Panels I and II of a Hearing of the Senate Finance Committee

SECTION: CAPITOL HILL HEARING

HEADLINE: PANELS I AND II OF A HEARING OF THE SENATE FINANCE COMMITTEE

SUBJECT: UNITED STATES ECONOMIC AND TRADE POLICY IN THE MIDDLE EAST

CHAIRED BY: SENATOR CHARLES GRASSLEY (R-IA)

LOCATION: 215 DIRKSEN SENATE OFFICE BUILDING

WITNESSES: PANEL I SENATOR JOHN MCCAIN (R-AZ)

PANEL II GRANT D. ALDONAS, UNDERSECRETARY OF COMMERCE; ALAN P. LARSON, UNDERSECRETARY OF STATE

BODY:
SEN. MCCAIN: Thank you very much, Chairman Grassley. And, Senator Baucus, thank you for your partnership and thank you for your kind words. I thank you for the opportunity to testify before you briefly regarding U.S. economic and trade policy in the Middle East.

I want to start out by congratulating the committee on its many trade-related successes this session. The many actions taken on trade policy since the passage of the Trade Act of 2002 are to be commended, from the expedited consideration and approval of free trade agreements with Chile and Singapore last year, to the consideration perhaps in the not-too-distant future of the recently concluded negotiations with Australia and Morocco. In addition, the benefits available to eligible nations covered under the African Growth and Opportunity Act are to be extended and possibly expanded.

Mr. Chairman, the United States is steadily gaining its leadership role on trade, despite some counterproductive protectionist actions. However, we are feeling the after effects of those actions, and support for free trade is no longer as robust and vocal as in recent memory.

With your leadership, Mr. Chairman, and that of Senator Baucus, I believe it's possible to generate the support necessary to continue to approve strong trade deals that not only benefit the United States and promote market liberalization and transparency with our trading partners, but also provide them incentives to bring about political and social reform when necessary. Such a necessity clearly exists in the greater Middle East. Tom Friedman has written, "Many Arab economies are dominated by state oil revenues and state companies with private enterprise very weak. Therefore holding onto or being close to power are the only pathways to wealth. Control power, control wealth."

Breaking the link between political power and wealth by creating a larger private sector independent of political control is an essential component of our efforts to help build democracy in the Middle East. As we've witnessed in Bahrain, with whom we are in the final FTA negotiating stages, there is a willingness to being this separation, as evidenced by laws now on the books. But perhaps the more crucial step will be the execution of those laws. We must remain vigilant on this issue to ensure those laws are enforced, so our own financial services sector and others will be able to operate in a truly transparent and open market.

A key question for American policy is how to encourage such long overdue political, economic and social changes in the Arab world. I believe we must expand our range of economic, cultural and political tools to help give the people of the greater Middle East a stake and a voice in how they're ruled, with greater levels of democracy and prosperity serving as an antidote to the hatred whose malignancy was brought home to Americans on September 11th, 2001.

Trade preferences can help build prosperity in the Arab and Muslim worlds, independently of state power. It can help advance our political objective of more representative, accountable and transparent rule. We have successfully pursued trade preference programs with the nations in sub-Saharan Africa, the Andean region, and the Caribbean Basin with tangible results. Would anyone argue today that the greater Middle East is less important?

The bill that Senator Baucus and I introduced would establish a base line of trade as an incentive to those countries that don't engage in activities that undermine our national security or foreign policy interests, and support a peaceful resolution of the Israeli- Palestinian conflict, among other things. This bill is designed to provide a reliable and evenhanded approach toward improving relations with the Middle East through greater economic independence.

It's not a panacea developed to solve overnight all the problems that exist in relations between the U.S. and the nations of the greater Middle East.

We need to send a clear signal to the region that we're serious about finding peaceful solutions to the fires that have been fanned over the years, in part because of closed markets.

Engaging the region on this level will help spur increased investments and trade, which can lead to a reduction in the risk posed by the severely restricted economic system under which a number of nations in the area operate. Reaching that goal would be no small achievement, given the likelihood of tremendous population growth and an average unemployment rate in the region hovering around 22 percent, an obvious recipe for disaster.

In an era when our trade negotiators expressly pursue trade agreements to advance broader foreign policy interests, liberalizing trade with key partners in the Middle East, Turkey and South Asia should be a strategic priority of the United States.

We all understand the critical need to engage the region and promote stabilizing reforms. I support the president's vision and believe that extending preferences to eligible countries complements that vision by providing immediate tangible benefits.

Mr. Chairman, I want to thank you and Senator Baucus for allowing me the opportunity to be here in part of your busy schedule, and I thank you for pursuing these efforts, these continued efforts, which you have been successful in. And I wish you every future success. And what you are doing, I think, will benefit our children and the children of the nations which will benefit from these agreements.

I thank my colleagues.

SEN. BAUCUS: Thank you very much. Thank you, Senator, very much for your leadership. It makes a big difference and it's going to help a lot.

SEN. GRASSLEY: We obviously agree with your comments and the thrust of your action.

SEN. MCCAIN: Some of these nations may even like to use ethanol over time. (Laughter.)

SEN. GRASSLEY: They must not be operating through American oil companies then. (Laughter.)

SEN. MCCAIN: Thank you, Mr. Chairman. Thank you very much.