A Vision for the U.S.-Saudi and U.S.-Gulf Commercial Relationship

I am very pleased to be here this morning and to have the opportunity to share with American and Saudi business leaders in Jeddah, and with the delegation from the U.S.-Saudi Business Council, the goals of our mission to Saudi Arabia and to all of the countries on the Arabian Peninsula. I would also like to share with you a pragmatic vision.

It is a vision of how we, the countries of the Gulf and the United States, might work together to expand the leadership role in the economic and commercial development of the larger Middle East/North Africa region and in the global economy. It is a vision of working together to expand the economic development of our countries and to bring new opportunity and new wealth into the hands of those in the region and the world who are much less fortunate.

This is the third annual commercial policy mission I have led to the Middle East since joining the Clinton administration in 1993. It is the second time the mission has come to the Arabian Peninsula. I have agreed to lead these missions because of the important commercial and broader economic, political and security roles of Saudi Arabia and the GCC for the United States, the Middle East and the world.

I would like to begin with where the United States and the Gulf are today. As the presence of so many of you here attests, American companies have been doing business with Saudi Arabia and the other countries on the Arabian Peninsula for decades. The American Business Council of the Gulf Countries represents more than 700 U.S. companies operating in the region, including the many companies represented by the American Businessmen of Jeddah.

Although we have a strong and longstanding presence here, American companies want to do more in the region. We feel the United States and U.S. business are uniquely positioned to play major roles in the future development of the Kingdom and the Arabian Peninsula.

Our commercial and economic ties to Saudi Arabia go back over 60 years - to the very birth of the modern Kingdom. The United States supplies over 20 percent of Saudi Arabia's import market and purchases about 15 percent of its exports. In 1996, our total bilateral trade reached $16.7 billion, an increase of almost 12 percent over 1995. By the end of that year, U.S. companies had invested over $6.7 billion in Saudi Arabia, at 46.2 percent the largest share of the total foreign investment in this country. Just last week, the visit of H.R.H. Prince Sultan bin Abd al-Aziz al-Saud to the United States made it possible for our two countries to underline the close political and security, as well as economic, relationship.

While U.S. companies do not win all of the contracts in the Kingdom they would like to win, our record is good. Through contracts and joint-venture projects and through the sharing of technology, U.S. companies are deeply involved in the construction and expansion of the Saudi power generation, aviation and telecommunication sectors, in the production of petrochemicals, electronic components, automotive parts and glass, and of course in the development, production and distribution of Saudi oil and gas. It has given me special satisfaction to work with both Saudi and U.S. leaders in the conclusion of contracts to replace the Kingdom's long-range airline fleet and to add 1.5 million telephone lines, 200,000 cellular units and a fiber-optic network across Saudi Arabia.

The Kingdom is by far our largest commercial partner in the Middle East, but U.S. economic interests are by no means insignificant in the rest of the Gulf. Total U.S.-GCC trade grew 16 percent in 1996 to reach almost $25 billion, about equally divided between exports and imports in both directions. U.S. exporters continue to find the GCC market filled with potential. In fact, GCC demand for a wide variety of U.S. goods and services is growing rapidly. Exports from the United States to the GCC grew 22 percent last year to reach $12.4 billion. GCC exports to the United States were $12.5 billion in 1996, an increase of 10 percent over the previous year. In 1995, U.S. companies had invested an estimated $9.4 billion in the GCC, an increase of 26 percent over 1994.

Against this background, what are the prospects for the future? Saudi Arabia, the Arabian Peninsula and most of the countries in the Middle East/North Africa region are facing similar challenges and opportunities. Aggressive regimes in Iran and Iraq seek hegemony, not only in the Gulf, but in the Middle East region, and would destroy the political stability people here are working so hard to maintain. Economically, nations in this region are faced with young and rapidly growing populations, limitations on revenues from traditional sources, and relatively low levels of investment for the future.

At the same time, Saudi Arabia and the GCC countries still have the resources to bring to bear on these challenges. These are the income from your oil, gas and petrochemical industries and from a growing and energetic domestic private sector seeking opportunities to develop and expand businesses in the region and beyond.

To meet the challenges, it is critically important that Saudi Arabia and the GCC countries take advantage of their relatively high income flows now to undertake the economic reforms necessary to free the private sector, to attract private foreign investment and technology, and to diversify and expand the economies of this region. Waiting to make necessary reforms will only make them more painful in the future.

The Gulf countries should open their economies further to private investment. Let the investors decide for themselves how to negotiate and structure their businesses. Give them the freedom to expand and develop transportation infrastructure, telecommunications, energy resources and other industries. Provide greater protection to intellectual property rights and thereby attract the technologies that create more and higher paying jobs. Further liberalize your commercial laws to allow your industry and consumers greater access to diverse products and services.

Integrate more fully the economies of the GCC. Achieving economies of scale is vitally important in the Gulf and wider Middle East market - for investment, as well as for trade. Economic integration - not fragmentation - is necessary to compete with the burgeoning Asian and Latin American markets for U.S. investment. Some recent steps are excellent examples of such efforts, including the linking of the stock exchanges of Bahrain, Oman, Jordan and Egypt and plans to add Kuwait and other GCC countries to this network. Other nontraditional areas that invite linkages beyond traditional borders are in power grids, telecommunications and other financial services.

We believe that the answer to both the political and economic challenges is to foster a new stage of economic growth in Saudi Arabia and a new impetus for economic cooperation among the countries of the GCC, the United States and elsewhere - and that this effort ultimately rests with private industry and not government. Therefore, a strong and expanding private sector throughout the region is critical to achieving economic cooperation and stability.

The private sector in all the GCC countries, with support from their respective governments, has begun to take a leadership role in the development of new hydrocarbon resources, downstream industries and industrial diversification. New reserves of oil and gas have begun to be exploited, especially in Oman and Qatar. And in Kuwait, Saudi Arabia and the United Arab Emirates, older fields are yielding new product using ever more advanced production technology.

Qatar has set up several joint ventures with foreign companies to exploit and sell its gas reserves in the region and beyond. Kuwait has taken steps to develop downstream production using the private sector. The first such venture, Equate, is a petrochemical project owned jointly by Union Carbide and the Kuwait Petrochemical Industries Company.

Industrial diversification is also taking place. In Saudi Arabia, the Advanced Electronics Company is an example. Oman is developing new mineral resources and an aluminum industry.

Looking beyond Saudi Arabia and the Gulf, I see opportunities for more cooperation in the development of a region - the Caspian - that has recently rocketed onto the world stage as a source of vast new energy resources. There is large scope for cooperation between the GCC, the Caspian region and the United States in exploration, production and transportation of these resources to a world hungry for energy from moderate Muslim countries that want to secure their independence, develop economically and bring freedom and opportunity to their people - goals that we share and support.

Saudi private companies have joined with U.S. and other foreign companies to invest in the rapidly expanding development of oil and gas resources in the Caspian region. Delta has joined with Amoco, Unocal, and the Japanese company Itochu to explore and develop the Ashrafi Dan Ulduzu fields off the coast of Azerbaijan. Likewise, Unocal and Delta have joined forces to transport gas and oil from Turkmenistan to the South Asian and, hopefully, the European and East Asian markets. This cooperation shows the synergies that can be created when U.S. and GCC companies work together to develop resources in areas of strategic importance to the United States and the Gulf.

Industries in countries that are natural cultural, geographic and economic partners, which have been kept apart in the past by politics, are now coming together for mutual benefit. The Saudi and U.S. private sectors are providing the leadership for increasing stability and economic opportunity and development in what has been a troubled part of the world.

Even as we advance our bilateral economic and commercial cooperation in the GCC and into the Caspian region, we also need to do more to support cooperation in the Middle East and North Africa as a whole. Gulf states are now overcoming longstanding disputes, as is evidenced by the welcome agreement just reached between Bahrain and Qatar. They can build on the steps already taken by Qatar and Oman to increase ties with the Israelis and on the steps Saudi Arabians have taken to support the economic development of the Palestinians. It is also important to continue and to expand participation in the reforming economies of Egypt and the other countries of North Africa. The GCC is not, and never really was, an island unto itself; each day its security and stability depend more on the security and stability of the wider region of which it is a part.

In our commercial policy mission to the Gulf, we are seeking ways, with government and business leaders, to break down the remaining obstacles to making our close commercial ties even stronger, as well as to advocate specifically for U.S. companies seeking to do business in each country. We are discussing the opportunities and obstacles to strengthening these ties bilaterally and next week will do so in the multilateral context of the Interim Review of the U.S.-GCC Economic Dialogue.

In other words, our commercial and economic ties are strong with Saudi Arabia and the GCC and through our continuing Economic Dialogue are becoming even stronger. The U.S.-GCC Economic Dialogue is the formal channel for government-to-government cooperation on enhancing the trade and investment climate on both sides. At the Dialogue meeting one year ago in Bahrain, we heard the GCC delegation say in no uncertain terms that they wanted to increase levels of trade, investment, training and technology transfer with the United States.

The Economic Dialogue worked out a concerted program in Bahrain - my co-chair, Saudi Arabian Deputy Foreign Minister Kurdi termed it a breakthrough - at the March meeting to deal with the top priorities for both sides. We formed three working groups to work on: first, investment and tax agreements; second, overcoming barriers to trade and investment; and third, strengthening economic cooperation between the United States and the GCC nations, within the Gulf Cooperation Council, and among all of the Middle East / North Africa nations.

Last June in Washington, the Departments of Commerce and State hosted the first meeting of the Working Groups established to deal with each of these priorities. Next week in Riyadh, we are holding an interim-review meeting to gauge how far we have come toward our shared goals. I am pleased to report that there has been some progress, and we expect further steps to be taken as we approach the next meeting of the full Dialogue in Washington, hopefully in September.

To date, we have had extensive discussions with each of the GCC countries on their investment regimes and on the GCC Investment Code, and we are coming to a better understanding of the issues involved and of how to resolve those issues. We have also discussed taxation issues, and the United States and several of the GCC countries are close to agreement on exempting from taxation each other's income from aviation and shipping.

Several of the GCC countries have taken steps to make it easier for American business representatives to obtain travel visas. I have mentioned the moves to privatize and to ease ownership restrictions. Each country is making progress in the promulgation and enforcement of laws to protect intellectual property rights. All these steps have increased the level of U.S. business interest in participating in the economies of the GCC. Several major American companies are entering the GCC or expanding into countries where they have not been, and my colleagues at the Departments of Commerce and State receive an ever increasing number of inquiries about conditions in the region.

Why is it important to continue to take these steps now to increase the level of business and commercial activity among us? The answer, clearly, is that the private sector, both domestic and foreign, is the most readily available source of capital, technology and management expertise, which are so essential for future growth and development.

Governments in other parts of the world have realized this and have changed or are changing their business environment to attract foreign investment and technology. Frankly, this region is behind at the moment. Only 3 percent of the world's investment reaches the countries of the Middle East and North Africa. But the countries of the region do not have to remain behind - and cannot remain behind - if they are to be stable and prosperous.

As governments here liberalize trade and investment codes and procedures and integrate more fully their economies, they will create a larger and more attractive market, and economic activity will increase to benefit all of our people and our businesses.

I believe it is important that this be done as quickly as possible. We are making the point to all those, both in business and government, with whom we are meeting during our visit. The Middle East/ North Africa Economic Summit, which will take place in Doha in November, will give the countries of the Gulf Cooperation Council a unique opportunity to showcase themselves to the world as a major emerging market, one of the best places to find business opportunities. These steps leading to reform and regional economic cooperation will be especially important in attracting firms new to the GCC.

Even Saudi Arabia, which has the largest market and economy in the GCC, will be more attractive to foreign investors to the extent that it and its neighbors join forces to enhance cooperation among their economies and open them further to the private sector.

Of course, our governments also have a clear role to play. One very important step has been the accession to the World Trade Organization (WTO) of Bahrain, Kuwait, Qatar and the United Arab Emirates, and the application to accede on the part of Saudi Arabia and Oman. WTO accession and compliance will afford Saudi Arabia and the other GCC countries a wide range of benefits, such as greater access to the markets of other WTO members, that will stimulate economic growth.

In closing, I want to emphasize that the Clinton administration is focusing on the full range of relationships with the countries of the GCC. The Commerce Department and U.S. economic agencies are paying particular attention to enhancing our economic, commercial and business relationships.

This will make business in both the United States and the GCC the winner. The American business community needs to have a greater stake in the development of this region of the world and strongly wishes to do so. This will create larger markets for our goods and services and will help the GCC countries to develop their own productive capabilities. It will lead to the acquisition of technology, training opportunities, faster economic growth and job creation, more choice for consumers, and a better life for all of us and for the generations to come.

I believe this is a pragmatic vision for the Gulf and the United States. Our objectives are reasonable and realistic. Together, we can make both our parts of the world richer, and also enhance our mutual contribution to regional and world peace.