[Congressional Record Volume 140, Number 38 (Tuesday, April 12, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: April 12, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                     COOPERATION IN THE MIDDLE EAST

  Mr. PELL. Mr. President, the recent massacre at Hebron has injected a 
hard dose of reality into the Middle East peace process. Despite the 
euphoria that surrounded the signing of the Declaration of Principles 
between Israel and the PLO last September, it is evident that old 
divisions remain and there will be continued episodes of violence. 
Meanwhile, beyond the Israeli-Palestinian conflict, the deteriorating 
economic situation in many Middle Eastern countries has led to growing 
despair and disturbing manifestations of political extremism.
  All of us hope that the Israeli and Palestinian leadership will 
return to the peace table; indeed, with the help of the United States, 
they appear to be moving in that direction. But even if they succeed in 
implementing the Declaration of Principles, there are still many issues 
to be dealt with in order to bring true peace and stability to the 
region.
  One of those issues, of course, is economic development. In this 
connection, I would like to call to the attention of my colleagues an 
article by Mr. M. Shafik Gabr that appeared in Business Monthly 
entitled ``The Time Is Now: Regional Cooperation in the Middle East.'' 
Mr. Gabr, the executive vice president of the American Chamber of 
Commerce in Egypt, calls for an intraregional trade and economic 
cooperation structure in the Middle East which would lead to greater 
prosperity and cooperation in the region through expanded trade links.
  I think Mr. Gabr's article makes an important contribution to 
understanding a difficult and complex issue, and I commend the article 
to my colleagues. I ask unanimous consent that it be entered into the 
Record at this point.
  There being no objection, the article was ordered to be printed in 
the Record, as follows:

        The Time Is Now--Regional Cooperation in the Middle East

                          (By Mr. Shafik Gabr)

       The historical events the world is now witnessing will 
     dramatically change the landscape and character of the Middle 
     East. It remains to be seen, however, whether these changes 
     will be positive and dynamic or negative and static.
       For decades, the Middle East has suffered from wars, 
     instability, and mistrust, depriving its people of achieving 
     their true potential. Today, one can say with confidence that 
     stability and comprehensive peace are no longer distant 
     dreams. Comprehensive peace is not merely the absence of 
     conflicts, but also a concept that emphasizes the economic 
     empowerment of the people through political stability. Now is 
     the perfect opportunity to build on the dramatic 
     breakthroughs in the peace process, and vigorously advance 
     the cause of economic cooperation, which is a common interest 
     and a common purpose among nations of the Middle East.


   need for immediate progress so that political peace pays economic 
                            dividends--irtec

       A proposal would be the establishment of an intra-regional 
     trade and economic cooperation (IRTEC) structure in the 
     Middle East, with the main goal of bringing economic 
     betterment to the people of the region. Establishing such an 
     economic structure in the Middle East does not mean that this 
     region should become self-sufficient and isolate itself from 
     world markets. On the contrary, the region should be fully 
     integrated into the world economy, but from the vantage point 
     of strength from within first.


                                 global

       The present economic trend in the world is one of intra-
     regional trade and economic cooperation, with varying degrees 
     from one region to the next. The European Community (EC) is 
     well on its way toward economic union. While this process has 
     faced many obstacles, the determination of the EC to move 
     toward its ultimate goal has prevailed. The United States, 
     Canada, and Mexico have successfully negotiated and ratified 
     the North American Free Trade Agreement (NAFTA) for 
     implementation in January 1994. In the Pacific Rim, Asian 
     nations have increased trade among themselves and are 
     considering numerous plans for advancing the cause of intra-
     regional cooperation.


                           middle east region

       Unfortunately, this current global trend has not yet spread 
     to our region, Intra-regional trade among the nations of the 
     Middle East during the late 80s amounted to a meager 10 
     percent of their total exports. In comparison, intra-
     regional trade of EC countries during the same period was 
     66 percent of their total exports; and for developing 
     countries it was 33 percent of their total exports.
       There have been prior attempts to encourage economic 
     cooperation among some countries of the region. During the 
     80s three regional economic blocs were formed in the Arab 
     World; the Arab Cooperation Council (ACC), which was 
     dismantled following the Iraqi invasion of Kuwait; the 
     Maghreb Economic Union (MEU), which it seen by many as an 
     open channel through which member countries maintain a 
     dialogue to resolve their political differences; and the Gulf 
     Cooperation Council (GCC), which has had limited success in 
     furthering economic cooperation by establishing a customs 
     union. While in principle this customs union was a positive 
     step toward free trade, in reality it did not benefit the GCC 
     states much, since their economies remain dominated by oil.
       There is a tremendous potential for economic development 
     and growth in the Middle East. All the ingredients required 
     for that growth and cooperation exist, such as skilled human 
     resources; a solid investment base with a combined GDP of 
     $400 billion; a relatively modern infrastructure; a modestly 
     diversified industrial base, ranging from labor intensive and 
     low cost in Egypt, to hi-tech in Israel; proximity to Europe, 
     Asia, and Africa; and the potential size of the Middle East 
     market--given that its population is as large as the 
     European, North American, or South American markets.


                           obstacles to irtec

       One must recognize the national and regional challenges 
     facing the prospect of Middle East intra-regional trade.
       On the national level, while each nation has a distinct 
     economic situation, there are common problems confronting 
     them all. These include large and inefficient public sectors; 
     tight government control of monetary systems; complex 
     bureaucracies; and government intervention in and distortion 
     of the marketplace. These negative aspects are the remaining 
     legacies of the Import-Substitution (Inward-Looking) policies 
     widely subscribed to by nations of the region during the 50s 
     and 60s.
       On the regional level, obstacles to intra-regional trade 
     and economic cooperation include political, ideological, 
     economic and sometimes even personal reasons. These include: 
     competition for scarce natural resources, most importantly 
     water; the existence of trade barriers and quotas: the 
     practice of boycotting other members in the region; uneven 
     growth and distribution of wealth; territorial disputes; and 
     a lack of trust coupled with deep suspicions of others' 
     motives. These obstacles will make difficult any attempt to 
     develop a structure for regional cooperation.


                meeting the challenge of creating irtec

       Following are three propositions that will promote intra-
     regional trade and economic cooperation. But first one must 
     emphasize the need for a common denominator, without which 
     these propositions would not work. That denominator is 
     enhancing and reinforcing a stable political environment in 
     the region through greater democratization, trust, and 
     realistic expectations, since if expectations are not 
     realized the peace will be a static one, at best.
       The propositions are: 1. Developing a Middle Eastern 
     Financial Institution and reforming the banking sector:
       A Middle Eastern Financial Institution modeled on the 
     principles of the Asian Development Bank must be created. The 
     priorities of such an institution would be to identify and 
     finance regional projects and trade, in addition to 
     emphasizing and promoting economic cooperation. A second 
     crucial issue in the financial realm is reforming the banking 
     sector, so that 90 percent of the region's wealth does not 
     end up elsewhere.
       2. The creation of a Middle Eastern Economic Commission 
     (MEEC):
       This proposal is the key to this process. The MEEC will be 
     the mechanism for promoting intra-regional trade and economic 
     cooperation and also for solving disputes rapidly and 
     peacefully with a win/win philosophy. The commission should 
     consist of both government and business representatives of 
     countries that are at peace.
       This commission should also concentrate on:
       Developing the region's infrastructure: It is essential to 
     develop the administrative and legal structures of the region 
     as much as the actual physical infrastructure. Infrastructure 
     linkages among the nations at peace are crucial, and the MEEC 
     can help to create these.
       Assisting government in reforming their economic 
     structures: An intra-regional structure will operate much 
     more efficiently if the internal economic structures of the 
     nations are not encumbered by distortions in the marketplace, 
     large budget deficits, high inflation, and bureaucratic 
     burdens. The commission must assist governments to liberalize 
     their economies and adopt productive free market policies.
       The transfer of labor, investment, technology, and energy 
     on the basis of comparative advantage: The commission must 
     work with all the peace partners so that the deregulated 
     movement of labor, investment, technology, and energy becomes 
     reality, allowing the principles of comparative advantage and 
     highest rate of return to take precedence for the benefit of 
     all.
       Bureaucratic Burdens, Trade Barriers, and Most Favored 
     Nation (MFN) Status: On trade, Egypt should move first to MFN 
     status. Egypt has taken great strides in liberalizing its 
     trade policy by removing quotas, non-tariff barriers and 
     reducing its custom levels as per the IMF/World Bank 
     guidelines.
       Competition for scarce natural resources, especially water: 
     This perhaps is the most crucial issue facing the Middle East 
     today, after peace negotiations. Unless a system to share and 
     manage water resources in a fair and beneficial manner is 
     developed, the next conflict in our region might be just 
     around the corner. The commission must work with all parties 
     to the peace process to establish a mechanism to quickly 
     resolve short-term disputes over water rights, otherwise this 
     issue could become a major threat to regional stability.
       3. Establishing a Middle Eastern Business Development 
     Center (MEBDC):
       The MEBDC would be a non-governmental, not-for-profit 
     organization. This center would be composed of businessmen 
     and professionals from countries at peace. The MEBDC could 
     start with branches in Egypt, Israel, Jordan, Turkey and 
     Palestine. It would bring interaction between businessmen of 
     the region, and emphasize opportunities for medium and small 
     businesses, which are the backbones of all the economies in 
     the region.
       The MEBDC would have three components: Information 
     Component--developing data banks necessary for trade and 
     investment cooperation; Investment Advisory Services--bring 
     together investors and entrepreneurs from different nations 
     in joint ventures, and providing commercial arbitration 
     services; and a Research Component--sponsoring economic, 
     environmental, and scientific studies as well as holding 
     seminars and workshops to promote sound economic 
     development in the Middle East.
       All the above components will promote entrepreneurship. And 
     one must not forget that individual investors and risk-takers 
     are the backbone and job creators of major economies, like 
     that of the United States, Egypt and Israel; Cornerstones to 
     Peace and Prosperity: Having made these three propositions, 
     the catalyst and engine of growth for IRTEC are Egypt and 
     Israel, with U.S. engagement, political support and economic 
     assistance. For Egypt and Israel to succeed they must develop 
     confidence-building measures in the economic field between 
     themselves and other peace partners.
       The economic reforms these two countries have implemented 
     in the past few years have produced some positive results; in 
     Egypt, the exchange rate was unified, with a stable 
     conversion rate, inflation was brought down from over 30 
     percent to about 10 percent, the budget deficit was reduced 
     approximately from 30 percent to only 3 percent, and the 
     Central Bank's reserves are up to $15 billion from $1.2 
     billion in 1990. Israel's galloping inflation rates of the 
     mid 80s were reduced, and some reforms to its banking sector 
     were introduced.
       Yet Egypt and Israel still need more internal economic 
     reforms to remove impediments to their ability to execute 
     their leadership roles. In Egypt's case, it is important to 
     speed up the pace of privatization; to have the economic 
     macro-reform gains trickle down to the micro level and 
     benefit the ordinary citizen; and to reduce the complex 
     bureaucracies.
       As for Israel, its foreign trade and investment policies 
     must be liberalized, especially the protectionist elements of 
     its agricultural policies; there should be more openness and 
     less censorship; monetary policy must be liberalized and 
     reformed; and inflation should be reduced.
       As Egypt and Israel continue their economic reforms, they 
     must draw other nations of the region into the peace process, 
     including Iran, Iraq, Syria, Yemen, and Libya. One must keep 
     in mind that IRTEC's structure would not be a static or zero-
     sum concept, but that the size of the pie (market) will 
     increase, and it will be a win/win situation.
       Lastly, two specific areas of immediate promise in this 
     respect are tourism and infrastructure development. In the 
     past few years tourism has become one of the largest and most 
     profitable industries in the world. The Middle East is rich 
     in its history, culture, and natural wonders. A regional 
     tourism industry can be built to benefit everyone on two 
     fronts. On the one hand, this industry will tremendously 
     increase interaction among the people of the region and 
     create jobs within an entire service industry. On the other, 
     the potential revenue is enormous and could help finance the 
     creation of an intra-regional trade and economic cooperation 
     structure.
       The second area of immediate promise exists in linking and 
     developing the infrastructure of the region. Communications 
     systems must be modified to become compatible. Roads and 
     railways linking the region must be improved, along with a 
     new network of roads to link the major urban and industrial 
     centers.
       The task ahead is complex. No one should underestimate the 
     difficulties that will be faced in trying to reform the 
     character of the Middle East. But the potential economic and 
     political rewards for the people are tremendous.
       The positive developments in the Peace Process offer us the 
     unique opportunity to envision a peaceful and prosperous 
     Middle East in which the fruits of trust can be harvested 
     tomorrow by planting the seeds of economic cooperation today.

                          ____________________