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Thursday, December 16, 2004

Peace Promotion? 

The New York Times reports today that a long-time foreign policy goal of the US has finally come to fruition:
When Egypt, Israel and the United States signed a trade agreement this week, it represented the most tangible step in a monthlong thaw in chilly relations between the Egyptians and Israelis.

The agreement, signed Tuesday, allows for the duty-free import of certain Egyptian goods by American buyers as long as the items contain some Israeli input...

The mere fact that Egypt and Israel, with American backing, were finally able to hammer out a trade agreement that had first been broached in 1996 is telling. Robert B. Zoellick, the United States trade representative, who signed for the United States, issued a statement calling it "the most important economic agreement between Egypt and Israel in two decades."

Rashid Mohamed Rashid, the Egyptian foreign trade and industry minister, and Ehud Olmert, his Israeli counterpart, pointed out that the agreement was not merely about economics.

"It goes far beyond the economics and the business and the trade between the two countries," Mr. Olmert said. "This is another statement of two major forces in the Middle East: that they are looking forward toward greater cooperation."

The agreement stipulates that all Egyptian goods produced initially within seven specific "qualified industrial zones" will be exempt from American import tariffs as long as they contain at least 11.7 percent Israeli content. Given that much of the trade is expected to be in clothing, this would mean that the buttons or zippers or patterns would come from Israel, for example, while the actual manufacturing would depend on inexpensive Egyptian laborers.

The textile industry in Egypt employs a million people and accounts for more than one quarter of all industrial production, according to official figures. The United States takes half of Egypt's textile exports, or $470 million in 2003, which Mr. Rashid predicts could triple under the agreement. Jordan, the first to establish such zones, is expected to export $900 million to the United States this year, according to the American Embassy in Amman, up from virtually nothing five years ago.

Still, the pact was a tough public sell in Egypt, where bitterness and anger against the United States and Israel run deep. The professional unions in particular oppose any normalization with Israel, despite a 25-year-old peace treaty. Critics fret the agreement will not produce the anticipated job bonanza and will give Israel undue influence over some Egyptian exports.

The prevailing sentiment was that the agreement was yet another attempt by the United States to make Israel more palatable to the Arab world. Economic issues here often come secondary to the emotional desire to see some sort of overall settlement that will return occupied lands, particularly the holy mosque in Jerusalem, and find some solution for millions of Palestinian refugees stuck for generations in camps.

"I think the United States often reverts to very complicated methods to avoid facing the essential problems," said Hassan Nafaa, a political science professor at Cairo University.

To overcome the opposition, Mr. Rashid underscored the idea that the agreement would bring economic benefits, including increasing exports to the United States and desperately needed job growth. Indeed, factory workers outside the designated zones demonstrated to be included out of fear their jobs were in jeopardy.

The expiration of a longstanding international quota system for textiles on Jan. 1 is likely to set off worldwide price competition for clothes, so getting Egyptian exports into the huge American market duty-free will protect jobs here, Mr. Rashid noted
Why has the US invested so much time and energy on this issue? I suspect the answer stems from the idea of "Commercial Liberalism," which is a fancy academic term for the idea that increased economic interactions between two countries reduces the likelihood that they will go to war.

Great! I think we'd all agree that reducing the likelihood of another Egypt-Israel war is an unalloyed good thing. So we should regard the new trade agreement as a step in the right direction. Right?

Well, yes and no. There are a couple of problems with this analysis. [Warning: the following analysis contains references to papers unavailable online.]

First, in general terms, political scientists aren't perfectly certain that increased trade always means less conflict. One group of papers, typified by Oneal, Russett and Berbaum's 2003 article in International Studies Quarterly, points out that for any two countries, holding all else constant, increasing trade between them as a share of GDP reduces the likelihood they'll go to war. That suggests that the new trade agreement represents a small but real improvement in the chances for sustained mideast peace.

Another group of papers, typified by Katherine Barbieri's work, shows that for any two countries, holding all else constant, increasing the bilateral proportion of the countries' total trade activities actually leads to a greater chance of conflict. To the extent that we expect Egypt-Israel trade to expand in proportion to Egypt and Israel's total trade as a result of the agreement, then, maybe the new treaty isn't such a good thing.

A recent paper by Erik Garzke and Quan Li does a good job of explaining the distinction made above, and points out a number of other holes in our knowledge of the links between trade and conflict, including the fact that we don't have a good theoretical or empirical understanding of whether imports and exports work differently to influence conflict likelihood, an issue that has obvious application when looking at the structure of the Israel-USA-Egypt agreement.

A second point, raised obliquely by the newly-ABD Paul at Explananda, is that while increasing bilateral trade probably does decrease the chance of conflict, democratization appears to do a better job of doing so. To the extent that this new agreement was forged at the cost of diplomatic efforts to improve Egypt's, uh, democracy problems, it's probably a pretty inefficient use of US influence. I'd also point out that creating a system whereby immense political pressure is exerted on firms to use particular suppliers isn't all that consonant with the idea of "free trade."

Ultimately, though, I'm not ready to decry the new agreement. Frankly, any progress, no matter how inefficient, in improving government-to-government (and, probably, plutocrat-to-plutocrat) relations in the region has to be included in the "positives" column.

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