	Introduction

The political unrest and transitions that have swept through several countries in the Middle East and North Africa (MENA) since early 2011—often referred to as the "Arab Spring" or "Arab Awakening"—have prompted the United States, along with the broader international community, to discuss approaches and take actions to support democratic political transitions in the region. Within Congress, some Members have called for new free trade agreements (FTAs) with Egypt and Tunisia, and deeper economic ties with Libya. Presently, U.S. trade and investment policy in the region is focused on using trade and investment to foster economic growth, promote greater economic reforms, provide support for successful and stable democratic transitions, and generally support U.S. foreign policy objectives. Measures to bolster trade and investment ties are often long-term in nature, and could build on other shorter-term measures to support transitioning countries. However, continued political uncertainty and changing security environments in the region could prompt greater scrutiny of U.S. engagement, as policymakers grapple with questions of timing, feasibility, and political support for such efforts. The structure of this report is as follows:
The report begins with background and analysis for policymakers considering a re-evaluation of U.S. trade and investment in the MENA in light of political change in the region. In particular, the report examines the economic challenges facing many countries in the region and the area's limited economic integration—both in the world economy, including relatively weak economic ties with the United States, and in the MENA regional economy. MENA countries produced 30% of the world's oil and 22% of the world's natural gas in 2011. For example, it has been argued that:
Weak integration in the global economy has prevented the region from reaping the opportunities of globalization; " Easy money" from natural resources in some MENA countries has provided few incentives to develop sound economic policies or other productive industries, with the benefits of natural resources going to a few and not the public at large; Non-democratic political institutions have stifled innovation and economic competition, leading to slow growth and distortions in the economy; A weak business environment , stemming from heavy government involvement in the economy, red tape, corruption, and weak rule of law, has deterred foreign investment; A weak educational system has not equipped youth in the region with the skills demanded by the private sector in a competitive global environment; Subsidies and l ack of government infrastructure spending , with large portions of the budget going to defense and subsidies for basic needs, creates distortions in the economy; and Women constitute a low proportion of the labor force, preventing the region from tapping all its productive potential. U.S. trade with MENA countries accounts for a small share of total U.S. trade: $193 billion, about 5% of the U.S. total, in 2011. Foreign Direct Investment (FDI)

Closely linked to trade is FDI. Obstacles to Closer U.S. Trade and Investment Ties with MENA Countries

What factors have limited U.S.-MENA trade and investment ties? For the region, the reports generally emphasize impediments to U.S. firms seeking to do business in MENA countries related to lack of transparency, bureaucratic red tape, weak rule of law, corruption, and differences in business cultures. Important exceptions to overall U.S. trade policy objectives in the region are Iran and Syria. Overview of U.S. Trade Policy Tools

The United States uses policy tools to promote trade and investment, both with the MENA and globally, that may be grouped into two broad categories: (1) formal agreements and discussion frameworks to liberalize trade and investment and advance rules-based trade, such as free trade agreements and bilateral investment treaties; and (2) U.S. federal government programs that aim to encourage international trade and investment, such as export assistance and financing. MENA Trade and Investment Partnership Initiative

The U.S. government has organized much of its trade policy response to the political change in the region through the MENA "Trade and Investment Partnership" (MENA-TIP). Announced by President Obama in May 2011, the objectives of the initiative are to facilitate trade within the region; promote greater trade and investment with the United States and with other global markets; and "open the door to willing and able MENA partners—particularly those adopting high standards of reform and trade liberalization—to construct a regional trade arrangement." Formal Agreements and Discussion Frameworks to Liberalize Trade and Investment

Current U.S. trade and investment initiatives with MENA countries are the result of previous efforts undertaken to expand economic and political ties with the region. It also has FTAs with five countries in the region: Bahrain, Israel, Jordan, Morocco, and Oman. Certain elements of such programs are a part of the MENA-TIP Initiative. Generalized System of Preferences (GSP)

The United States grants preferential treatment to imports from certain developing countries under the GSP program. Unilateral Options

Congress could consider a number of unilateral trade policy tools to support and expand U.S. economic relations with countries in transition and other economies in the MENA region. Negotiating new trade and investment agreements, bilaterally or regionally: Longer-term, the United States could choose to focus its negotiations on trade and investment agreements with selected countries currently undergoing political transitions, such as Egypt or Tunisia. Congress could encourage the United States to intensify existing efforts to support WTO accession for MENA countries such as Iraq, Libya, and Yemen, and provide technical assistance for countries working towards WTO accession. The United States could work with countries to fully implement their WTO accession commitments, such as through enhanced trade capacity building efforts. Others argue that the links between trade, investment, and democracy are not straightforward. Some analysts question whether trade and/or investment liberalizing agreements will result in increased U.S. trade and investment to the MENA region. Should the United States wait to enhance its trade and investment ties in the region until the political situation stabilizes?
U.S. interest in deepening economic ties with certain countries in the Middle East and North Africa (MENA) has increased in light of the political unrest and transitions that have swept the region since early 2011. Policymakers in Congress and the Obama Administration are discussing ways that U.S. trade and investment can bolster long-term economic growth in the region. In May 2011, President Obama announced the MENA "Trade and Investment Partnership Initiative" (MENA-TIP), through which various federal government agencies are engaged in efforts to enhance trade and investment with the region. Such activities are in line with long-standing U.S. trade policy goals and measures. Some Members of Congress have called for deeper economic ties with MENA countries undergoing political change. However, continued political uncertainty and changing security environments in the region have prompted greater scrutiny of U.S. engagement. This report analyzes policy approaches that Congress might consider concerning U.S.-MENA trade and investment.
MENA Economies and Integration in the Global Economy
Economic performance in the MENA as a whole lags behind other regions in the world in terms of gross domestic product (GDP) per capita (living standards), employment, and economic diversification, despite the fact that several MENA countries are major producers of oil and natural gas. Limited integration in the global economy is frequently cited as an obstacle to the region's overall economic development. MENA's trade with the world is concentrated in a small number of products (oil exports and imports of manufactured goods) and among a small number of trading partners (particularly the European Union). Tariffs also remain high in some MENA countries, and intra-regional trade and investment flows are relatively low. With regard to the United States, the MENA region accounts for less than 5% of U.S. total trade and 1% of U.S. foreign direct investment (FDI) outflows. U.S. businesses face a number of non-tariff barriers, such as lack of transparency, bureaucratic red tape, corruption, weak rule of law, and differences in business cultures.
Policy Approaches and Challenges
Current U.S. trade and investment policies with MENA countries are quite varied. The United States has free trade agreements (FTAs) with five MENA countries (Bahrain, Israel, Jordan, Morocco, and Oman), but more limited ties with other countries, such as Libya, which is not a member of the World Trade Organization (WTO). Important exceptions to overall U.S. trade policy objectives in the region are Iran and Syria, which are both subject to trade sanctions.
Analysts disagree about the merits of deepening U.S. trade and investment ties with the MENA region. Some analysts maintain that new trade and investment agreements help anchor domestic reforms, such as in governance and rule of law; support sound economic growth; are a cost-effective way to support transitioning countries in an environment of budgetary constraints; and could promote U.S. exports and investment. Others argue that the empirical record between economic openness and democracy is weak and that it is unclear whether protesters in various Arab countries favor more economic liberalization, which they sometimes associate with corruption, inflation, and inequality. They also argue that political uncertainty in the region, such as the fluidity of Egypt's political transition, merits a "wait-and-see" approach before proceeding with substantial policy changes.
The 113th Congress could consider a number of approaches regarding U.S. trade and investment with the region, including
maintaining the status quo until the impact of the political changes in MENA countries is clear; providing technical assistance to countries working towards WTO membership, as well as trade capacity building support to countries working to implement WTO commitments; negotiating new trade and/or investment agreements with countries in the region that do not already have them, such as Egypt and Tunisia; utilizing existing trade frameworks for greater dialogue and progress on trade and investment and encouraging regional integration; reauthorizing existing trade preferences through the Generalized System of Preferences (GSP) program or creating a U.S. trade preference program, differing from GSP, that grants preferential market access to exports from MENA countries; and increasing assistance from federal export and investment promotion agencies to the region.
In considering such approaches, some questions that could arise include
Should the U.S. government promote expanded trade and investment in the near term in order to support democratic transitions, or should it wait until the political situation stabilizes in various countries? To what extent should the United States balance a regional approach of increased trade and investment with more tailored policies to the specific needs of individual countries? To what extent should the United States cooperate with the European Union or others on trade and investment in the MENA region?
Are existing U.S. frameworks and agreements on trade and investment with MENA countries benefitting the region, and achieving the intended objectives? What lessons can be learned from past U.S. efforts to promote trade and investment? How effective are current efforts to expand trade and investment under the MENA-TIP initiative?