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Monday, January 17, 2005


How Trade Policy is Working Against the War on Terror

PPI Policy Report February 4, 2003
By Edward Gresser
Editor's Note: The full text of this policy report is available in Adobe PDF format, only. (Requires Adobe Acrobat Reader.)

In late September 2001, U.S. Trade Representative Bob Zoellick asserted in The Washington Post that trade policy can help fight terrorist groups by promoting growth and economic integration. In practice, though, the Muslim world is the blank spot on the Bush administration's trade agenda -- and because of this, that trade agenda risks undermining, rather than supporting, the war on terrorism.
If the administration achieves its trade policy goals, the result will be that between 2005 and 2015 (when all U.S. manufacturing trade barriers vanish), a series of preferential agreements added to the existing trade regime will create essentially a three-tiered system. The top tier, facing no trade barriers, will be made up of highly developed European and Asian economies, plus 70 to 90 countries in Africa, Latin America, and perhaps Southeast Asia enjoying wide-ranging duty-free privileges. On the second tier, two very large economies (China and India) will use abolition of clothing and fabric quotas to take full advantage of their size and economies of scale for the first time. The third tier, squeezed between these two daunting groups of competitors, will consist of a few very poor Asian countries and the western Muslim world: the 30 states and 750 million people from Morocco through the Middle East to Pakistan, Central Asia, and Bangladesh.
This trade regime in turn could unintentionally worsen an economic crisis affecting almost all of the western Muslim states. With little outside notice, they have already seen their share of world trade and investment collapse since 1980. The economic result has been stagnant growth and falling income; the social consequences are unemployment, political tension, and rising appeal for religious extremists. And, as America's trade regime tilts more steeply against Muslim states, U.S. trade policy may not complement the war on terror ` la Zoellick, but actually work against it by reducing the Muslim world's growth opportunities and ability to reach world markets.
This perverse result is not inevitable. Without vastly disruptive shifts in trade flows or the policy agenda, a strategic initiative for the Muslim world could end, or at least ease, the tilt. At minimum, such an initiative -- analogous to programs now available for Central America, the Andean nations, and Africa -- could avert creation of a trade regime that complicates the campaign against terrorism. At best, by encouraging reform and integration for Muslim countries, it could play its own role by sparking growth and creation, and so reducing the attraction of radicalism and religious fundamentalism.

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