Trade and commerce, if they were not made of India-rubber, would never manage to bounce over the obstacles which legislators are continually putting in their way..

Henry David Thoreau

Editor's Note:

In his latest contribution to the dialogue on US-Saudi relationship, Grant Smith presents a powerful argument on how the American economy benefits from the strong, historic partnership in the arena of US exports to the Kingdom.  While US-Saudi trade doesn't receive the same attention as the energy and security aspects of the relationship it is a critically important component that enriches both sides.  Smith also presents an insightful discussion of anti-Saudi trade legislation "of little value to U.S. national security or America's international standing" pushed by politicians in a small band of states that may result in the loss of US exports, and jobs, to international competitors.  He ends with a prescription for states that benefit from US-Arab trade to counter the anti-Saudi legislative agenda representing a narrow range of  interests. 

This snapshot focusing on the impact of trade on Michigan's economic health is a follow-up to Smith's "Drill Bits and Data Bytes: The Texas-Saudi Export Relationship" which appeared July 21 in the Saudi-American Forum.

We hope you find these essays informative and that you will forward them to your colleagues with a note of encouragement that they subscribe to the Saudi-American Forum.

Executive Summary

Total U.S. assembled auto and light passenger vehicle exports have only grown 6.6 percent per year between 1999 and 2003.  However, U.S. auto exports to Saudi Arabia have grown on average 25 percent per year over the same period.  The state of Michigan is the leading U.S. supplier of manufactured transportation equipment to Saudi Arabia.  Michigan exported over a quarter billion dollars of transportation equipment to the Kingdom, accounting for 85 percent of total state exports to Saudi Arabia in 2003.  

Manufactured goods and services exports from Michigan to Saudi Arabia generated 8,700 jobs in 2004 and are on track to reach 13,000 by year 2013.  Flowering commerce between Arab states and Michigan reveals a relationship with deep roots not easily seen from the surface.   In 2003, Detroit hosted one of the most important U.S.-Arab economic forums ever held in America.  Nonetheless, legislative roadblocks to trade deals emanating predominately from New York and Florida congressional representatives could send Saudi business in search of more efficient markets. States firmly grounded in the U.S.-Saudi relationship may soon have to form trade and development working groups in Congress to maintain open lines of international commerce.

Michigan Merchandise Exports to Saudi Arabia

During the years 1999-2003, automotive and transportation equipment accounted for over 85 percent of Michigan's total exports to Saudi Arabia. Other export categories from Michigan such as furniture, chemicals, and machinery account for only 12 percent of the total export pie. (See Exhibit #1) The success of Detroit's signature product, the passenger automobile, is not uniform across brands.  By forging a strong distribution partnership with Al Jazirah Vehicles and responding to regional consumer tastes, Ford has delivered over 50,000 Crown Victorias to Saudi customers.  Al Jazirah was the world's largest Ford Crown Victoria dealer, both in terms of sales and inventory, for six consecutive years.

ADD

Exhibit #1: Year 2003 Michigan Exports 
to Saudi Arabia ($ U.S. million)
(Source: U.S. Department of Commerce 
and IRmep 2004)

Engineering projects that are years in the making are commonly inked between Michigan and Saudi corporations. CMS Energy, headquartered in Jackson, Michigan, entered into a $170 million joint venture with the National Power Company, Jubail Energy Company (JEC), to construct a co-generation plant designed to produce up to 250 megawatts and 510 tons of industrial steam per hour. The plant location is within the Saudi Petrochemical Company's (SADAF) complex at the Jubail Industrial City in Saudi Arabia.  CMS Energy has a 25 percent stake in JEC, which has contracted the entire output of the plant with SADAF. The plant, expected to be in operation in 2005, will be the first independent power plant in Saudi Arabia.

Other industrial service projects and manufactured based exports between Michigan and Saudi Arabia should produce half a billion dollars in state exports this year, forecasted to reach $735 million by the year 2013.  (See Exhibit #2)

Exhibit #2: Forecast Michigan Merchandise and Service Exports to Saudi Arabia
(Source: IRmep 2004)

ADD

Jobs created by Saudi imports, particularly in manufacturing, are critical for Michigan's economic growth.  In August of the year 2000, Michigan's economy produced 902,100 manufacturing jobs, the state's most recent peak, but has seen a 21 percent overall drop in manufacturing jobs since then.  Michigan lost 34,000 manufacturing jobs, a drop of 4.7 percent between July 2003 and July 2004.  Although the state has added some leisure and hospitality services and construction, education and health services jobs over the past year; the average salaries and compensation of these new jobs pale in comparison to those offered by the 8,700 jobs created by exports to Saudi Arabia. (See Exhibit #3)

Exhibit #3: Forecast Michigan Service and Manufacturing Jobs tied to Saudi Imports
(Source: IRmep 2004)

ADD

Absent any setbacks, jobs growth tied to Saudi imports could reach 13,000 by 2013.  However, new international competitors are entering the Saudi market at precisely the same time a small group of U.S. congressional representatives are erecting roadblocks to Michigan exports.

Visas: A Vehicle and Project Deal "Braker"

Trade between Michigan and Arab markets is significant enough that Detroit was the host of the 2003 U.S.-Arab Economic Forum.  Close to 1,000 U.S. and Arab policy, business, social and technology officials visited Detroit in September 2003 seeking ways to improve American (and Michigan) trade and exchange.

Saudi Foreign Minister Prince Saud Al-Faisal captured the spirit of the event.  "Detroit not only produces the best cars, and arguably the best taboulah and hummus, yet it has also been hospitable to the Arab-American community .. Economics, investment, commerce and trade are the pillars upon which relations among nations are founded," said Prince Saud Al-Faisal.

Yet, among the foreign visitors, there was general agreement that visas and travel obstacles in the United States were beginning to put the brakes on commerce.  New restrictions and visa barriers placed on long-time business visitors to the United States have a direct consequence -- replacement of U.S. suppliers.

In the CMS Energy project, status as a preferred bidder came on May 14, 2001.  The company finally announced project financing over two years later on July 18, 2003.  Large engineering projects with multi-year startup phases require frequent border hopping visits and face-to-face consultations.  Deals can only proceed if there is smooth visitor flow between the United States and Saudi Arabia.  When business visitors feel the weight of burdensome or exclusionary visa policies, they quickly take their business elsewhere.

One recent example is a June 2004 million-dollar Saudi contract to produce three high-specification industrial loading vehicles.  This deal went to Middlesbrough in the United Kingdom.  The Saudi buyers indicated that although their vehicle sourcing would normally have gone to U.S. providers, new barriers caused them to source in the United Kingdom.  As the same Saudi group requests proposals on another U.S. $30 million in vehicle business in the United Kingdom, the loss to Detroit in terms of jobs is calculable:  the same contracts sourced to the machine shops of "Motor City" would have supported 500 manufacturing jobs.  Few examples of the cost of making U.S. markets hostile to Saudi buyers are as stark or clear.

Congressional Roadblocks Eliminating Michigan Jobs

On April 3, 2004 Saudi Arabia and China signed a final bilateral agreement on commodities and services. Chinese Assistant Minister of Commerce Yi Xiaozhun and Deputy Minister of Saudi Trade and Industry Fawaz al-Alami al-Hasani agreed that Saudi Arabia's World Trade Organization (WTO) membership should be beneficial to both countries as well as other WTO members.   In 2003, trade between Saudi Arabia and China reached U.S. $7.34 billion, offering a growing challenge to U.S. competitors also serving the Kingdom.

However, although Saudi Arabia's 31 agreements with WTO member countries present increased competition, Michigan and other states exporting to Saudi Arabia face a far greater challenge close to home -- New York and Florida legislators.

By sponsoring a steady stream of hostile and xenophobic resolutions and acts targeting Saudi Arabia, successful or not, the trade environment is slowly poisoned for states such as Michigan.  An analysis of nine separate pieces of legislation introduced against Saudi Arabia in 2003-2004 reveals that bill sponsors were predominately New York and Florida legislators with little contact, knowledge, or stake in the U.S.-Arab relationship. 

Exhibit #4: 2003-2004 Congressional Sponsors of Anti-Saudi Trade Legislation by State
(Source: Thomas Legislative Information – Library of Congress 2004 and IRmep 2004) 

ADD

(CON. RES 294, H.R. 3934, H CON RES. 242, H. RES. 243, H. CON. RES. 244, H.R.3137, S. 1888, S. CON. RES. 131, H. R. 488)

Legislators from New York and Florida are understandably eager to engage in Saudi-bashing through legislation.  Few of their constituents are likely to complain or feel any repercussions.  However, for states striving to improve the diversity of their classroom, a xenophobic bill (H. R. 488) purporting to "limit the issuance of student and diversity immigrant visas to aliens who are nationals of Saudi Arabia" can thwart international student flow.  Another discriminatory act (H. R. 3137), forged in New York, is "To prohibit assistance or reparations to .. Saudi Arabia" regardless of the program or relevant issue. 

As New York and Florida continue to hammer out legislation of little value to U.S. national security or America's international standing, it may soon be necessary for states with a deeper understanding of the region gained through educational, cultural, and commercial exchanges to band together into a trade development voting bloc.  The combined legislative might of Texas, Michigan, Virginia, North Carolina and Georgia is nearly twice that of New York and Florida.  If top "Arab trade and development" states begin to work in coalition to more heavily involve themselves in legislation affecting East Coast financial and tourism interests, the barrage of damaging and ill-considered anti-Saudi trade legislation affecting Michigan's local job growth could be rapidly eliminated.

Editor's Note: Hyperlinks are added to enhance readers' access to related materials and does not constitute an endorsement of external web sites.  The SAF Action Center link is provided as an pathway to detailed information about specific legislative issues.  

ABOUT THE AUTHOR

Grant F. Smith is Director of Research at the Institute for Research: Middle Eastern Policy (IRmep) in Washington, D.C. (http://www.IRmep.org).    Before joining the Institute, Smith served for 3 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 forty 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 Adminstracion (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 post graduate 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.

The majority of IRmep's base financial support derives from the donations of concerned individuals who are alarmed by the current direction and authors of US regional policies. IRmep also receives industry support from corporations that have faced increasing barriers in developing their Middle East consumer and enterprise markets in the current policy environment.

To access current research and learn more about America's real interests in the Middle East, visit http://www.IRmep.org  write us at info@IRmep.org  or call (202) 342-REAL (7325)