Executive Summary

Many American states are retooling their productive capacity to become competitive global exporters. North Carolina is no exception. The state was formerly a major textile and tobacco giant, but North Carolina's new manufacturing economy now competes globally by selling everything from integrated circuits, data processing equipment, and semiconductors to aircraft parts. Saudi Arabia has been an important factor in North Carolina's export growth; as recently as 1999, the Kingdom was one of the state's top ten destinations for exports.

Some analysts believe upcoming Saudi tenders for new infrastructure development and government projects will reach US$600 billion. However, half a decade of US foot-dragging on Saudi Arabia's accession to the WTO has stripped billions of dollars of potential service and manufacturing export opportunities away from North Carolina and other American exporters. A savvy North Carolina export promotion strategy to the Kingdom and a nudge to the US Trade Representative could not only secure but increase the estimated 6,000 jobs now supported by exports to the Kingdom and restore Saudi Arabia's place among top importers of Tar Heel state products.

NC Merchandise Exports to Saudi Arabia

Manufacturing is vitally important to the health of North Carolina's economy, but has faced crises in select industries. North Carolina lost 14,800 manufacturing jobs in 2004; apparel and textile industries shed 5,600 jobs, while furniture manufacturing lost 1,900 jobs. These losses contributed to the 5% state unemployment rate in November 2004, up from 4.8 percent in October.

North Carolina's exports to Saudi Arabia have followed the trend, with furniture and textile exports diminishing in importance over the past five years. On the positive side, growth in North Carolina machinery and electronics exports has displaced textile exports, not only to Saudi Arabia, but also the rest of the global market. (See Exhibit #1)

Exhibit #1  -- Year 2003 NC/Saudi Arabia Export Categories
(Source: US Department of Commerce and IRmep 2004)

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North Carolina jobs tied to Saudi imports numbered just under 5,200 in 2004, but are conservatively forecast to reach 7,500 by 2013. Manufactured goods provide twice as many jobs as service exports. However, service jobs in North Carolina are filling the vacuum created by declining manufacturing jobs. The North Carolina Employment Security Commission reported that the state achieved a net gain of 66,600 jobs since November 2003, led by 70,400 jobs in the service sector. The percentage of total jobs tied to services should reach 50% of total Saudi imports by 2013. (See Exhibit #2)

Exhibit #2 -- Forecast North Carolina Service and Manufacturing Jobs Tied to Saudi Imports
(Source: IRmep 2004)

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North Carolina reaches out to global markets through international trade offices in Asia, Latin America, Canada, and Europe. Like neighboring Virginia, North Carolina should consider a permanent presence in the Middle East market. Saudi Arabia alone should provide over a quarter billion dollars of revenue to exporters in North Carolina in 2004. (See Exhibit #3)

Exhibit #3 -- Forecast North Carolina Merchandise and Service Exports to Saudi Arabia
(Source: IRmep 2004)

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A petroleum price-driven boom in Saudi Arabia could vastly increase imports of manufactured goods and services from 2005 onward. In 2003, Saudi Arabia imported almost $37 billion in goods from global markets, according to the Saudi Chief Statistics Bureau. Insider analysts and observers forecast that nearly $600 billion in new infrastructure and social spending investments will be tendered by the Kingdom in coming years. The Kingdom is increasing spending on infrastructure and welfare to address the needs of a booming population. National account figures released for 2003 indicate real Saudi GDP growth was 7.2% in 2003, with the non-petroleum sector expanding to 60% of the economy.

However, North Carolina's success or failure in building closer ties to Saudi Arabia through increased market participation depends upon more than the state's business community or increased international trade presence in the region. Like most American states seeking increased trade with Saudi Arabia, North Carolina's ability to export is hindered by half a decade of US foot-dragging on Saudi Arabia's accession to the WTO.

Saudi Arabia's Accession to the WTO

World Trade Organization membership "greases the skids" of commerce between the WTO's 148 member states. Membership is also a key engine of global conflict reduction and economic development. By lowering trade barriers and providing a forum for negotiation, the WTO system has melted away many other harmful barriers between nations and peoples. However, from the perspective of exporters such as North Carolina that would like to deepen trade ties with key importers such as Saudi Arabia, June of 2004 marked the end of a decade of glacial progress on the part of US trade negotiators.

In June of 1993, Saudi Arabia applied for accession into the WTO. (see Exhibit #4) Along with those of Russia and a few other states, Saudi Arabia's application has faced a decade of changing hurdles to accession, many driven by US domestic political concerns. Saudi observers directly involved in ongoing negotiations lament the shifting attempts at heavy-handed social engineering embedded in the negotiations (never before applied to WTO applicants) by negotiators with little understanding of the country's demographic, social, and religious dynamics.

Exhibit #4 -- Current Status: Saudi Arabia's Accession to the WTO
(Source: WTO 2004)

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Rather than "fast track" US-Saudi negotiations to better position American exporters for Saudi Arabia's current boom, the US Trade Representative (USTR) has dedicated resources toward working on a series of bilateral free trade agreements with smaller regional players such as Morocco and Bahrain. The USTR may soon begin talks with the UAE and Oman.

Most American exporters would like to see a bigger "bang" for their trade representation "buck," and should spur Congress to demand more efficiency from the office of the US Trade Representative. The General Accounting Office, watchdog agency of Congress, has already questioned the overall return on investment of small bilateral accords. GAO estimates that existing FTAs account for only 8% of total US trade.

Eleven countries supplied 63% of Saudi Arabia's total imports in 2003. In 2003, the US still led Japan, Germany, India, China, the UK, Italy, South Korea, India, France, and Australia in total exports to Saudi Arabia. States such as North Carolina stand to harvest the majority of benefits from Saudi Arabia's accession to the WTO as tariffs and other barriers fall. American exporters and worker families depending on export-related jobs cannot afford another five years of lost opportunities.

Also see:

Georgia Exports to Saudi Arabia: Coke, Innovation and Islam
By Grant F. Smith 

Consumer brands, such as Coca-Cola and CNN, are leaders among Georgia's diverse global merchandise and service exports.  Atlanta-based Coca-Cola is first place in the 2004 InterBrand Global Brand Scorecard.  However, U.S. regional policies have presented new challenges, forcing Coke and others to change the way they market consumer brands to the Arab market in general and Saudi consumers in particular. Saudi imports currently provide just under 5,000 service and manufacturing jobs in Georgia.  Coke's regional strategy shifts may signal the way toward greater success for other top U.S. consumer brands struggling for relevance and market share in a changing market. [more]

Virginia Exports: Diversifying for New Saudi Demand
By Grant F. Smith

Virginia has diversified manufactured and service exports to Saudi Arabia during the past five years.  Lower value added export categories, such as tobacco and beverages, have gradually ceded to machinery, computer equipment and electronic components.  Saudi imports currently provide just under 7,000 service and manufacturing jobs in Virginia.  Jobs could reach 10,000 in Virginia by 2013 under a modest growth scenario. However, as already heated Saudi infrastructure development continues to be buoyed by unexpected petroleum revenue windfalls, diversified exporters, such as Virginia, could capture a higher share of opportunities.  The Virginia Economic Development Partnership, with two overseas offices in Asia and one in Europe, should consider whether growing Arab market opportunities justify greater representation in Saudi Arabia.  A savvy regional presence to promote manufactured goods and services trade where Virginia enjoys a competitive advantage could generate an additional 3,500 Saudi export jobs for Virginia's economy.    [more]

Saudi Arabia: Driving Michigan Export Growth
By Grant F. Smith 

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. [more]

Drill Bits and Data Bytes: 
The Texas-Saudi Export Relationship
By Grant F. Smith 

Texas leads the nation in manufactured equipment and services exports for the Saudi energy industry.  Texas exports also include information technology (IT) sector equipment, parts, accessories and services.  In 2003, integrated circuits and data processing equipment led the way while drilling and sinking equipment followed in third place.  The thriving Texas IT economy, led by Dell and EDS benefit as much as oilfield service providers from the plethora of new development projects across Saudi Arabia.  Because of its diverse economy and ability to match Saudi import demand, Texas enjoys a 20% share of total U.S. exports to Saudi Arabia, more than any other state. We forecast that annual manufactured goods and services exports from Texas to Saudi Arabia will more than double to $2.03 billion by 2013.  Manufactured goods exports to Saudi Arabia currently provide 17,000 jobs in Texas. High paying services jobs linked to IT, consulting and legal services support an additional 7,000 jobs as Texas continues send both drill bits and data bytes to Saudi Arabia. Legislation targeting Saudi imports such as the Saudi Accountability Act of 2003 and onerous midnight politicking, such as the Weiner of New York Amendment, threaten Texas exports more than any other state.  The job of "brush cutting" legislative and legal tumbleweeds that choke Texas-Saudi trade has fallen upon a few key Texas legislators and diplomats.   [more]