Middle East Free Trade Area: Progress Report

Middle East Free Trade Area: Progress Report

Order Code RL32638
CRS Report for Congress
Received through the CRS Web
Middle East Free Trade Area:
Progress Report
Updated July 3, 2006
Mary Jane Bolle
Specialist in International Trade
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

Middle East Free Trade Area: Progress Report
Summary
On May 9, 2003, the Bush Administration proposed the establishment of a U.S.
Middle East Free Trade Area (MEFTA) within a decade (by about 2013). This
proposal came a year and a half after the September 11, 2001 terrorist attacks on the
U.S. World Trade Center and the Pentagon. The MEFTA was billed as part of a plan
to fight terrorism — in this case, by supporting the growth of Middle East prosperity
and democracy — through trade. On June 23, 2003 the Bush Administration
described a six-step process for Middle East entities to become part of that MEFTA:
(1) joining the World Trade Organization (WTO); (2) possibly participating in the
Generalized System of Preferences; successively entering into (3) trade investment
framework agreements (TIFAs), (4) bilateral investment treaties (BITs), and (5) free
trade agreements (FTA) with the United States; and (6) participating in trade capacity
building.
The MEFTA would cover 20 entities in what many refer to as the Middle
East/North Africa — 16 in the Middle East: Bahrain, Cyprus, Egypt, the Gaza
Strip/West Bank, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi
Arabia, Syria, the United Arab Emirates and Yemen; and four in North Africa:
Algeria, Libya, Morocco, and Tunisia.
Although U.S.-Middle East trade is small (4-5% of total U.S. trade), oil and gas
are key imports, accounting for one-fourth of all oil and gas imported and more than
one-tenth of all oil and gas consumed in the United States each year. Textiles and
apparel are the second most important imports from these entities. The most
important U.S. exports to these entities are transportation equipment and machinery.
The Bush Administration’s initiative aims to help diversify and improve the
economies of the Middle East, provide jobs for the rapidly growing population,
stimulate U.S. exports, and help Middle East countries make economic reforms —
values echoed by The 9-11 Commission Report as part of a comprehensive strategy
to countering terrorism.
Since the Bush Administration first announced its trade initiative, it has made
substantial progress in working with MEFTA entities to support WTO membership,
and to develop TIFAs, BITs, and FTAs and progress along the steps outlined above.
Since the beginning of 2003: Saudi Arabia has joined the WTO, and Iraq, Iran,
Lebanon, Yemen, and Algeria are negotiating accession. In addition, TIFAS have
been completed with seven countries: Kuwait, Oman, Saudi Arabia, the United Arab
Emirates, Yemen, Qatar, and Iraq, bringing the total to 12. Other TIFA partners are
Bahrain, Egypt, Jordan, Algeria, Morocco, and Tunisia. BITs have been completed
with one country, Jordan, bringing the total to five. Other BIT partners are Bahrain,
Egypt, Morocco, and Tunisia. Finally, a bilateral free trade agreement has been
implemented with Jordan, Israel, Morocco, and Bahrain; signed with Oman (January
19, 2006); and is under negotiation with the United Arab Emirates. This brings the
number of MEFTA FTAs to four implemented, one awaiting congressional action,
and one under negotiation. FTA negotiations underway with Egypt have been
suspended over human rights issues. This report will be updated as events warrant.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Impetus for the Initiative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Major Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Some Key Indicators of U.S. Economic Ties to the Middle East . . . . . . . . . . . . . 4
U.S. Imports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
U.S. Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
U.S. Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Recent Growth in Trade With MEFTA Entities . . . . . . . . . . . . . . . . . . . . . . 6
Details of the MEFTA Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Trade Preference Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Steps or Activities Leading Toward Free Trade Agreements . . . . . . . . . . . . 7
Requirements for Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Time Line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Progress So Far . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Current Congressional Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
List of Figures
Figure 1. Entities Included in the Bush Administration’s Definition of “Middle
East / North Africa” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Figure 2. Source of Total U.S. Oil and Gas Imports, 2005 . . . . . . . . . . . . . . . . . . 4
Figure 3. Key U.S. Imports from the Middle East, 2005
(as a Percent of All Imports from the Middle East) . . . . . . . . . . . . . . . . . . . . 5
Figure 4. Top U.S. Exports to the Middle East, 2005
(as a Percent of all U.S. Exports to the Middle East) . . . . . . . . . . . . . . . . . . 6
List of Tables (Appendix)
Table 1. Brief Summary of the MEFTA Initiative . . . . . . . . . . . . . . . . . . . . . . . 14
Table 2. Entities Covered by the MEFTA: Progress Toward a Bilateral
Free Trade Agreement with the United States . . . . . . . . . . . . . . . . . . . . . . . 15
Table 3. Top U.S. Imports (and Percent of Total That They Represent) from
20 Middle East Entities (2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Table 4. Top U.S. Exports (and Percent of Total That They Represent) from
20 Middle East Entities (2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Table 5. Foreign Direct Investment in Middle East Entities:
Stock of Investment by the World and by the United States, 2004 . . . . . . . 18

Middle East Free Trade Area:
Progress Report
Introduction
After the terrorist attacks against the New York World Trade Center and the
Pentagon on September 11, 2001, a U.S. objective became, in the words of U.S.
Trade Representative Robert B. Zoellick, to fight terrorism by “spreading the
message of prosperity and democracy throughout the world.”1 One way the Bush
Administration chose to spread that message was through a proposed Middle East
Free Trade Agreement (MEFTA).
The MEFTA Initiative was proposed by President Bush on May 9, 2003, and
was slated for completion within a decade (i.e., by around 2013). More detail on the
Bush Administration’s plan was revealed on June 23, 2003 at the World Economic
Forum in Jordan, when U.S. Trade Representative Zoellick spoke on the conceptual
details. USTR Zoellick outlined six-steps for Middle East entities wishing to enter
into a free trade agreement with the United States.
The purpose of this report is to describe MEFTA in terms of: (1) its impetus,
(2) its major elements; (3) background trade data, (4) details; and (5) arguments for
each.
At the back of this report are five tables. Table 1 outlines the basic elements
of MEFTA. Table 2 tracks the steps each entity has taken toward a free trade
agreement with the United States: WTO membership, eligibility for the Generalized
System of Preferences, and achievement of three types of agreements — trade
investment framework agreements, bilateral investment treaties, and free trade
agreements. Tables 3 and 4 list for each entity, U.S. import and export totals and
shares of key commodities traded. Table 5 shows the current value and share of
world and U.S. foreign direct investment, respectively, in various entities.
Impetus for the Initiative
MEFTA captured an idea that was already being debated in Washington —
using trade as a tool to fight terrorism. For example, in February 2003, a report by
policy analyst Edward Gresser argued that the Muslim world had been the “blank
spot” on the U.S. trade agenda, a fact that risked “undermining rather than supporting
the war on terrorism.” Gresser pointed to an economic crisis affecting almost all of
the western Muslim states, which have “seen their share of world trade and
1 “A Man of Many Missions.” Business Week. March 31, 2003, p. 94-95.

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investment collapse since 1980,” resulting in “stagnant growth, [and] falling
income,” with social consequences of “unemployment, political tension, and rising
appeal for religious extremists.”2
Gresser argued that, “A strategic initiative for the Muslim3 world could end —
or at least ease — the tilt.” Gresser called for an initiative “analogous to the programs
now available for Central America, the Andean Nations, and Africa” in order to
possibly spark “growth and creation, and so reduce the attraction of radicalism and
religious fundamentalism.”
Another article written by policy analyst Brink Lindsey of the CATO Institute
argued for two concepts. The first was an additional shorter-term program to include
“temporary duty-free, quota-free access to the U.S. market for exports of selected
Muslim countries.” The shorter term program, he declared, would give tangible,
dramatic proof of U.S. commitment to the region, thereby providing an impetus for
the longer, arduous process of negotiating free trade agreements. The second concept
Lindsey called for was the expansion of the definition of “Middle East” beyond the
traditional geographic area to include other countries with “geopolitical
significance.”4
More recently, The 9-11 Commission Report affirmed these ideas. It included
a recommendation which reads, “A comprehensive U.S. strategy to counter terrorism
should include economic policies that encourage development, more open societies,
and opportunities for people to improve the lives of their families and to enhance
prospects for their children’s future.”5
Major Elements
The Bush Administration’s MEFTA plan, in aiming to support economic
development, job creation, and political, and humanitarian changes, reflects elements
of the two articles referred to above:
! Primary Focus. The primary focus of the Bush Administration’s
plan would be on the long-term establishment of a Middle East Free
Trade Area by around 2013.
! Short-Run Trade Preference Program.

The
Bush
Administration’s short-run trade preference component would be to
continue the Generalized System of Preferences (GSP) currently
2 Gresser, Edward. Blank Spot on the Map: How Trade Policy is Working Against the War
on Terror. Public Policy Institute. February 2003.
3 All but two of the entities that would be covered by the initiatives (Israel and Cyprus) are
at least two-thirds Muslim.
4 Lindsey, Brink. The Trade Front: Combating Terrorism with Open Markets. CATO
Institute. August 5, 2003.
5 National Commission on Terrorist Attacks Upon the United States. The 9-11 Commission
Report, released on August 29, 2004.

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available to some Middle East countries. The Bush Administration
is also considering offering sub-regional groups within the Middle
East some eligibility to export goods to the United States tariff free
or at reduced tariffs.
! Long-Term Plan. The Bush Administration’s long-term plan
would be for eligible countries to: (1) join the World Trade
Organization and then sequentially enter into (2) trade investment
framework agreements (TIFAs), (3) bilateral investment treaties
(BITs), and (4) free trade agreements (FTAs) with the United States.
Once a country has entered into an FTA with the United States, other
neighboring countries could achieve some FTA tariff benefits by
“cooperatively producing” (with two or more countries contributing
to the same product) with that country.
! Definition of “Middle East.” The Bush Administration’s plan uses
the Office of the U.S. Trade Representative definition of “Middle
East” and includes countries traditionally identified as in the Middle
East or North Africa.6 (See Figure 1.)
! Eligibility Requirements The Bush Administration’s plan specifies
very few eligibility requirements for countries wishing to join the
MEFTA.
Figure 1. Entities Included in the Bush Administration’s Definition of
“Middle East / North Africa”
Caspian Sea
Algiers
Tunis
Strait of Gibraltar
Gibraltar
TUNISIA
SYRIA
Rabat
Tripoli
M e d i t e r r a n e a n S e a
MOROCCO
IRAQ
I R A N
Dead Sea
Cairo
JORDAN
A L G E R I A
P er
G
si
L I B Y A
u
a
l
n
f
E G Y P T
Str. of
Hormuz
Gulf of Oman
U. A. E
Ab .u Dhabi
R
e
S A U D I A R A B I A
O M A N
d
S e a
Y E M E N
Sanaa
Gulf of Aden
Source: Map Resources. Adapted by CRS. (K.Yancey 10/4/04)
6 Iran and Syria are countries the United States has considered as state sponsors of terrorism.
The Bush Administration announced on May 15, 2006, that it was restoring full diplomatic
ties with Libya after more than two decades of strained relations. This means a U.S.
embassy is reopening in Tripoli and Libya is being removed from the Administration’s list
of designated state sponsors of terrorism. Inside U.S. Trade. May 30, 2003; Office of the
U.S. Trade Representative. Transcript of Background Press Conference Call to Discuss
Proposed Mideast Free Trade Area Announced by President Bush, May 9, 2003; and
Washington Trade Daily. U.S. Normalizes Relations with Libya, May 16, 2006.

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Some Key Indicators of U.S. Economic Ties to the
Middle East
U.S. trade with the Middle East represents a small share of total U.S. trade —
4.1% of all U.S. exports and 4.6% of all U.S. imports in 2005. An important and
fast-growing U.S. economic interest in the Middle East is oil and gas. In 2005,
imports of these commodities from MEFTA countries were two and a half times
what they were in 2002.
U.S. Imports
More than 60% of the oil and gas consumed in the United States each year is
imported. Imports from MEFTA countries accounted for one-fifth of all U.S.-
imported and more than one-tenth of all U.S.-consumed and oil and gas in 2005.
Figure 2 looks only at sources and shares of the one-fifth of all imported oil and
gas that comes from MEFTA countries. Nearly half of MEFTA-sourced oil and gas
— 10% of all imported oil and gas — comes from Saudi Arabia, with 4% from
Algeria, 3% from Iraq, 2% from Kuwait, and nearly 1% from Libya. The remainder
comes from other MEFTA countries combined.7
Figure 2. Source of Total U.S. Oil and Gas Imports, 2005
All other 1%
100%
Kuwait 2%
80%
Algeria 4%
Middle
Rest of
60%
Iraq 3%
East 20%
World 80%
40%
Saudi Arabia 10%
20%
0%
Data Source: USITC Dataweb
Oil and gas imports from the Middle East constitute 70% of total U.S. imports
from that region. (See Figure 3.) After gas and oil, the next most important imports
from Middle East countries are nonmetallic minerals (11%), textiles and apparel
(4%), electronics (2%), pharmaceuticals (2%), organic chemicals (1%),
telecommunications equipment (1%), and scientific instruments (1%).
7 Energy Information Administration, U.S. Department of Energy. Monthly Energy Review,
February, 2004.

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Figure 3. Key U.S. Imports from the Middle East, 2005
(as a Percent of All Imports from the Middle East)
Oil and Gas
70
Nonmetal Minerals
11
Textiles and Apparel
4
Electronics
2
STNEC
2
Pharmaceuticals
2
Organic Chemicals
1
Telecom Equip.
1
Scientific Instruments
1
0
10
20
30
40
50
60
70
80
Data source: USITC Dataweb; STNEC: military items returned to U.S.
U.S. Exports
U.S. exports to Middle East countries are heavily concentrated in two industries:
transport equipment and machinery.8 Nearly one-third (31%) of U.S. exports to the
Middle East are various types of transport equipment. More than one-fifth (22%) is
machinery of various types: general industrial machinery, machinery specialized for
particular industries, power generating machinery, electrical machinery, and office
machinery. Other key exports include nonmetallic minerals (11%), cereals (4%),
scientific instruments (3%), and telecommunications equipment (3%). (See Figure
4.)
8 The Middle East, in general, has high barriers to trade. While the “weighted mean tariffs”
(the mean tariffs after the proportion of goods imported for each category is factored in) of
some countries are under 10%, they average more than 20% for many other countries,
including Egypt (21%), Algeria (22%), Morocco (32%), and Tunisia (31%) Source: The
World Bank. World Development Indicators ‘03, p. 327.

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Figure 4. Top U.S. Exports to the Middle East, 2005
(as a Percent of all U.S. Exports to the Middle East)
Transport. Equip.
31
Machinery
22
Nonmetal Minerals
11
Cereals
4
Scientific Instruments
3
Telecom. equipment
3
0
5
10
15
20
25
30
35
Data source: USITC Dataweb
Appendix Tables 3 and 4 detail U.S. imports from and exports to each of the
20 Middle East entities covered by this report. Those tables include, for each
country: (a) the total value of U.S. imports or exports, (b) the main items imported
or exported, and (c) the percent of total imports/exports represented by each key
commodity.
U.S. Investment
U.S. investment in the Middle East is limited. The stock of U.S. foreign direct
investment (FDI) in Middle East countries in 2004 totaled $28 billion, or 1.4% of
total U.S. FDI. U.S. FDI represents 17% of total world FDI in the Middle East. (See
Table 5 for world and U.S. FDI totals in the various MEFTA entities.)
Nearly half (44%) of U.S. investment in MEFTA countries is in oil and gas
facilities; nearly two-fifths (38%) is in services, and nearly a fifth (18%) is in utilities
and manufacturing.9 In addition, individual Americans may have considerable
portfolio investment in Israel including Israeli bonds.
Recent Growth in Trade With MEFTA Entities
Between the end of 2002 and the end of 2005 (most recent data available), U.S.
exports to Middle East/North African countries grew by 56% while U.S. imports
from these entities nearly doubled. Accounting for the greatest growth in imports
were petroleum and natural gas, which were affected by increased prices as well as
increased volume traded. Accordingly, petroleum imports increased 143% while
natural gas imports increased sevenfold (728%). Other major increases in imports
9 Data source: U.S. Bureau of Economic Analysis. Economics and Statistics Administration.
U.S. Department of Commerce. Survey of Current Business, September, 2003, p. 121.

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occurred in nonmetallic mineral manufactures, medicinal and pharmaceutical
products, and organic chemicals. Meanwhile types of goods making large
contributions to the growth in exports included transport equipment/road vehicles,
electrical and non-electrical machinery, nonmetallic mineral manufactures,
telecommunications, and scientific instruments.10
Details of the MEFTA Program
MEFTA can be examined in terms of four basic components: (a) trade
preferences, (b) steps or activities leading toward free trade agreements, (c)
requirements for country eligibility, and (d) time lines for each initiative. An
overview chart outlining these components is included as Table 1.
Trade Preference Components
In the short run, the Bush Administration would continue the Generalized
System of Preferences which includes duty-free entry to the U.S. market for at least
3,500 products from 140 developing countries. The following Middle East countries
are currently eligible for GSP benefits: Egypt, Iraq, Jordan, Lebanon, Oman, Yemen,
Algeria, and Tunisia. Remaining countries covered by this report are not eligible for
GSP benefits. Of those not eligible, some are no longer considered “developing.”11
Others do not meet the Bush Administration’s eligibility requirements. GSP limits
country participation on the basis of: (a) per-capita income, and (b) participation in
the Organization of Petroleum Exporting Countries (OPEC). It also limits product
preferences on the basis of import sensitivity.12
Steps or Activities Leading Toward Free Trade Agreements13
The Bush Administration’s proposed program consists of six steps which each
country may take, culminating in a free trade agreement with the United States.
10 USITC Dataweb.
11 For example, Bahrain “graduated” from the GSP program on January 1, 2006.
12 Only eight out of the 20 entities covered by the two Middle East Trade Initiatives are
currently eligible for GSP (as indicated in Table 2.) GSP provisions [U.S. Trade Act of
1974 as amended (19U.S.C. 2461)] specifically exclude from tariff preferences certain
textiles and apparel (the second most important export category from these Middle East
entities), watches, footwear, handbags, luggage, flat goods (e.g. wallets and briefcases),
work gloves, and other leather wearing apparel, steel, glass, and electronics. As a result, for
the 20 Middle East entities covered by this report, imports under GSP represent only a
fraction (0.2% for 2005) of all imports from these entities.
13 These steps are taken from Office of the U.S. Trade Representative (USTR). Trade Facts,
June 23, 2003. Additional explanatory material is taken from Office of the USTR.
Transcript of Background Press Conference Call to Discuss Proposed Mideast Free Trade
Area Announced by President Bush, May 9, 2003 (hereafter referred to as “Transcript of
May 9, 2003.”) This transcript specifies that the USTR official holding the press briefing
be identified only as a “senior administration official.”

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Table 1 lists each country included in the USTR definition of Middle East/North
Africa, and for each country indicates which steps it has already fulfilled. The six
steps are:
First. World Trade Organization (WTO) membership to promote integration
into the world trading system. Nine Middle East entities are not yet members of the
WTO: the Gaza Strip and the West Bank, Iran, Iraq, Lebanon, Saudi Arabia, Syria,
Yemen, Algeria, and Libya.
Second. The continuation of GSP, discussed in the section above.
Third. Trade and investment framework agreements (TIFAs) to establish a
framework for expanding trade and for resolving outstanding disputes. Six Middle
East entities do not have TIFAs with the United States: Cyprus, the Gaza Strip and
the West Bank, Iran, Lebanon, Syria, and Libya.
Fourth. Bilateral investment treaties (BITs) oblige governments to treat
foreign investors fairly and to offer them legal protections equal to those afforded
domestic investors. BITs make the business climate more attractive to U.S.
companies. The following 14 Middle East entities do not have BITs with the United
States: Cyprus, the Gaza Strip and the West Bank, Iran, Iraq, Kuwait, Lebanon,
Oman, Qatar, Saudi Arabia, Syria, the United Arab Emirates, Yemen, Algeria, and
Libya.
Fifth. Free trade agreements (FTAs), typically to remove tariff and non-tariff
barriers to trade across all sectors. Currently four countries in the Middle East —
Israel, Jordan, Morocco, and Bahrain — have congressionally-approved free trade
agreements with the United States. In addition, the United States has completed an
FTA with Oman and is negotiating an FTA with the UAE. It has suspended
preliminary negotiations which were underway with Egypt over human rights issues.

The Bush Administration is considering including “cumulation clauses” which
would afford sub-regional groups within the Middle East some eligibility to export
goods to the United States tariff-free or at reduced tariffs. Stipulations would likely
require that (1) those goods be produced in concert with a neighboring country which
already has a free trade agreement, and that (2) the exported products meet rules of
origin requirements.14 Under the Bush Administration’s initiative, now that the FTAs
have been implemented with Morocco and Bahrain, for example, other North African
countries might be able to “dock” with and co-produce with Morocco; and other Gulf
countries could “dock” with and co-produce with Bahrain. So, for example, to
qualify for tariff benefits under a U.S.-Bahrain FTA, products could be jointly
produced by Bahrain and Qatar or Oman or the United Arab Emirates, or a
combination of the named countries.15 The program whereby Jordan, Egypt, the
14 U.S. Department of State. Middle East Trade Initiative. Office of the USTR, February
27, 2003.
15 Office of the USTR. Transcript of Joint Press Conference: Secretary of State Colin L.
Powell, Jordanian Foreign Minister Marqan Muasher, Robert B. Zoellick, U.S. Trade
(continued...)

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Gaza Strip and the West Bank were authorized gain tariff relief by co-producing with
Israel under the U.S.-Israel free trade agreement is an example of this concept.16
Sixth. The final step in the Bush Administration’s plan is trade-capacity
building to help countries realize more fully the benefits of open markets (e.g., build
the “legal entrepreneurial infrastructure”).
The Middle East Partnership Initiative (MEPI) aims to help allocate structural
adjustment funding to partner countries to help ease the burden of free trade’s impact
on local industries. The initiative is also aimed at increasing educational
opportunities, strengthening civil society and rule of law, and supporting small
business. The MEPI aims to help target more than $1 billion of annual funding from
various Government agencies and spur partnerships with private organizations and
businesses that support trade and development. It has received an estimated $294
million in funding between FY2002 and FY2005. For 2006 the Bush Administration
has requested an $125 million.17
Meanwhile, for 2005, total funding for U.S. Trade Capacity Building reached
$1.3 billion, of which $236 million, or 18%, went to Middle East countries.18
Requirements for Eligibility
The Bush Administration’s plan is open to: a) those “peaceful” countries that
seek an increased trade relationship with the United States and b) “all those countries
that are prepared to participate in economic reform and liberalization.” Eligible
countries must among other things: (1) “be prepared to participate in economic
reform and liberalization,” and (2) not participate in a primary, secondary, or tertiary
boycott of Israel.19
15 (...continued)
Representative, Jordanian Minister of Trade Salah Bashir, Movenpick Hotel, Dead Sea,
June 23, 2003.
16 Under this legislation, goods wholly produced by the Gaza Strip or the West Bank could
also enter the United States duty-free under the terms of the U.S.-Israel free trade agreement.
17 CRS Report RS21457, The Middle East Partnership Initiative: An Overview, by Jeremy
M. Sharp.
18 U.S. Agency for International Development (USAID), Trade Capacity Building Database.
19 Office of the USTR. Transcript of May 9, 2003; and Global Trade and the Middle East:
Reawakening a Vibrant Past, Robert B. Zoellick, USTR, Remarks at the World Economic
Forum, Dead Sea, Jordan, June 23, 2003. The primary boycott of Israel banned all trade
relationships with Israeli companies; the secondary boycott prohibited any entity in the
League of Arab States* (also called the Arab League) from doing business with other firms
that contribute to Israel’s military or economic development; the tertiary boycott was the
injunction on Arab countries from doing business with foreign companies that had been
blacklisted because of their ties with Israel. Source: “U.S. Government to Enforce Laws in
Face of Arab League Threat to Israeli Trade,” Global Business Magazine. Oct 10, 2002.
* The 22 members of the League of Arab States are Bahrain, Egypt, Iraq, Jordan,
Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, the United Arab Emirates,
(continued...)

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Time Line
The Bush Administration aims for a Middle East Free Trade Area by about
2013. Cathi Novelli, USTR chief negotiator on FTAs with countries in the Middle
East until the fall of 2005, has indicated that the overall objective of the MEFTA
exercise is not to meet the deadline, which she calls “ambitious,” but to push the
reform process in the region along.20
Progress So Far
According to the Bush Administration, each of the steps listed above would aim
to address political, economic, and humanitarian objectives in order to help Middle
East countries to become “sustainable trading partners.”21 The hope is that each of
the successive steps involved in negotiating TIFAs, BITs, and FTAs might help
induce internal changes in the laws and regulations of the various countries.
Since the MEFTA program was announced in 2003, Saudi Arabia has joined the
WTO, and the United States has negotiated new TIFAS with seven countries
(Kuwait, Oman, Saudi Arabia, the United Arab Emirates, Yemen, Qatar, and Iraq.
See Table 2.) Thus, almost three-quarters of the MEFTA entities (14) now have
TIFAs with the United States. Other countries with which it already has TIFAS are
Bahrain, Egypt, Jordan, Israel, Algeria, Morocco, and Tunisia.
In addition, since the MEFTA program was announced, a BIT between the
United States and Jordan has been fully approved. As a result, the United States
currently has BITs with more than one-quarter (6) out of 20 of the MEFTA entities.
Other countries with which the United States already had BITS were Bahrain, Egypt,
Jordan, Morocco, and Tunisia.
Finally, since the MEFTA program was announced, the United States has
completed bilateral trade agreements with three countries: Morocco, Bahrain, and
Oman. The President signed implementing legislation for the Morocco FTA in
August, 2004 (P.L. 108-302); and for the Bahrain FTA on January 11, 2006 ( P.L.
109-169). An FTA with Oman was signed by the two countries on January 19, 2006,
and awaits congressional action. FTAs were already in effect for Israel and Jordan.
In addition, an FTA with the United Arab Emirates is under negotiation. Thus,
currently one-quarter (five) MEFTA entities have signed trade agreements with the
United States; one of those awaits final consideration by Congress; and a sixth awaits
19 (...continued)
Yemen, Algeria, Libya, Morocco, Tunisia, Comoros, Djibouti, Mauritania,
Palestine, Somalia, and Sudan.
20 Bush’s Plan to Create Mideast Free Trade Area by 2013 Could Take Off This Year.
International Trade Reporter, 2006 Outlook, Jan. 19, 2006, p. 103.
21 Transcript of Background Press Conference Call to Discuss Proposed Mideast Free Trade
Area Announced by President Bush, May 9, 2003.

CRS-11
completion by the negotiators. A seventh FTA under negotiation with Egypt has
been suspended over human rights issues in Egypt.22
Current Congressional Issues
In May of 2006, the National Labor Committee (NLC), a nonprofit organization
that works for worker rights around the world, released a 161-page report allegedly
documenting sweatshop conditions in 28 manufacturing operations in Jordan where
clothing is produced primarily for export to the United States. The NLC report says
that tens of thousands of foreign guest workers who entered employment willingly
were subsequently stripped of their passports and trapped in involuntary servitude,
sewing clothing for Wal-Mart, Gloria Vanderbilt, Target, Kohl’s, Thalia Sodi for
Kmart, Victoria’s Secret, L.L.Bean and others.23
The report has raised congressional concerns first about the treatment of workers
producing U.S. imports from Jordan, whose FTA with the United States has been in
effect since 2001. Second, it has raised concerns about the treatment of workers who
are or will be producing U.S. imports from other MEFTA countries for which FTAs
have been or are in the process of being negotiated and/or implemented.
Congressional concern over MEFTA labor conditions is focusing in part on the
labor provisions of the FTAs. In most MEFTA-FTAs, the only labor provision which
is enforceable through a dispute resolution procedures is that each country agrees to
effectively enforce its own labor laws in a manner affecting trade. Some MEFTA
country labor laws do not cover foreign guest workers, who typically make up large
portions of workers employed in multinational manufacturing operations producing
for export in MEFTA countries.
Guest workers are technically not covered by Jordan’s labor laws, for example,
according to Country Reports on Human Rights Practices, 2005. However, under the
U.S.-Jordan FTA, which differs from more recent MEFTA-FTAs, all labor
provisions are technically enforceable, including the provision that “the parties
reaffirm their obligations as members of the ILO.” As members of the ILO, all
countries are committed to uphold the eight core labor standards. Jordan has ratified
both core labor standards pertaining to the elimination of forced or compulsory labor.
The Jordanian government has reportedly begun to take steps to address the
violations alleged in the NLC report, and has invited the NLC and the ILO to Jordan
and formed nine special inspection teams to visit factories cited in the NLC report.24
22 The Realities of Exporting Democracy. The Washington Post, January 25, 2006, p. A-1.
23 National Labor Committee. U.S.-Jordan Free Trade Agreement Descends into Human
Trafficking and Involuntary Servitude. May, 2006, 161 p. The report is available at
[http://www.nlcnet.org].
24 The Information was taken from the NLC report, from Country Reports, and from Inside
U.S. Trade. USTR Cool to Finance Labor Amendment to Oman Draft FTA Bill, May 19,
2006.

CRS-12
The issue of possible forced labor conditions in other MEFTA countries, and
specifically Oman, was addressed at a Senate Finance Committee mock markup of
the U.S.-Oman FTA implementation bill on May 18, 2006, with the unanimous
adoption of an amendment. The amendment, offered by Senator Kent Conrad, would
prohibit any products made in Oman “with slave labor (including under sweatshop
conditions so egregious as to be tantamount to slave labor) or with the benefit of
human trafficking,” from benefitting from the agreement.
Representatives of the Administration, which is not obligated to accept
amendments to draft implementing legislation, responded that while they would
consider the amendment, they had some concerns with the concept. Oman has
promised to issue Royal Decrees and Ministerial Decisions to strengthen the
country’s labor laws in response to earlier congressional concerns, by no later than
October 31, 2006.25 While some Republicans argue that Oman needs time to craft
new laws with technical support from the ILO, some Democrats argue for changes
in Omani laws before the U.S.-Oman FTA implementing legislation is considered by
Congress.26 For more details on this issue, see the “Current Issues” section of
Proposed U.S.-Oman Free Trade Agreement, CRS Report RL33328.
Meanwhile, several days after the Senate Finance Committee’s mock markup
of the U.S.-Oman implementing legislation, Jordan’s trade minister Sharif Zu’bi
indicated that the report incorrectly identified three sweatshops that are not even in
Jordan, and that three others had been closed before the report had been released in
May. In addition, he noted that the Jordanian government had formed nine
inspections teams to investigate the entire garment trade in the country, and is
working with the International Labor Organization, U.S. labor committees, the
USTR, the State Department, and U.S. and Jordanian apparel companies to address
the challenges and improve their monitoring system.
Conclusion
The MEFTA would aim to help stimulate greater economic development in the
Middle East. Shorter term goals from these stimuli would be: (a) for the region to
grow enough to begin absorbing some of the unemployment (which averages around
13.5%)27 — arguably the region’s most pressing economic problem; and (b) for the
25 Ibid; a letter from Rep. Charles B. Rangel and Benjamin L. Cardin to Her Excellency
Hunaina Sultan Ahmed Al-Mughairy, Ambassador of the Sultanate of Oman on April 6,
2005; and a letter from Maqbool Ali Sultan, Minister of Commerce and Industry of the
Sultanate of Oman to USTR Robert Portman on May 8, 2006.
26 International Trade Daily. Bilateral Agreements: House Democrats Again Press Oman
on Labor Laws Ahead of Free Trade Vote, April 12, 2006; Washington Trade Daily. Ways
and Means Approves Oman FTA, May 11, 2006; Congress Daily AM. Dems Urge
Slowdown On Trade Deals to Stress Labor Rights, June 6, 2006; and news release from
Representative Charles B. Rangel on May 19, 2006.
27 The World Bank. World Development Indicators ‘05. Data from many countries show
some improvement in the unemployment rate since the 1990s. However, no data exist for
(continued...)

CRS-13
region to begin attracting more foreign investment to help diversify output beyond
oil and gas, textiles and apparel, and a few other commodities. As the shorter term
stretches into the longer term, goals would be for the Middle East to develop
alternative economic resources and industries that could help ease and even reverse
its declining share of world economic growth and investment, its unemployment, and
perhaps some of the conditions in the Middle East that support terrorism.
27 (...continued)
a number of MEFTA countries including Iraq, Lebanon, Libya, Oman, and Yemen. Overall,
unemployment levels in many MEFTA countries may (a) be difficult to quantify; (b) suffer
from statistical problems; (c) vary from year to year; and (d) be a function of included in the
various estimates.

CRS-14
Table 1. Brief Summary of the MEFTA Initiative
MEFTA Entities
Middle East: Bahrain, Cyprus, Egypt, Gaza
Strip/West Bank, Iran, Iraq, Israel, Jordan,
Kuwait, Lebanon, Oman, Qatar, Saudi Arabia,
Syria, United Arab Emirates, Yemen
North Africa: Algeria, Libya, Morocco,
Tunisia,
Efforts Toward a Middle East
Steps for each entity:*
Free Trade Agreement or Area
1. World Trade Organization Membership;
2. GSP;
3. Trade Investment Framework Agreement
(TIFA);
4. Bilateral Investment Treaty (BIT);
5. Free Trade Agreement (FTA) to which other
eligible countries may “dock”; and
6. Trade capacity building (through various
U.S. assistance efforts.)
Time line of the initiative
Aim for MEFTA “within 10 years” (i.e., by
2013.)
Requirements for eligibility
The Bush Administration has indicated that the
entities need:
! to be “peaceful”;
! to be prepared to undertake economic
reform and liberalization;
! to not participate in a primary,
secondary, or tertiary boycott of Israel.
* See Table 2 for the status of various entities.

CRS-15
Table 2. Entities Covered by the MEFTA:
Progress Toward a Bilateral Free Trade Agreement with the United States
Steps Toward an FTA with the United States
WTO
TIFA with
BIT with
Members
the U.S.
the U.S.
hip
and Year
and year
Bilateral Trade
GSP
and year
TIFA was
BIT was
Agreement with
Eligibility
MEFTA Entity
of joining
c
signed
signed
the U.S.
Middle East
[ Approved
Bahrain
[1995
ineligible
[ 2002
[2001
1/11/2006
Cyprus
[1995
ineligible
Egypt
[1995
[
[1999
[1992
See table note b
Gaza Strip and West
Bank
See table note b
negotiating
Iran
accession
ineligible
negotiating
Iraq
accession
[
[2005
Israel
[1995
ineligible
[b
[b
[1985
Jordan
[2000
[
[b
[2003
[2001
Kuwait
[1995
ineligible
[2004
negotiating
Lebanon
accession
[
Oman
[2000
[
[ 2004
[ Signed 1/19/2006
Qatar
[1996
ineligible
[ 2004
Saudi Arabia
[2005
ineligible
[2003
Syria
ineligible
United Arab Emirates
[1996
ineligible
[2004
Under negotiation
negotiating
Yemen
accession
[
[2004
North Africa
negotiating
Algeria
accession
[
[2001
Libya
observer ineligible
Morocco
[1995
ineligible
[b
[1991
[ Effective 1/1/2006
Tunisia
[1995
[
[2002
[1993
Source of data: World Trade Organization, USTR.
[ Step is currently in effect.
a. USTR materials indicate that these TIFAS or BITs are in existence, but do not specify the dates.
b. Goods are eligible for U.S. free trade benefits under a1996 amendment to the United States-Israel Free Trade Area
Implementation Act of 1985, P.L. 104-234 if co-produced with Israel, Jordan, or Egypt in a Qualifying Industrial
Zone (QIZ) in compliance with rules of origin requirements, or wholly produced in the Gaza Strip/West Bank.
c. Ineligibility may reflect a high income level or a country viewed as a state sponsor of terrorism.

CRS-16
Table 3. Top U.S. Imports (and Percent of Total That They Represent) from
20 Middle East Entities (2005)
Value of
U.S.
Imports
Main U.S. imports and % of all U.S. imports from these entities that
Entity
($million)
they represent
Saudi Arabia
27,227
petroleum (96%), chemicals (2%)
= 98%
Israel
16,875
nonmnetal manufactures (49%), pharmaceutical (9%),
= 69%
machinery (11%)
Algeria
10,354
petroleum (84%), natural gas (16%)
= 99+%
Iraq
9,038
petroleum (96%)
= 96%
Kuwait
4,335
petroleum (94 %) , STNC* (4%)
= 98%
Egypt
2,091
natural gas (36%), apparel (21%), petroleum (15%)
= 72%
Libya
1,562
petroleum (97%), natural gas (2%)
= 99%
United Arab
1,469
petroleum (17%), STNC* (16%), apparel (15%)
= 48%
Emirates
Jordan
1,267
apparel (85%), misc. (10%), STNC*(3%)
= 98%
Oman
555
petroleum (72%), apparel (10%),
= 82%
Qatar
448
fertilizer (37%), petroleum (14%), organic chem. (14%), gas
= 73%
(8%)
Morocco
442
electronics (24%), fertilizer (21%), apparel (13%), petrol.
= 68%
(10%)**
Bahrain
432
apparel (28%), STNC* (20%), non-ferrous metals (20%)
= 68%
Syria
324
petroleum (86%), apparel (4%), coffee, tea, spices (3%)
= 93%
Yemen
279
petroleum (98%), coffee, tea (1%)
= 99%
Tunisia
231
petroleum (52%), apparel (23%), veg. fats (9%)
= 84%
Iran
175
textiles (74%), misc. mfg (9%), veg. &fruit (9%)
= 92%
Lebanon
87
misc manufacturing (21%), furniture (18%), nonmetal minerals
= 58%
(10%) vegetables & fruits (9%)
Cyprus
31
STNC* (32%), essential oils (10%),dairy (6%)
= 48%
West Bank
2
nonmetal mineral (63%), chemicals (30%), telecommunications
= 98%
(5%)
Gaza Strip
0
apparel (48%), nonmetal mfg. (47%)
= 95%
TOTAL***
77,224
Source: U.S. International Trade Commission (USITC) Dataweb, based on the Standard Industrial Trade Classification
(SITC).
* “STNC” refers to “special transactions not classified.” According to the Department of Commerce, these exports are
typically military items that are returned to the United States.
** petroleum is not counted in the top three exports.
*** Total reflects rounded import values.

CRS-17
Table 4. Top U.S. Exports (and Percent of Total That They Represent) from
20 Middle East Entities (2005)
Value of
U.S.
exports
Main U.S. Exports and % of all U.S. exports to these entities that they
Entity
($million)
represent
Israel
9,732
nonmetal manufactures (39%), all transport equip (15%),
= 70%
machinery (16%)
United Arab
8,477
all transport equip. (52%), machinery (20%)
= 82%
Emirates
Saudi Arabia
6,830
all transport equip. (39%), machinery (28%), scientific instruments
= 70%
(3%)
Egypt
3,169
machinery (21%), cereals (17%), transport equip. (11%)
= 49%
Kuwait
1,974
transport equip. (47%), machinery (19%), STNC (4%)
= 70 %
Iraq
1,372
cereal (23%), telecom (20%), transport. equip. (19%), machinery
= 81%
(19%)
Algeria
1,161
machinery (31%), all transport. equip. (23%), telecom, equip.
= 84%
(15%), cereals (12%), iron & steel (3%)
Qatar
986
Machinery (47%), transport. equip. (28%), scientific inst. (4%)
= 79%
Jordan
643
transport equip. (23%), machinery (20%), cereals (9%), telecom.
= 57%
equip. (5%)
Oman
593
transport. equip (56%), machinery (25%),
= 81%
Morocco
528
all transport equip. (33%), cereals (16%), machinery (13%)
= 62%
Lebanon
464
transport equip. (30%), machinery (14%), tobacco (10%), cereal
= 60%
(6%)
Bahrain
351
transport vehicles (29%), machinery (22%), telecom. (4%)
= 55%
Tunisia
261
veg. fats/oils (26%), machinery (18%), transport. equip. (17%),
= 70%
cereals (9%)
Gaza Strip
231
pharmaceuticals (97%)
= 97%
Yemen
217
cereals (38%), machinery (34%)
= 72%
Syria
157
cereals (68%), oil seeds (18%)
= 86%
Iran
96
tobacco (53%), pharmaceuticals (19%), crude animal/veg materials
= 80%
(8%)
Cyprus
84
machinery (31%), transport equip. (11%), scientific inst. (7%),
= 55%
telecom. (6%)
Libya
83
machinery (52%), road vehicles (20%)
= 72%
West Bank
4
cereals (77%)
= 77%
TOTAL*
37,413
Source: USITC Dataweb, based on the Standard Industrial Trade Classification (SITC).
Note: “STNC” refers to “special transactions not classified.” According to the Department of Commerce, these exports
are typically military items that are returned to the United States.
* Total reflects rounded import values.

CRS-18
Table 5. Foreign Direct Investment in Middle East Entities:
Stock of Investment by the World and by the United States, 2004
($ Millions)
Stock of World Foreign Direct
Stock of U.S. Foreign Direct
Investment, 2004
Investment, 2004
Value in $
% of world
Value in $
% of U.S. total
Entity
millions
total
millions
World
8,895,279
100
2,063,998
100
Total Middle East
162,703
1.83
28,112
1.36
Algeria
7,423
0.08
3,961
0.19
Bahrain
7,585
0.09
176
0.01
Egypt
20,902
0.23
4,240
0.21
Iran
4,065
0.05
NA
NA
Iraq
273
0.00
137
0.01
Israel
33,081
0.37
6,790
0.33
Jordan
3,501
0.04
54
0.00
Kuwait
381
0.00
478
0.02
Lebanon
2,269
0.03
176
0.01
Morocco
17,959
0.02
306
0.01
Oman
3,432
0.04
438
0.02
Qatar
4,144
0.05
4,377
0.21
Saudi Arabia
20,454
0.23
3,835
0.19
Syria
12,491
0.14
NA
NA
Tunisia
17,626
0.20
181
0.01
United Arab Emirates
4,422
0.05
2,368
0.11
Yemen
990
0.01
534
0.03
NA: Not available.
Source: For World: United Nations World Investment Report, 2005, p. 308-312; for the United States: Survey of
Current Business, September, 2005, p. 136-138. Some discrepancies result from the source differences. For
example, for both Kuwait and Qatar, the U.S.-reported stock of investment is higher than the U.N.-reported total
world stock.