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April 19, 2006

 

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How Can the U.S. Re-Open for Business
to the Arab World?
MEPC Capitol Hill Forum

Panel Questions and Answers

 

 

 

 

 

 

Editor's Note

Today we wrap up the presentation of the recent MEPC Capitol Hill Forum that addressed: "How Can the U.S. Re-open for Business to the Arab World" with the panel questions and answers.  We thank the MEPC for allowing us to share it with you. 

If you agree that this forum series is important to improving the relationship between the United States and the Arab world we suggest you visit the MEPC web site to learn how you can support this important organization.

[For information on the next forum in the MEPC Capitol Hill Conference Series -- "Is There a Responsible Exit from the Strategic Ambush in Iraq? (April 21) -- contact MEPC/Maria Arruda (202) 296-6767 or e-mail: [email protected]  ]

Previous postings from this forum:

 

How Can the U.S. Re-Open for Business to the Arab World?
MEPC Capitol Hill Forum
Panel Questions and Answers

Ambassador Freeman: I have a question before we turn to those of you who are ready for comments and questions. Since I think generally it's helpful to have factually based discussions rather than discussions that are based on conjecture and anecdotal material with no real evidence behind them, what is being done to document the economic costs to the United States and the American economy of some of these policies? 

That is, specifically - and maybe, Monty [Dr. Graham], you might want to lead off on this - about visa policies which inhibit, for example, medical - VIP medical care, or which inhibit sales efforts, or which make training in the United States impossible, or which, as was my case last summer, lead to my client's renting a river in northern Iceland to do business over the world's best fly fishing rather than trying to come to an inhospitable United States. I'm very grateful to the Homeland Security Department for that opportunity, but still, I think there are costs in terms of tourism. 

There are certainly costs to the educational community, the university. Universities are impoverished by the absence of the foreign students they might have otherwise had. And as Bill I think very importantly stressed, there are long-term costs from estrangement, withdrawal, and lack of familiarity with the United States that perhaps could be quantified. 

I don't know what is being done in this regard. But I have a feeling, at some point as we come out of our depression, we will want to turn these problems around and there will be congressional hearings about the cost to the economy. I wonder whether the data will then be available to have an intelligent discussion or whether we will still be talking anecdotally. 

Bill [Mr. Reinsch], do you want to comment? 

Mr. Reinsch: Well, I can say one thing. We attempted to quantify the visa cost business and came up with a number that lives on and I think is valid. We did a survey in the spring of '04 asking companies to estimate the direct and indirect costs - indirect costs meaning lawyers, delays, things like that. Direct costs meaning lost business and people who couldn't get here and therefore didn't buy something. 

In the period July '02 through March '04 -- that was the time period we were looking at -- we produced a result which the statisticians tell us was statistically valid that suggested that the cost number specifically attributable to visa policies was slightly more than $30 billion - that's billion with a "B." We are presently undertaking a similar survey now looking at the last year to see if it's more or less than what we've come up with. 

That's one piece of data, and I can tell you that when we came out with it, the State Department immediately attacked it. Then I had a very interesting meeting. I was at the DHS and sat next to this guy who announced that he was the department's economist. I didn't know the Department of Homeland Security had one, but there he was. And so I said, you know, making conversation, well, what are you working on? He said, "Well, funny you should ask. We're doing a survey on how much our policies are costing American business." And I said, oh, really; well, what are you finding? He said, "Well, about the same as you." Except they never released their study. 

Ambassador Freeman: Monty?

Dr. Graham: We don't have such a survey or a study, I'd have to say. The question I would have for Bill is you mentioned direct and indirect costs. What is your $30 billion covering - my impression is that was just the direct cost? 

Mr. Reinsch: No, that was both. 

Dr. Graham: That was both. Okay. Do you have any sense of a breakdown between those two? 

Mr. Reinsch: We do. I just can't remember it. I think the direct was between 20 and 25 of that, most of it. That's easier to count, for one reason. It's also, I think, a conservative figure because what we had to do is we had a number of very large companies tell us that there was a cost and that it was substantial, but that it could not or would not, in varying cases, tell us what it was, and we had to count all that as zero. 

Dr. Graham: The one thing I'd add then is I suspect the indirect costs are really bigger than the direct costs. Generally when you have a transactions cost associated with a trade or some other type of transaction that those transactional costs prove to be a small fraction. The real costs come in the foregone benefits, and those are very hard to measure. But I would guess that you're probably talking three times what you're directly measuring. 

Mr. De Marino: More than three times, but I think easily three times. I agree, Bill, this was the figure and Bill's shop had an enormous amount to do with it. I will say that there is great difficulty in this issue. American business is getting better at this. But nobody wants to argue this on cost because - and I'm sure you got hit with this, Bill - you know, you go over to DHS and State and, oh, so national security equates to 30 billion you guys lost as a result of our doing our job and keeping America safe. No American business wants to get into that. And they don't want to estimate the true loss cost because they look like ogres: You cost us $100 billion over at XYZ Corporation! They run from this issue. You can't win. And this is demagoguery at its best. 

And I would just say this is all part, it seems to me, of the great patience the Arabs accord us and the patience and tolerance in their culture as a result of great violation of 9/11. They're waiting patiently for us to return to normality, and they understand this is anguishing, and it is for all of us. It's like a sort of a breakdown after a death in the family. That's how they view us. They actually like us, deep down. They're very happy we won the Cold War and that we're not all speaking Russian. They're very happy that we created the architecture we did post-World War II, and that we're all living in that world, as Jim said, that tremendous foreign policy structure that we created in the world. And in the meantime they're willing to tolerate a lot of this. But they understand that this is all politics, and you cannot win this on the merits. This isn't about dollars and cents.

But I would just add one more thing. Jim's point about U.S. perceptions in the Middle East - whether we're competent enough to continue to manage this world architecture I think is a very open question. The fact that we succeeded to this point is one of the great achievements of the American public and private sectors, in all of our history. U.S. perceptions of the Middle East, what no one has said is there are active, dynamic, well-financed, extremely creative forces on both sides playing PSYOPS with us, who are vested - vested in seeing that this rapprochement does not take place. And you've got to assign them a value, a cost. This is a battle. There are forces in the U.S. -- Chas. has been very outspoken on this -- tremendously important statements he's made. There are forces in this country vested in seeing that the American people do not have a good attitude towards the Arabs, as there are on the other side, enormous forces vested. 

So as we launch into this problem we have to understand, it isn't just sort of reaching people of goodwill; it's a battle, and we have to take out the various PSYOPS operations that are counter to our interests. And on that I'll shut up. 

Ambassador Freeman: Jim. 

Mr. Lewis: I hope we can come back to some of these political points, but the IMF did a study a couple of years ago about the effect of some of the post-September 11th changes on the U.S. economy. And this gets directly to your question. And at that point - I did a little work on this too - they estimated about - not as we've heard the dollar figures, but it's an opportunity cost, it' a long-term erosion, and the effect is that the U.S. didn't grow as fast as it could, and so the assumption is it cost us maybe around 1 percent of GDP growth, which I can't do that math that quickly in my head, but if their number is right - and it struck me at the time it might have been a little high - that's a very significant number when you're talking about a $12 trillion GDP to lose 1 percent of your growth. 

So there is some work - at the end of the day we'll probably find that we've done ourselves more damage and we'll have to think how to recover. 

Ambassador Freeman: I want to go to Mr. Constanzos here but before I do I want to pose a question for us to ponder, perhaps not to answer. That is whether there are not ways in which the American corporate community, regardless of its unwillingness to address this issue directly because of the national security issue, might not be encouraged to fund some graduate students in economics departments around the country to begin to collect data that make the case on a factual basis and that could perhaps over time help to produce more effective and less onerous balances between national security and trade promotion or national welfare. It would seem to me that some of the institutions represented at this table have members or could be the focal point for such efforts at basic education. I'm not talking about a lobbying effort; I'm talking about acquiring the basic information that is essential to engage in an informed debate. 

Is this the sort of thing, Bill, that your organization does, or have you thought about it? 

Mr. Reinsch: It's not something we do; it's something our members might do, but you'd have to talk to them one by one. 

Ambassador Freeman: Right. 

Andy, tell us who you are please. 

Questioner: Andy Constanzos, independent consultant. We've lived quite a bit in the Arab world. My conclusion from the presentation is that again we have a long list of action items, but nobody -- no group to take action about them. And I think that I have to go back to my experience and say that the only people that could take action on these items are the AmChams in these countries. And this is where the U.S.-Arab Chamber of Commerce could be very helpful at talking about the cost of sub-prohibition that Ambassador Freeman just mentioned. 

I would like to give you an example from my own experience. When the Jewish lobby was blocking the F-16 sales to Saudi Arabia, we had a friend in the department - 

Ambassador Freeman: F-15, I believe. 

Questioner: F-15, whatever. We had a friend in the Department of Commerce - and actually it was David Hamod was our consultant, and he's the one who did the targeting. He found through the Chamber of Commerce and Boeing which states were going to benefit, how many jobs would that order be creating, and then we targeted the congressmen with these numbers and we said, are you willing to turn it down and refuse so many jobs to your constituents? And they all voted yes, and that is how the deal went through. 

This is the action required to overcome the list of negativism that we got, and I think that, as Mr. Reinsch mentioned, we should go on the positive rather than the negative side. 

Ambassador Freeman: Thank you for that observation. The point that I was driving at in raising the issue of collecting data and information is exactly related to this. Arguments for or against something are vastly more effective if one has access to the facts at your command which have concrete consequences for those to whom one is making the argument. 

But I wonder, and I'd like to ask Don [De Marino] to comment on your comment, whether it's really fair to ask the dwindling AmChams - meaning the American Chambers of Commerce in these countries - to take on the seven tasks that Bill Reinsch I think very intelligently laid out. How can they stop Americans from being stupid or keep the CFIUS process apolitical, or build a Middle East free trade area - that's a government function, it seems to me -- or negotiate a bilateral investment treaty with Saudi Arabia or promote trade reform and investment reform in countries like Egypt, which have been engaged in this process for the last 5,000 years and have yet to complete it, or to establish a firm new relationship with Libya, or persuade the U.S. government that it should alter -- it should change its evil ways with regard to visas and access. 

I think that's pretty hard, and I think it has to be done - a great deal of it has to be done back here, and maybe the role of the AmCham is for companies who belong to the AmCham to bring these matters to the attention of corporate headquarters in the United States and hope that people will have the courage and the energy to take these issues on. 

But, Don, this is really your bread and butter. 

Mr. De Marino: Yeah, and I think, Chas, the problem really comes down to funds, but not to interest in this. I am incredibly impressed by the chambers overseas and the role they have. The irony is when the ball really gets rolling - you mentioned Egypt and its 5,000-year history in reform - the actual irony is that I think Egypt is almost there now.

Ambassador Freeman: It's Zeno's paradox, isn't it, that Egypt never quite makes it. 

Mr. De Marino: Well, there is a very - not to get into Egypt, but there is a very interesting nexus of extremely creative ministers right now. They seem to have the ear of the prime minister, who is sort of the head of their team and - 

Ambassador Freeman: This was Bill's point, I think. 

Mr. De Marino: But at any rate, there is a critical mass, and I think they are now going to start attracting the kind of investment - even U.S. investment funds -- we're thinking of taking offices there. And, you know, the Cairo stock exchange was probably the most successful one in the world, if you're a punter, last year. 

So, at any rate, the American Chamber in Egypt has had a lot to do with that. When various ministers wanted to be buttressed in their - you know, their desire to reform, and they were going to the parliament and they needed a physician paper, and they needed quickly some thinking on this or that. It became an adjunct to this reform process. Same thing in Bahrain - actually, the same thing in Saudi, and I think over the years in the UAE. 
It's a bit of a battering ram at times, a shoulder to cry on at other times, but it's a participant - a very big participant in this process of reform. And I always watched these "doorknock" things become very successful because it seemed that the Congress loved to talk to these guys. It was like the circus is coming to town: Well, these are the guys on the front line. They're really out there and living in these countries; let's hear what they have to say. And I think there is a useful - it's a useful service, and they get their arguments and points through. I've seen it many times with staffers and stuff when they're not living here. 

Having said all that, there are 101 things that I know we have on a laundry list at the U.S.-Arab Chamber, and we get to them, but Chas. is an expert on this. It's a funding issue. It's not for want of ideas or people or talent. We don't have any money. 

Questioner: When we faced the problem of money, we contacted Saudi businesspeople in Jeddah. And I remember [someone] for example, gave us $50,000. Another gave us $10,000, and so forth. We built up something like $100,000, which we put on an escrow account that is producing interest so that the American business group can continue. So there is interest by the business - the local businesses to do that. All we need is someone like the U.S.-Arab Chamber of Commerce to make a process out of it so that we can move forward with an action group that would take action on all these important action items. 

Mr. De Marino: I think it's a great idea. I think we need to fund it ourselves because if we go to that source today in the climate in which we live, that source of capital will significantly work against us. So then we have to dig into our own pockets, and this gets very difficult. And what we're very reluctant to do, since there is a very small pool of money interested in this subject in America, at least that I could discern, that we don't start stealing each other's sheep. So the very pot that Les goes to and Chas. goes to.. 

Ambassador Freeman: Oh, he's giving me a great idea. 

Mr. De Marino: This gets to be a poacher's issue. This is the nitty-gritty. You asked for it. I'm down in the weeds on this subject, okay? 

Ambassador Freeman: Bill, is your experience that the interest is limited in this issue? 

Mr. Reinsch: Well, my perspective would be from the American side, the companies here. 

Ambassador Freeman: Right. 

Mr. Reinsch: We work with AmChams, but the coalitions that we've developed are coalitions of American companies who support these FTAs who support the progress you're talking about. And we deliberately have not included representatives of the other countries' governments or those companies. And I guess I'd say two things. First of all, in response to one of Chas's comments earlier, it's the government that negotiates these things. There's no question about that. In many respects it's the American business community that gets them through the Congress because what the Congress wants to know is there are Americans who care about them, and, you know, on a pragmatic level, it's a lot more important, for the same reason that you just mentioned on the jobs issue, for a congressman or a senator to be told that there are four companies in his state or district that think this is important then for him to be told that the government of Oman thinks that this is important. I mean, the latter is very nice but the former is votes. 

So the coalitions that we've put together have, I think, made a huge difference in getting the thing implemented and approved after it's negotiated. And, yes, there is substantial business community interest in this, but it's not all the same. If you look at our coalition on Bahrain, for example, there were probably more than 100 companies -- U.S. companies -- specifically involved in that. There were probably a half-dozen that were actually on the ground in Bahrain in a significant way at that particular point in time, and three of them were mad at the Bahraini government for one thing or another and were not necessarily ones you could count on to support the agreement because they had a short-term grievance. 

Nevertheless, the other, you know, 94 or whatever it was, climbed aboard the train and were very useful, for multiple reasons -- some because they anticipated being there in the future, some because they had been there in the past and were going back, some because they simply support open trade with anybody, or almost anybody, at most anytime. But the largest number because they bought into the concept of a MEFTA and believe that the regional economic block is an important one for them over the long term in an area where they wanted to show growth, and that even though they not only might not be in Bahrain today and won't be in Bahrain next year, they understand the concept of building blocks. They realize that if you want to get to a regional agreement that would significantly expand trade and investment between the United States and those countries, you need to do it piece by piece. And maybe you start with not the most important piece from that company's perspective, but you need to support that piece because if you don't do that you're not going to get to the pieces that do matter for that company. 

So I think the companies have been impressive in their ability to take the longer view here and hang in there. And this, by the way, is a contrast with what they often do, which is focused on short-term returns, and this is an area where they've been able to take the longer view and participate in these coalitions even though they may or may not see a substantial short-term advantage. 

Dr. Graham: I don't have a whole lot to add except a question It is throughout this discussion we've heard a lot about the regional agreements and the bilaterals and so forth, and yet what may be most at jeopardy in the immediate term, at least in the international trade area, is the Doha Round, of course, which is supposed to bring a new meaning to WTO. So my question really is, what is the interest of the region in a successful completion of the Doha Round? Is it something that would be accorded a high priority? 

And then maybe particularly to Bill Reinsch - one of the things that really strikes one is that whereas there was tremendous support and even pressure from the U.S. business community to get done with the previous round, that similar sort of support and pressure seems to be quite lacking in terms of the Doha Round. Is that a correct perception, and if so, what might be the explanation for that? 

Ambassador Freeman: Don, would you like to start on Arab -- or regional interests in Doha? 

Mr. De Marino: I don't know much about that subject. My hunch is if you never hear it brought up -- at least I never hear it brought up - I don't think - I could be quite wrong, but I don't think they feel they have a dog in that fight. Most of them are concentrating on, I think, bringing investment into their country to a greater degree than before. Intraregional trade is now becoming far more important to them. And I think that they view it as something that mature economies, together with the large, emerging economies, have a lot of issues and tradeoffs that they're trying to achieve. And they are interested in it but they're not active participants is my sense of it. 

Ambassador Freeman: I think you're right, but I would note that this is in fact characteristic of Arab approaches to international issues generally. They're very passive. They seldom take the initiative. They wait for others to do that, and even then may not weigh in. So in this case I think also many of the countries in the region, and certainly the most important economy in the region, Saudi Arabia, is in the early stages of trying to implement WTO as it was without trying to redefine it. 

Mr. Reinsch: I don't entirely agree with that. The round was launched in Doha. It's not irrelevant to the region, and I think there is some interest in it. The intensity of interest is variable, in part by size of economy. The Gulf states have not generally been very active. The Saudis, as Chas. just said, are too new to the WTO, having acceded only in December to play a role. There is always sort of a feeling-out process when you join an organization like this one. I think they'll have a more significant role to play, but probably not this round, but a more significant role at the next one. 

Egypt, in contrast, has played a very active role, not only in this round but in most of the preceding rounds. Not always a constructive one, from our standpoint, but a very active one, both on its own behalf and as a spokesman for developing countries overall. Now, in the last year or so they probably have been eclipsed a little bit by the Indians and the Brazilians, but Egypt has always been an active participant in all the rounds and also is one in this one as well. And that is also the case for Morocco. You might say they're more -- they might both be more diplomatically mature economies. That might be a good way to put it. They've got more experience operating in international fora. They also have a lot of diplomatic missions all over the world and diplomatic experience. But they're active. Morocco, I think in general, has played a very constructive role as a facilitator. You'll recall the Uruguay Round was actually signed, I think at the end, in Marrakech. 

But these countries don't only just play host; they play a substantive role as well. Half of them or so of course don't even belong to the WTO and are sort of irrelevant to the process but I'm a little bit more optimistic about their involvement than the last two speakers. 

Ambassador Freeman: And U.S. business interest, which was the other part of the question. 

Mr. Reinsch: Oh, yes, thank you. I think it is - what's the right word? - a little bit more - I can't - the right word escapes me; I'll have to do it kind of differently. The business community supports the round. I think they are, like everybody else, including Ambassador Portman right now, frustrated at the lack of progress. 

We're in one of these Alphonse & Gaston routines where everybody is waiting for - everybody is saying, you know, I've got something really nifty in my back pocket and I'll show you mine if you'll show me yours, but you have to go first, and nobody wants to go first, so here we are. That said, I think the issue is not so much business community support for the round, because they will support the round and they'll, in all likelihood, support an outcome. The question is how hard they'll work for the outcome and getting it through the Congress, which is likely to be difficult. An unambitious de minimus outcome I think will produce token support and very little effort on the part of the business community, as opposed to an ambitious outcome, which will achieve a lot of support. 

We continue to do a lot of things - a lot of them behind the scenes - to try to facilitate an ambitious outcome. My organization, for example, has hired representation in Geneva. We probably spend more time lobbying other delegations than we do lobbying our own, and we're spending a lot of time trying to produce an ambitious outcome. You need to keep in mind that, as Monty well knows from watching the previous ones, these things crash and burn several times before the final process. I can't tell you with confidence that we're just engaged right now in crashing and burning again and that we will ultimately succeed, but there is a track record of doing exactly what's happening now and then pulling the whole thing together at the very end. That may not be this year, but I continue to be, you know, optimistic about a conclusion - a significant conclusion at some point. 

Ambassador Freeman: Jim? 

Dr. Lewis: You know, the big trade -- we're in the crash and burn mode, at least for this year. The big trade in the round is the Europeans and the U.S. opening agriculture, but then the developing countries, particularly Egypt, Brazil, India, they have to -- what are they going to give in exchange? And so far their position has been, it's the right thing for you to do; it's help for the noble, suffering poor. That's a hard one to sell, especially when you're talking about an issue that's so politically involved for -- certainly for the Europeans and probably here too. 

So I don't -- until you see the other side ready to make that big trade - we'll open for services and we'll take away more of the impediments to manufacturing - I don't think you're going to get the deal. Concessions from us on agriculture, what's the concession on their side? That part needs to be filled in. And in that regard I'd say that for many Middle Eastern countries it would strike me that it would be in their interest to see, you know, this relaxation on services in particular. So they might have an interest in the outcome that they would benefit from expressing. 

Dr. Graham: Having asked a question, if I could just do two follow-ups. One dynamic that shouldn't be underestimated is that on this whole matter of agriculture being at the centerpiece of Doha, a significant number of developing countries actually benefit from the current policies that are in practice. In particular, as we know, the Europeans subsidize the production of a number of agricultural commodities and essentially dump these on world markets, and quite a number of developing countries actually accrued net benefits from this practice. So this is a greatly complicated thing. See, the initial assumption would be that most of the developing world would be on the side of agricultural reform, but it turns out that isn't strictly the case. 

But the second thing, and where I personally have to say I've turned a little bit pessimistic -- yes, Bill is absolutely right that these things crash and burn several times, and in the end succeed. But somebody put it very well the other day that whereas in the Uruguay Round, at the end of the day, the U.S. business community had intellectual property to gain, and they were passionate about wanting that. And so at the end of the day you had the U.S. business community really, really behind it, and particularly every time it crashed the business community would be there to say that we - we just can't let this happen this way. 

There doesn't seem to be an equivalent interest at stake in this one. And in fact, the speaker put it very nicely. He said that what is the USTR offering the U.S.? Well, we're offering some farmers the chance to lose their subsidies, and that doesn't always create the most desirable political dynamic. So this aspect does, I'll have to say, worry me. It seems to me that we do not have an issue about which a major constituency is passionately wanting the round to go forward, but we do have some issues where there are U.S. constituencies that even if the U.S. gets demonstrably net benefits are going to oppose the whole thing. 

So, Bill, I'll have to admit to being - I hear you on crash and burn, but I'm still a little worried. 

Mr. De Marino: Can I say not that we get completely tangled up in the Doha Round because I'd like to come back to something we haven't addressed, except very briefly, and that is this pending legislation for foreign investment in the United States because while it's quite correct to say - and I think these are your figures - that there was one de facto rejection by CFIUS of an investment deal, and 16 or so others, or 20, I'm sorry, that were in effect de jure not accepted. And people would say, well, gee, this is - they must rubber stamp everything because there were thousands of deals that went through. Like tax courts and like our tax code, you don't want a confrontation with the IRS. You don't want to go in and talk with them, so your behavior is modeled around the code. If you know how CFIUS thinks and what they do, you don't even consider certain transactions that you know won't fly. So we don't go there at all, and we cannot gauge how many of those didn't even get pondered because of that. 

What scares me is, I think, CFIUS has worked, and it's been around for 20 years. When we had this hysteria in the '80s and we passed Exon-Florio, again it was a foreign-investor hysteria, Arab-bashing, Japanese-bashing exercise. We got something rather good and apolitical out of this very professional way of handing foreign investment. If we're not careful, we're going to get something to replace it, which, given the political will and how it works around this town, we're going to have for the next 20 years. And it doesn't, right now, look like it's going to be as good. And it's got all kinds, in my opinion, of crazy features in it. We're going to classify countries according to whether they're friends or enemies. 

And forget about secretiveness. You know, state officials, at least under the Shelby bill, are going to get notified of all of this. Your competitors, everybody is going to know, and you could have the deal tied up for four months of tire kicking. It's not how business gets done. I'm looking at it and saying, we don't want to buy that company. What are you telling me; we're going to have four months of tire kicking? Everybody is going to know our figures, all our proprietary stuff is going to leak, all the terms of the deal? Forget about it. Numbers are fabulous -- makes a lot of business sense - ain't going to go there. Ain't going to happen, okay? And there is a lot of money that's come in here in direct investment. It's not Arab money we're talking about; it's European money and it's Asian money. Those are the big numbers. 

Ambassador Freeman: Well, some of the European money may well be Arab money. 

Mr. De Marino: Absolutely, but Alcatel is looking at this right now, and if we continue with this critical infrastructure thing where we've got 11 industries that are critical infrastructure: food - food investments are going to go to CFIUS. What, the Department of Agriculture is going to weigh in now? Okay. Forget about it. This is the stupid stuff the French are trying to do right now. Villepin's 11 strategic - you know, no yogurt; don't go near the yogurt. 

Okay, let's just hope all this hysteria calms down and we don't get this kind of legislation, but it's out there right now. I'm just speaking as a businessman. I'm not an economist. I don't understand what economists say when they're - you know, I flunked economics. But it ain't going to happen as business investments. 

Ambassador Freeman: I guess we really ought to hear from an economist. 

Dr. Lewis: I'm also not an economist, but I've studied it. More importantly, though, I've studied CFIUS, and the CFIUS process is broken, okay? It's broken, and people have known it's been broken for about four or five years. The Chinese probably do some things we don't like. The Middle East was always the secondary or tertiary concern, but CFIUS is broken. The bad news now is that because the government was slow in fixing it, because the executive branch was slow in fixing it, Congress will fix it, and that's a very frightening outcome. 

I ought to tell you that one of the things that we did as part of the CFIUS effort was look at the effect of foreign ownership and decide it was largely irrelevant to security concerns, particularly for infrastructure. I have to admit we didn't look at agriculture, so, perhaps no. But it's where we are. The bad news is -- to bring it back to one of my themes -- you have this perception and this unhappiness in America about the Middle East. Everyone is thinking China but you're going to get it as well. You're going to be affected.

Ambassador Freeman: No, in fact I think it's fair to say -- and you've spoken of the American street, and that is a very appropriate phrase - I think it's fair to say that there is broad xenophobia, but on top of that there is specific Arabophobia and Islamophobia that make this a particularly difficult set of issues. 

Dr. Graham: The only thing I'll say, as I indicated, I do have a book coming out on this, and we do have a specific chapter to the China issue. We think that there are some issues there that are actually worth addressing. We wholly agree with the analysis of the Shelby bill that it's unnecessary; it won't provide any additional national security. I think the only good news is that as I watch the process, it seems to be getting, as it were, watered down step-by-step, and that's entirely good. This friendly/unfriendly country issue - if that stays, that's terrible. 

On the critical industries list, the one good thing that they've done is that they've now added a criteria - it's not just an investment that's in these sectors but it has to be designated as a security-related issue. I think that's very good because I think that would knock out most of these food questions - it probably takes yogurt off the list. At least one would hope so. 

Ambassador Freeman: I think we are reaching a logical conclusion to the discussion. Les, you have a point you want to raise. 

Questioner: I'm Les Janka. I've been in the independent consulting business for 10 years, taking American companies to the region. And you're right. We have a lot of barriers to Arab investment, Arab business coming here, but what I've been running into is our travel advisory problem.  That when I go to an American company, middle-sized, from the Middle-West saying, good opportunity; please come with me to Saudi Arabia.. Kuwait.. Egypt.. The street ignorance comes in, but then they say, oh, we just went to the State Department's website and they say don't travel, so we're not going, and that is - that's a real barrier. We've got to find a better way, I think, as we look at all these issues, visas and others, also looking at travel advisory problem. 

Just one last point. Even when I did get people to go with me, and I took them --trying to get them into the American Embassy in Riyadh, so we could go to the commercial counselor's office, these guys just panicked and said meet him at the hotel because they don't even want to go near the place. It must be so dangerous to have armored cars and camouflaged nets and sandbags all stacked around it. 

Ambassador Freeman: Yes, I think there is an inherent and probably, at present, unfixable problem with travel advisories, for the simple reason that we live in a society which is determined to affix blame for anything that happens, regardless of whether there is or is not a valid reason for affixing blame, and since the ambassador of the embassy is held accountable for everything that might conceivably happen to an American citizen in that country, the natural path of least resistance is simply to accede to whatever absurd level of warning the security people - who also will be held responsible - wish to impose. And so we are striving for a standard of zero risk, which is essentially unattainable. For what it's worth, I ignore those warnings myself and I am still here, even though perhaps as a former ambassador during the Gulf War I'm a more attractive target then even you, Les. 

So I think you're right to point to this issue, and it does show the other side of the problem, which is that it's not only very difficult to get people a visa to come here or to persuade them that they should even apply for a visa or come here if they get one, it's also extremely difficult now to persuade American companies - over the objections of their corporate counsel, who look at the State Department warning and attribute, correctly, liability to that - it's also very hard to get to come out and do things on the ground, with the ironic result that we end up doing our meetings in Paris and London where they somehow manage homeland security without insulting Arab visitors and don't impose barriers to Americans. We are probably less safe in those -- certainly in Paris these days - than we would be in virtually any city in the Middle East, but these things are not noticed and I don't know what the answer to the problem is. If anybody on the panel has an answer to this issue, I invite you to speak. 

Dr. Lewis: You should never do that. But we are in a phase now where the security people - the diplomatic security service and the policemen - have gained considerable influence. We've been through these phases before, perhaps in the 1950s, perhaps in other periods, so the real question for me is when will it go away? We'll pass all these laws and eventually, being Americans, we will start to ignore them. And will that take 10 years, will it take 15 years, will it take five years? I vote for sooner rather than later, but we're in a phase now where the security people are enjoying the limelight. 

Ambassador Freeman: I certainly hope that it's sooner rather than later. 

Mr. De Marino: I'd just say, you know - once again the lawyers are running everything so it's a liability issue. So the State lawyers put that language in and then general counsel at Corporation X says, well, geez, State is not going to let him go; I can't have -- a CEO guy can't sign off on this. It's a zero-risk deal. And I couldn't agree more - that's nothing that's going to change. It's going to be the degree to which -- I don't find capital to be a coward at all anymore. 

I think you have to get knocked around to make a buck. I think it's very hard to make money. And so this capital is a coward thing I think is untrue. Capital tries to minimize the incoming, the hits it takes, but it knows it is going to take hits. And so I find businessmen who are perfectly willing to go to Riyadh and other places. I grant you that it's not the average guy but there are - because they see a competitive advantage: Everybody's scared; I'm going to go now. So I rely on American entrepreneurship to get us through, but it is really a climate of zero risk right now. 

Ambassador Freeman: Well, I think we've probably said all we can say on this particular issue, but I'm glad you raised it because it is -- it is a major factor driving our market share down, and that is, I think, terribly unfortunate. 

I am going to ask the rest of the panel for some final comments, but I want to note that the region that we're talking about is in fact in the midst of an amazing boom. Oil prices are at historically high levels, money is floating into the region. It's undergoing a construction boom, Saudi accession to WTO promises the relocation of the world's petrochemical industries to the region, hundreds of billions of dollars of investment over the coming decade, and associated projects. Infrastructure projects and others in the region are going ahead at a great rate. The danger is that Americans will entirely miss out on this -- on this business both because Arabs don't invite us to bid, given the factors we mentioned earlier, and because despite the entrepreneurship of small business, large corporate bureaucracies are very risk averse and are unlikely to do what is required to get in there. I also note with some alarm, not having previously focused on the proposed legislation - Shelby and Sarbanes legislation - that there is the possibility, as Jim Lewis put it, of congressional actions that further devalue U.S. assets without any corresponding benefit to our national security. 

Finally, I think it has to be said that at stake in all of this is the recirculation of petrodollars, and something which we've take for granted, but which, when it first burst on the world in the 1970s, was correctly a major concern. There is no law of nature that says that people have to accept little green portraits of dead presidents and assign them any value at all. Certainly when Americans begin to say that our acceptance of those little green portraits of dead presidents in return for assets is conditional on political and moral judgments, we risk our own currency's standing. But I am reassured by Don De Marino's observation that if we undergo an Argentine-style collapse, that - you know, the old phrase that they use in Argentina, which is "Di�s rearregla de noche lo que hacen los argentinos de d�a" -- that God fixes it during the night the mess that the Argentines make during the day, perhaps will apply to us and we will once again see Kaizer Wilhelm's observation that "God takes care of idiots, cripples, and the United States of America" in action on the historical stage. 

I would like to ask each of you for a concluding thought and we will then put this conference to an end, noting that it will appear on our website - a transcript, unedited unfortunately, will appear probably in a few days, and it will then be published as part of Middle East Policy in the next issue, along with the proceeds of our next program, which will be April 21st and which will deal with - and will be on Capitol Hill, where we have found a brave member of Congress to sponsor us. It will deal with alternative strategies for a responsible withdrawal from Iraq. 

So, please, I think we should start in the order that we had. So, Jim, you are first. 

Dr. Lewis: Great. Thank you, and I'll be very brief. We've heard a lot about the cost to the U.S. These are real costs. My sense is that, you know - my hope is this is only a temporary phase and that we'll emerge from it, and the U.S. will stop taking actions that tend to cut it off from the rest of the world. On the other side, though, Arab economies might want to think about the costs of being cut off from the United States. 

Ambassador Freeman: Exactly. 

Dr. Lewis: This is still the technological leader, the leader in services, the leader in innovation, and being cut off from the American economy, is -- it's bad for the U.S. but it's worse for the other guys. So there's room for both sides to play in making improvement. 

Ambassador Freeman: Thank you very much. 

Mr. De Marino: I'll just add, I couldn't agree more with what Jim said, and to prove the point, there's a Saudi outreach program in the United States. Businessmen come here quite frequently to talk to American business about joining them in this tremendous number of projects going on in Saudi Arabia. There's a very keen interest in having the United States as a partner in all of this and Saudis and other Arab companies are reaching out to us and continue to do that through all of these debates and problems that we have at the political level. 

Ambassador Freeman: Bill. 

Mr. Reinsch: Don't do anything stupid. 

(Laughter.) 

Ambassador Freeman: Yup. Thank you. That's a sage observation - I'm going to quote you and I am sure the Congress will follow your advice. (Laughter.) 

Thank you all for coming. Thanks to the panel. Great discussion. 

<end>

Source: www.MEPC.org 

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