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As Saudi Arabia continues to modernize plant and equipment and increase levels of “Saudization,” machinery imports have risen from 15% of total U.S. exports in 1999 to 24% in 2003.  Strong Saudi distributors and automotive dealerships have contributed to increasing vehicle and parts imports from America.  While household goods and apparel exports have remained essentially unchanged, Saudi manufacturers have demanded increasing quantities of raw materials including metal, plastic and wood inputs.  The ongoing transformation of Saudi Arabia’s defense forces to face new threats have also contributed to a modest increase in material purchases between 2001 to 2003.While U.S. IT and telecommunications equipment manufacturer shares have remained essentially flat, U.S. aircraft exporters have suffered a tremendous decline.  Aircraft and parts exports, which accounted for 26% of total U.S. exports to Saudi Arabia in 1999, dwindled to 5% in 2003 as passenger ticket sales and air freight declined after 9/11. 

U.S. corporations viewing the overall market speculate on what overall market share goal U.S. merchandise exporters should set for Saudi Arabia.  Is 15% of the total import market reasonable?  The answer, happily, is no.  The U.S. market share for countries exporting more than U.S. $1 billion in petroleum such as Malaysia, Venezuela, and Trinidad & Tobago in 1998-2002 averaged 19.05%.  For Saudi Arabia, a country with a history of much greater joint cooperation, a minimum share of 20% is a realistic goal.  This would have added an extra billion dollars in exports in each of the past three years.

The Rise of U.S. Service Exports

One promising growth area is cross border service exports.  In each of the past four years, U.S. world service exports have displaced merchandise exports by 1%.  In 1998, services represented 27% of total U.S. exports and merchandise 73%.  By 2003, services had steadily grown to 30% while merchandise fell to 70%.

Although recent U.S. service export data for Saudi Arabia is not yet available, U.S. service exports over a ten year period beginning in 2001 grew on average 5.31% per year reaching U.S. $1.79 billion in 2001.  These exports have the potential to reach $41.8 billion over the coming decade.  If we apply the US Department of Commerce "Rule of Thumb" calculation of 17,000 jobs per billion dollars of US exports, the economic stake the US holds in Saudi imports is stunning.  US jobs created by exports to Saudi Arabia total 124,000 in 2004 and are forecast to grow to 177,000 by 2012.  Opportunities to participate in Saudi Arabia’s strategic economic development projects are increasing (See Exhibit #3).

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Saudi Arabia has made important moves to increase technical assistance close to home.  In August of 2003, a joint commission of Morocco and Saudi Arabia announced plans to create a free trade zone, export Saudi products to the Moroccan market and import Moroccan products.  Saudi Arabia is also tapping Morocco for expertise and assistance to unlock more of its own domestic tourism revenues.  However, Morocco, and most other countries, do not yet present any dire threat to U.S. expertise in upstream energy development, systems integration, and consulting for business process improvement and defense transformation in head to head competition.

Unfortunately, America may effectively be cutting itself out of these joint Saudi-U.S. projects as an inky fog alleging Saudi support for terrorism and shadows of the Palestinian conflict descend upon the U.S. Senate.

The Saudi Arabia Accountability Act of 2003

The Saudi Arabia Accountability Act of 2003 is one of the most disturbing pieces of legislation introduced last year. Introduced in the House by the honorable Mr. Specter (R-PA), Mr. Schumer (D-NY), Mr. Graham (R-SC), Mr. Wyden (D-OR), Ms. Collins (R-ME), Mr. Graham (D-FL), and Mr. Bayh (D-IN), the bill weaves together a group of thinly documented allegations which could inflict collective punishment on future Saudi-U.S. relations.

The bill relies heavily on the reputation of the Middle East Media Research Institute (MEMRI), a selective news retrieval organization headed by former Israeli intelligence operative Colonel Yigal Carmen, funded by three anonymous donors providing 51% of MEMRI’s funds (See IRmep Policy Brief, America’s Middle East Think Tanks: What Went Wrong?) and closely associated with US Neoconservatives.  MEMRI scours texts in Arabic to find the negative and damning passages to translate and later present out of context. A MEMRI report (with no peer review) alleges Saudi sponsored organizations funneled over U.S. $4 billion to finance the Palestinian Intifada that began in September 2000.  Newspaper clippings quoted as evidence in the bill speculate on Saudi support for Hamas “citing United States and Israeli sources.” (For analysis of all evidence cited in the bill see: "Saudi Accountability or US Job Elimination Act?")

Although the alleged crimes in the bill are unusually sketchy and vague, the sanctions are not.  If enacted into law, the bill would restrict the travel of Saudi diplomats to a radius of 25 miles around a limited number of U.S. consulates, prohibit exports of many U.S. defense and other commercial manufactured wares, “to secure full Saudi cooperation.”

Many American entrepreneurs and legislators see this bill as premature at best.  While many of the issues the legislation seeks to confront are currently working their way through the U.S. court system and joint Saudi-U.S. task forces, this bill seeks to “pre-empt” their results and create “facts on the law books.”

The Future of Saudi-U.S. Trade

American executives and other stakeholders are working diligently to repair U.S.-Saudi ties.  9/11 was a terrible day that must never be repeated.  However, the Saudi Arabia Accountability Act of 2003 now looms as a final aftershock that will break what remaining cultural and commercial ties 19 terrorists could not.  Instead of accomplishing the Accountability Act's goal of preemptive attack on the relationship between Washington and Riyadh, we should be creating the environment for expanded cooperation, communication, exports and the creation of US jobs and a healthier economy.  Americans who reject vitriol, haste and simple solutions to complex problems are hoping common sense prevails where this bill will not.    

Also:
Saudi Accountability or US Job Elimination Act?
IRmep Policy Brief, March 1, 2004

ABOUT THE AUTHOR

Grant F. Smith is the Director of the Institute for Research: Middle Eastern Policy (IRMEP) in Washington, D.C. ( http://www.irmep.org ). Before joining the Institute, Smith served for three years as senior analyst and later program manager of international research at The Yankee Group Research, Inc., a Boston based research and consulting firm owned by the Reuters PLC group. He worked closely managing business plan development and financing due diligence with the International Finance Corporation of the World Bank, Inter-American Development Bank, and many consortium investors and corporations on over $3.0 billion in investment projects in over 40 countries. 

Preceding his tenure at Yankee Group, Smith taught graduate level finance and marketing courses for five years at Colombia's most prestigious business school, the Colegio de Estudios Superiores de Adminstración (CESA). He coordinated executive seminars, exchanges, simulations and programs between CESA and Harvard, Berkeley, and other U.S. universities. He also served as president of Smith & Sefair Zaher Ltda., a Bogota based technology and management consulting firm. While there, he consulted clients in the insurance, banking and industrial sectors on business process improvement, business planning and information systems technology strategies. Before that, he was marketing manager at American Express Financial Advisors corporate headquarters. 

Smith received his Master's degree in International Management from the University of St. Thomas in St. Paul, Minnesota. He has a B.A. in International Relations from the University of Minnesota and has completed postgraduate certificate work in information systems at New York University.

ABOUT IRMEP
 
The Institute for Research Middle Eastern Policy (IRmep) is a Washington D.C. based think tank working to research, define, communicate and promote America's real interests in the Middle East. Founded in 2002, the Institute became an independent non-profit IRS recognized tax-exempt organization in 2003. IRmep promotes the peaceful settlement of regional and international disputes by returning the U.S. to a higher foreign policy role: that of a just, secular, and development oriented regional influence.

IRmep produces research, publications, commentary, focused policymaker educational events and research tour programs to the Middle East. The heart of the IRmep's work is academically, not ideologically, driven research. The Institute's network of analysts is composed of experienced university research academics with reviewers in the international business and diplomatic communities.

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