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It's Economics, Stupid: U.S. Could Hold the Key to Mideast Peace


It's difficult to find much cause for optimism in a meeting that praises the intifada just days after a Palestinian bomber slaughtered a room full of Israelis celebrating Passover. But such is the state of the Middle East that the Arab League summit in Beirut last week still qualifies as a glimmer of light.

Despite its dreary praise of the Palestinian war against Israeli civilians, the league took a historic step, on paper at least, by offering peace for land: "normal relations" between the Arab world and Israel in return for an Israeli withdrawal from all territory occupied since 1967 and the creation of a Palestinian state. True, the initiative remains so deficient of detail that the State Department refused to categorize it as a plan or a proposal; it was, said the department's spokesman, only "a vision of peace." It's far from clear that the Arab nations are even committed to pursuing it.

Yet the Bush administration understandably wants to support this potential opening, one of the only positive developments amid the daily carnage. "Behind the [Arab League] statement, there is a lot that needs to be defined," said one senior administration official. "But it is something we absolutely want to move forward."

The question now is how to breathe more life into this pale ember. President Bush will spotlight the idea this month as he hosts its architect, Saudi Crown Prince Abdullah, at his ranch in Crawford, Texas. But as the conflict between Israel and the Palestinians spirals toward absolute catastrophe--touching a lower circle of hell almost every week--the United States may need to offer something more tangible than diplomatic exhortation.

To encourage the Arab nations to begin genuine discussions with Israel--and sincere efforts to restrain the Palestinians--it may be time for the administration to advance a vision of its own. The deal for the Arab world would be straightforward: A new political relationship with Israel could bring a new economic relationship with the United States.

It's an idea long overdue. Economic stagnation isn't the principal cause of the Arab world's difficulties, or of its widespread hostility toward America and Israel. But economic failure compounds all of the region's other problems. For a generation, while other developing nations have raced forward, the Arab nations have been stuck in the sand. In the 1950s, per capita income in Egypt was comparable to South Korea's; today it's less than one-fifth as high, according to a recent Council on Foreign Relations study. Over the next decade, the study projects, the Arab states aren't expected to grow fast enough to reduce unemployment rates that reach a debilitating 20% in some countries and infect all of these societies with discontent.

The Arab states have many economic problems. Many are too dependent on oil. Almost all suffer from the refusal to trade with Israel, the region's most dynamic and modern economy. School attendance is low, illiteracy is high.

But a significant part of the problem is that, except for the trade in oil, the Arab nations have isolated themselves from the world economy. Across the Arab world, trade barriers are among the world's highest. Tariffs on imports commonly exceed 20%, notes Edward Gresser, director of the project on trade at the centrist Progressive Policy Institute. Most Arab countries also impose crippling restrictions on international investment.

The result has been to shut off the Arab world from trade and investment that could create jobs, expand opportunity and relieve despair. Twenty years ago, the Middle East accounted for 13% of world exports. Now it's down to less than 3%. Meanwhile, says Gresser, "all the Arab countries, plus Pakistan and Iran and Afghanistan, have received less foreign investment since 1985 than Singapore alone."

As part of this self-isolation, the Arab nations' economic ties with the U.S. have also withered. Excepting Israel, the Middle East today accounts for only about 2% of American trade. After Saudi Arabia, the U.S. takes in more exports from Iraq (under the U.N. oil-for-food program) than any other Arab country.

Thus the opportunity for the U.S. to offer a swap of its own, linking trade and peace. In a compelling recent paper, Gresser proposed a visionary bargain for the Arab world: In return for support in the war on terrorism, progress toward economic and legal reform at home, and renunciation of the Israeli boycott, the U.S. would offer duty-free access to the American market for agricultural products and light manufacturing goods, many of which we now limit with heavy tariffs. It would be easy, Gresser notes, to add to that list of conditions the establishment of "normal relations" with Israel, as the Arab League proposed last week.

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