected U.S. exports to the region:
1. Increased Asian competition: U.S.-Asian competition
across many export categories is heavy. As one Arab industrial buyer mentioned, my
Asian suppliers can now usually match the U.S. on price and sometimes quality. Before,
there was always a subtle psychological premium to buying American. Now, that premium has
been blown away.
2. Strong U.S. dollar: Bush administration is beginning
to address the strong U.S. dollar. In the past, the strong dollar made U.S. manufactured
goods prices somewhat less attractive than those of foreign competitors, though not enough
to account for the magnitude of U.S.-Arab market share losses.
Other factors are only beginning to be felt but will accelerate the downturn in the
3. U.S. visa restrictions on Arab business travel:
Total foreign visitors to the United States between 1994 and 2001 increased 6.83%
annually. Arab visitors, represented by Egypt, Saudi Arabia, Jordan and UAE trailed
slightly at 6.75% annual visitor increases. Although 2002 data is not yet publicly
available, anecdotal evidence suggests that Arab visitors in particular have been driven
away as U.S. visa processing requirements begin to treat even longtime international Arab
executives more like suspects than prospects. As one Gulf State
ambassador recently stated our elite business people are not going to undergo
fingerprinting just to renew a U.S. visa.
4. Anti-Arab xenophobia campaigns and damaging political
appointments: Prominent U.S. think tanks continue to produce and evangelize a
large quantity of anti-Arab research. These include studies such as David
Wurmser's work on Battle Cry of Tyranny: Anti-Americanism in Arab
Politics or Daniel Pipes' books that encourage U.S. fear of Arabs by
propagating an idea that 15% of all Muslims are potential terrorists. Heavy funding for
these types of projects continues to flow, though usually only from a handful of niche
ultra-conservative pro-Israel foundations, individuals, and unsuspecting corporate donors.
5. Plummeting Arab foreign exchange students: The
number of Arab students studying in U.S. universities has plummeted. Their concerns about
personal safety and the financial and privacy costs of onerous U.S. visa application and
student tracking requirements have made European alternatives ever more attractive. Over
the coming decades, Arab business people familiar with U.S. principles and practices will
steadily decline. The current generation of executives will retire and be replaced by
graduates of foreign universities with few insights into or firsthand experience with the
U.S. Also, as new movements dedicated to shutting down U.S. university Arab studies
departments and diverting funding, such as Campus Watch, continue to achieve
their objectives, the number of international U.S. executives able to function capably in
the region will also decline.
The Asian trade factor is largely beyond U.S. influence. U.S. officials appear to be
reassessing issues surrounding the strength of the dollar. The damage caused by the other
factors will largely be felt in the future, but can be addressed now. However, the most
important actions the U.S. must now take address and influence demand issues.
Demand Side Issues
America's reputation and credibility in Arab markets has hit a new low point, and
poses the greatest danger to future U.S. exports. The single driver of the growing
preference for non-U.S. imports is negative Arab perceptions about regional U.S. policies.
Recent Bush administration statements about Israeli-Palestinian peace plans and more equal
treatment of regional concerns have been welcomed in Arab markets. However, only tangible
results of changes to U.S. policies will regenerate demand for U.S. exports:
1. Reaction to U.S. Engagement Programs: Positive U.S.
actions such as the U.S. Middle East Partnership Initiative and the recently announced
trade agreement plan are viewed with skepticism due to the minimal levels of U.S. funding
commitment, suspicious timing, low regional relevance and even lower expected impact. U.S.
corporations continue to be targeted in retaliation. A blunt weapon, Arab selection of
alternative suppliers affects many U.S. business interests that have had little first-hand
responsibility for U.S. regional policy. Strong and equitable U.S. actions, as opposed to
weak vision statements and public relations campaigns are sorely needed.
2. The Arab Boycott: Israel will continue to be a
regional pariah to Arab consumer markets until the U.S. enforces a just settlement with
the Palestinians. Bush Administration statements wish that regional hatreds will be
swept away. Officials have attempted to gain guarantees that the boycotts will be
dropped by participating Arab states, thereby creating a more productive environment for
peace. However the elementary force of Arab outrage at the historical injustices visited
upon Arabs during the creation of Israel lingers on. It is unrealistic to expect or demand
that normal trade and relations commence over the short term between remaining Arab
boycott countries and Israel until root causes of conflict are equitably resolved and
sustained over time.
3. Increasing U.S. Legal Exposures: Actual and planned
lawsuits leveled against Arab corporations and individuals formerly playing a prominent
role in trade are on the rise. Arab traders and investors fear well-funded legal fishing
expeditions searching for any opportunity to link, sue and try cases before
highly sympathetic U.S. judges and juries. Doing business while Arab
increasingly means fending off the threat of massive U.S. damage claims mounted against
any identifiable pool of assets. This will continue to move many corporate good citizens
and their investments out of the U.S.
4. Judgment of U.S. Fairness and Neutrality: Some Arab
thought leaders will continue to measure many U.S. initiatives by their stated or
perceived benefit to Israel. Arab buyers punish U.S. exporters in a one brand
approach toward rejecting U.S. overall policy in the region. Right or wrong, massive
military aid to Israel, U.S. unwillingness to militarily, politically, or financially halt
illegal Israeli settlement expansion, and the U.S. invasion of Iraq are all seen as
actions largely conceived, promoted, and implemented for the benefit of Israel. All
America Inc. brands subsequently suffer.
The Bush Administration Trade Proposal
Many aspects of the May 9, 2003 Bush administration plan for a regional free-trade
agreement have been met with surprise in Arab markets. The announced proposal revealed a
lack of understanding about indigenous Arab movements toward freer trade, and regional
market system realities. Key concerns include:
1. Timing: The timing of the Bush announcement has been
questioned. Some Arabs wonder whether it is intended to confront the core issue of
foundering regional demand for U.S. merchandise, or merely focus attention away from
coalition post-war security and infrastructure rebuilding challenges in Iraq.
2. The Boycott: Although many Arab states are already
working toward WTO accession, the Bush admonition that WTO is most important because it
would require Arab markets to drop their boycotts of Israel in order to enter the global
system raises questions. Many Arab governments feel their boycott of Israel is as
justified in principle as the U.S. trade embargo on Cuba. Remaining boycott states are not
making WTO entry adjustments as a bid to favor Israeli exports.
3. Arab Corruption Charges: President Bush slighted
Arab business by trumpeting trade as a way to combat Arab corruption. "By replacing
corruption and self-dealing with free markets and fair laws, the people of the Middle East
will grow in prosperity and freedom," Mr. Bush said in his commencement speech to
1,200 graduates of the University of South Carolina. That this type of prejudicial
language, formerly emanating only from the ranks of fringe neoconservative policy pundits,
has now been adopted by the White House is both troubling and unproductive.
Many Arab business people were perplexed and hurt by charges of self-dealing from a nation
suffering its own corporate governance issues and the aftermath of widespread corruption
on Wall Street. We know these types of sentiments are all but exclusively for
domestic consumption stated one Gulf state ambassador to the U.S., but when
the time comes to make a major purchase, we certainly remember them.
4. Petroleum Market Realities: With or without a trade
agreement, an important portion of the system will continue to function as a petroleum
market. In this system any U.S. merchandise exports, goods with many substitutes, are paid
for by petroleum exports, goods with no substitutes. Even powerful U.S. players such as
petroleum service, engineering and construction industries protected by their size,
expertise and relationships may face greater market substitution pressures in regional
markets. The June 6, 2003 Saudi cancellation of US $25 billion in regional infrastructure
projects could be only the beginning. Meanwhile, consumer and tech export sectors that
rely on the synthesis of ingenuity and marketing savvy to sell sophisticated products to
hearts and minds in Arab consumer and enterprise markets will continue to lose
out even if a falling dollar lowers their prices relative to the competition.
U.S. interests can be achieved by nullifying factors damaging market demand. In this
section, we propose concrete steps that individuals in U.S. business and government can
pursue toward restoring U.S. credibility and integrity in the region and ultimately
regenerating Arab demand for U.S. exports.
IRMEP Recommendations to Business
Businesses negatively affected by Arab market demand can take three steps to improve their
export prospects in the short and medium term:
1. Increase the distance between your brand and U.S. policies: Many
U.S. corporations in affected industries have already sought to emphasize the amount of
local Arab market inputs that go into their production, and stress the global nature of
This positioning alone is not enough to trigger an inflection point in Arab market demand.
Companies marketing to Arab consumer and small to medium size enterprise markets in
particular need to begin sending messages that their brands are part of the solution, not
the problem. The messages can be deeply serious or even light-hearted in tone. Two key
messages that can be integrated into regional publicity and public relations include:
a. We are working toward peace and justice. (Serious):
American companies selling to the region can emphasize through charitable contributions
and involvement in Arab relief agencies how they are working toward alleviating
Palestinian suffering and that of other victims of regional conflict. Billboards and
broadcast media positioning consumer brands alongside relief and development service
images can somewhat decouple an American brand from U.S. foreign policy.
b. We're not so stupid as to blame you for 9/11
(Humorous, light): Humorous ads depicting the so-called ugly American
blaming all Arabs for 9/11 and how the affected company's brands transcend Arab
smear, fear and discrimination can tackle demand issues in a lighter and brand-effective
2. Scrutinize corporate policy research funding: Most
corporate foundations don't consciously fund vitriol and discrimination or otherwise
try to feed the growing Arab xenophobia machine in the U.S. However, many corporations
that do give, particularly to certain Washington D.C. policy think-tanks, may be
contributing to fear and xenophobia campaigns without realizing it. The American
Enterprise Institute, Hudson Institute, Middle East Forum, Washington Institute for Near
East Policy and other neutral sounding policy think-tanks that have promoted highly
questionable and negative Middle East policies are generally very narrowly funded by a
small handful of contributors (See http://www.irmep.org/member_support.htm). However,
corporations in negatively affected industries should nevertheless carefully analyze and
screen their corporate giving programs in order to determine whether they are unknowingly
funding works of little academic merit that harm their own core business interests.
3. Get involved in regional U.S. policy issues that negatively
affect consumer demand: Packaged goods and other corporations in industries that
rely upon consumer or enterprise market goodwill need to get more involved on Capitol
Hill. Misguided and damaging legislation pitched by narrow interests in the U.S. Congress
can create billions of dollars in losses when they do not receive a healthy dose of
attention by affected industries.
IRMEP Recommendations to U.S. Government
Although business interests can work toward creating solutions to U.S.-Arab export
declines, only the U.S. government can take the larger steps to restore U.S. regional
credibility and trade with Arab countries.
1. Enforce an Israeli-Palestinian solution: Many D.C.
think tanks routinely broadcast a common message about US-Arab discord, that Israel
has nothing to do with it. They are wrong. Currently, many Arabs expect that the
U.S. will be either unable or unwilling to apply constructive pressure upon Israel toward
achieving the road map for peace proposal, irrespective of any apparent break
through. Arab markets are fatalistic in expecting events to emerge over the long
term which will lead to the retention or even expansion of Israeli-occupied territories,
and the complete minimization of Palestinian interests. It is up to the U.S. government to
demonstrate with acts, rather than words, the willingness to force a just solution. This
alone would bolster the America Inc. brand.
2. Appoint experienced Arabist regional analysts to key U.S.
policy positions: Most current Bush administration Middle East appointees have
compromising ties and are widely believed to be over-weighted with alumni from pro-Israel
lobbies. The most recent nomination of Daniel Pipes for the United States Institute of
Peace is a case in point. Pipes has made numerous statements such as, "Western
European societies are unprepared for the massive immigration of brown-skinned peoples
cooking strange foods and maintaining different standards of hygiene. All immigrants bring
exotic customs and attitudes, but Muslim customs are more troublesome than most." The
influence of individuals with a long and documented record of racist thinking and their
subsequent policy products is a direct contributor to declining U.S. regional trade and
engagement, and must be reversed. Currently, no high-ranking regionally credible appointee
thought to be an Arabist occupies any top policymaking position.
3. Target funding for illegal Israeli settlements: Arab
markets have watched blunt U.S. efforts to trace and stop terrorist financing by rolling
up unregulated Islamic charity networks operating in the U.S. Now, the U.S. Department of
Justice must also publicly roll up U.S. networks that have financed the illegal expansion
of settlements in Israeli occupied Arab lands. The U.S. must indict, arrest, and prosecute
persons and organizations actively flouting U.S. peace initiatives. These include select
religious funding networks and individuals operating in the U.S. such as Bingo
King Irving Moskowitz or former Texan and West Bank developer Homer Owen.
Prosecution for the transfer of funds from the U.S. in order to expand illegal Israeli
settlements at the same time the U.S. government has been calling for a settlement freeze
and dismantlement would bolster the U.S. position as an honest broker in the current peace
4. Streamline Arab business and student U.S. visa processes: The
background and activities of 9/11 ringleaders and collaborators are easily distinguishable
from those of longtime international business people and legitimate foreign students
seeking entry into U.S. universities. The U.S. should leverage its new and hard-won
knowledge base about terrorists in order to streamline visa renewal processes for veteran
Arab business people. It must also limit the invasion of privacy and time demands placed
upon low-risk individuals who pose zero threat to homeland security and have the greatest
potential benefits to present and future U.S. trade.
5. Consider the trade and export cost of regional policies:
The administration must begin to calculate the opportunity costs of U.S. policies on
businesses operating in the Middle East. Cynics may claim that no loss is incurred whether
U.S. goods and services are consumed as regional exports, or consumed in military
campaigns, foreign aid, and reconstruction. In fact American taxpayers fund aid and
military interventions, while U.S. business loses billions of dollars in market
The obstacles identified in this report harm exports and produce only one payoff, the
dividends of fear. We must begin to take new approaches that encompass broader American
interests through legitimate pro-engagement policies.