I enjoyed the last MEED conference in Abu Dhabi in March. At that time, oil prices were at about $10 a barrel. We knew that prices would not last long at that level, and, as usual, history repeated itself. I know that many of you are breathing more easily at the current level of prices, caused by a partial economic recovery in Asia and production cuts by OPEC.
I think we all agree, however, that the recent price rise does not make the calls for economic reform any less relevant. For one thing, prices are unlikely to go much higher. As MEED itself has pointed out, current prices may trigger another investment cycle, thereby bringing still more oil - and gas - onto the world market. Over the longer term, the technological advances that have been pushing production costs down in relative terms for the last fifteen years will continue to operate.
What the recent price rise does do is to make the hard choices that are sometimes necessary to implement reform somewhat easier. Subsidies don't have to be cut as drastically, and other government services remain viable. Thus, now is the time to move on steps to strengthen Gulf economies when a certain flexibility is possible.
In fact, I would suggest that we are in a period of real opportunity for the region to create the conditions for what might be called a New Gulf Economy. Based on private-sector efforts, supported as necessary by government action, this new economy would diversify the region, create a much more robust economic base, modernize its corporate sector, create new jobs and be significantly more attractive to capital, both foreign and domestic.
Will creating this new economy be easy? Certainly not. Will it take a sustained effort? Definitely. But recent statements of regional leaders are encouraging. Increasingly, Gulf leaders appear to be committed to overcoming the vested interests that have heretofore impeded real economic growth. For example, Saudi Crown Prince Abdullah said last December at the GCC summit, "We cannot live isolated from the world, which is at present facing a strong and overwhelming current, the current of globalization, that advocates the opening of borders and the removal of obstacles to the free movement of peoples, ideas, capital and goods."
Nor is the crown prince alone in his views. The sultan of Oman has embraced the need for globalization and, together with Saudi Arabia, is leading his country into the World Trade Organization. The emir of Qatar has opened his country to foreign investment in energy and all other sectors. Similarly, the new emir of Bahrain has moved forward to conclude a Bilateral Investment Treaty (BIT) with the United States that will codify the rights of U.S. investors in Bahrain - another "first" for the Gulf. The BIT will be signed on September 29 in Washington by Bahrain's finance minister and our U.S. trade representative, Charlene Barshefsky.
These examples of forward-looking Gulf leaders demonstrate that there is a growing consensus about our common goal: promoting greater prosperity by reducing trade and investment barriers and increasing the flow of trade and investment between the United States and the Gulf. However, we all know that there is room for improvement. We are proud that the United States is the single largest investor in the Gulf, but $5 billion is still relatively small, and only about one percent of all foreign investment goes to the Gulf. We are proud also that we are the Gulfs number-one trading partner, but $25 billion is also relatively small and, in fact, we trade more with Singapore than we do with the entire Gulf.
How can we increase trade and investment? This audience is well aware of the Gulfs importance to world energy supply, and this sector will continue to have sizable investment needs. The Gulf contains more than 660 billion barrels of oil reserves, roughly two-thirds of the world's total, and accounts for about one-quarter of its oil production. In addition, it holds about 1,600 trillion cubic feet of gas reserves, one-third of the world's total. As we stand at the doorstep of the next century, these impressive resources will be needed more than ever in order to meet rising demand, especially in the face of gradually declining output from non-OPEC producers.
Earlier this year, Saudi Arabia's petroleum minister, Ali AI-Naimi, estimated that Arab oil-producing countries would have to add 20 million b/d of capacity by 2020 in order to meet future world oil demand. Of this amount, more than 6 million b/d of additional capacity would be needed in the kingdom. Other countries boasting large oil and gas reserves, such as Kuwait and Qatar, also will need to augment their production and exporting capabilities to keep up with the needs of rapidly growing energy markets such as China and India.
In order to accomplish this task, outside capital and technology will be needed in both the upstream and downstream energy sectors in the Gulf. In the past year, we have seen the first moves towards attracting foreign investment in the upstream sectors in the Gulf. Kuwait will soon offer five northern oil fields to investors in the hope that they can raise production there by 500,000 b/d. Such investment will be crucial to the success of the government's goal of boosting production capacity into the 2.5-3.0 million b/d range by 2003.
Saudi Arabia also has given signals that it may be willing to open its upstream and downstream sectors to foreign investment in the future. This opening likely will be a slow process, and probably will focus initially on projects to increase the use of gas as feedstock for petrochemical plants or in power generation. In the long term, however, I believe such outside investment not only in the downstream, but in the exploration and development of new oil fields, will be essential for both the kingdom and the new Gulf economy.
Outside capital also will be needed for new, cutting-edge projects to tap new export markets. One such initiative is the proposed Dolphin Gas Pipeline project, which would take gas from Qatar's North Field to consumers in the Indian subcontinent via Abu Dhabi and Dubai.
I believe that both U.S. companies and the regional governments have important, shared goals for energy projects in the Gulf. Each party wishes to apply new technology in the most effective way possible in order to maximize the economics of the given project, whether it be a new oil-field development, the construction or operation of a gas-processing plant, or the de-bottlenecking of a refinery. Each side can benefit greatly from the other, and we look forward to working with Gulf countries to develop their energy resources, as has been proposed already by the leaders of Saudi Arabia, Kuwait and Qatar.
Economic diversification prospects in the region are also bright. Bahrain is developing its own bauxite-processing industry. We hope investment code reforms move forward in Saudi Arabia so that its mining potential can be fully developed. American tourism has yet to truly discover the Gulf and would flourish in its warm winter climate. Oman, the UAE and Yemen already have fine ports which are acting increasingly as entrepots for the transshipment of goods to and from Asia. Gulf nations are considering how to develop information technology industries. Trade liberalization will ensure that the Gulf can compete in the high-tech, agribusiness and fish-export sectors. In short, while full integration into the world economy is a challenge for any country- including the United States - the Gulf does have many advantages going for it.
So the question clearly is, what can we and our Gulf partners do to further develop trade and investment?
MULTILATERAL FORA: WTO
We continue to encourage Saudi Arabia and Oman to adopt the necessary reforms that will enable them to join their GCC partners in the World Trade Organization, and we encourage all GCC countries to adopt the voluntary as well as mandatory codes negotiated at the WTO. Implementation of WTO provisions regarding trade liberalization will result in a number of trade benefits. First, membership will protect against discriminatory treatment of Gulf exports. Second, membership will require economic reforms that will result over time in more competitive and prosperous economies. WTO membership, for example, will simplify customs procedures to permit exports and imports to circulate more freely. We look forward to making progress on outstanding issues at the WTO meeting in Seattle, including in the areas of global liberalization and transparency in government procurement.
BILATERAL TRADE PROMOTION
We also plan an intensive program of bilateral trade promotion in the Gulf. Secretary of Commerce William Daley will lead a trade mission to the Middle East in mid-October. Accompanied by U.S. business leaders from a variety of sectors, including energy, pharmaceuticals, agribusiness and financial services, the secretary will be in Saudi Arabia and the UAE. We will also encourage trade mission members to travel to other Gulf countries to seek out commercial opportunities.
Last February, the Commerce Department organized an environmental trade mission to the Gulf that resulted in millions of dollar’s worth of business. The department will sponsor a conference on privatization in January 2000 in the UAE that will attract potential U.S. investors. In 2000, Deputy Assistant Secretary of Commerce Molly Williamson plans to accompany a trade mission to the Middle East that will include the Gulf. Molly is attending our conference and looks forward to discussing her mission with you.
Reverse Trade Missions
Our department also will continue to help Gulf buyers and investors come to the United States to meet with potential partners. We look forward to assisting Gulf business leaders at trade shows including COMDEX in November and the Consumer Electronics Show in January, both in Las Vegas, and the Off-Shore Technology Show in Houston in May.
Our department's work on standards has also been widely recognized as critical to increasing U.S. trade with the Gulf. We shall continue to post a representative in Saudi Arabia, who is working with the Saudi and Gulf governments to bring standards in line with international norms. For more than 10 years, a Department of Commerce representative has assisted Saudi Arabia to conform with more than 1400 international standards, most of which have also been adopted by the Gulf.
Commercial and Economic reform
Trade-promoting missions are valuable tools for businesses in the United States and the Gulf. Yet we must recognize that only through broad-based economic and commercial reform throughout the Gulf can the region reach its full commercial potential. The principal government-to-government vehicle for accomplishing this work is the U.S.-GCC Economic Dialogue, which I have had the honor to co-chair since 1995.
Since 1985, the Dialogue has consisted of frequent meetings between representatives of the U.S. and GCC governments. In the last few years, we have emphasized the role of the private sector as the principal and most viable route for creating economic growth. Shortly after the MEED meeting last March, we held an interim meeting of the Dialogue, to which we invited for the first time representatives of the U.S. and Gulf private sectors to discuss issues of mutual concern, both among themselves and with government officials. Business persons from both sides set out an ambitious agenda of future work aimed at improving the business climate.
Secretary Daley will open the next Dialogue meeting in Abu Dhabi in mid-October with UAE Minister of Energy and Trade AI-Qassimi - a reflection of the importance that we continue to place on this forum - and we expect increased Gulf-based private-sector input into this meeting as well.
ISSUES OF CONCERN
Based on our discussion with U.S. business leaders, who have raised concerns with us about business conditions in the Gulf, we plan to raise the following issues:
Excessive Government Role in Business
Investors will not rush into countries where they have difficulty getting visas, are forced to undergo laborious customs procedures, have to deal with arbitrary commercial standards, or are constrained in choosing their own commercial representation. Investors will not make large investments unless they can have a controlling interest or adequate assurance of the safety of their investment. To their credit, several Gulf countries including Bahrain, Qatar and Oman are liberalizing significantly in these areas. I predict they will reap the benefits, and I hope all GCC states will follow, recognizing that the less state intervention in day-to-day commercial operations, the better.
Inadequate Legal Structure
Investors need to know that their intellectual-property rights (IPR) will be protected if they invest in the Gulf. When pirated materials circulate illegally, no company will build a plant or hire personnel to represent them. To this end, we congratulate Bahrain, the first Gulf country to be removed from the U.S. special-watch list. We encourage Bahrain and the other GCC countries to take all the steps necessary to become compliant with their WTO obligations by the end of the year so they can get off and stay off the special-watch lists. IPR protection is essential if the Gulf is to reap the maximum from the revolution in information technology.
Investors also will be wary of entering a country with an inadequate infrastructure of telecommunications and transportation. Privatization of telecommunications, ports, roads and railroads will help ensure a better infrastructure while creating profits for the government as it sells its assets. Many Gulf nations are seeing the value of privatizing infrastructure, yet much work needs to be done.
We also welcome and support the GCC's commitment to a free-trade area and a customs union by 2001. Regional trade agreements can be part of the process of reducing trade barriers and integrating into the global economy. They are not a substitute for globalization but a parallel step or building block, as we have seen in South America, Southeast Asia and other parts of the world. As Crown Prince Abdullah said in his speech at the GCC summit, what is needed is a "united Gulf economy that can stand fast and compete with other large economic entities." Above all, competing with other large economic entities means competing for foreign investment. Foreign investors, after all, want to use their presence in one GCC country as a convenient entry point into the rest of the GCC market. Regional integration will make that possible.
To that end, the U.S.-GCC Economic Dialogue will discuss at its next session in the UAE a draft joint paper on regional integration. The paper will treat the already considerable achievements that have been made, including free trade in goods and services, common customs procedures and coordinated commercial standards. Our discussion will identify benefits and obstacles to further integration.
Last but not least, U.S. investors and exporters need to know that they are dealing with a level playing field. A lack of transparency can come in many forms and not just the more obvious ones such as corruption, which we are fighting through the OECD and other institutions. Nontransparent measures can also include arbitrary "tax" measures that are not part of contracts and the closing of companies for specious reasons.
In conclusion, I want to underline the importance that the United States places on its economic ties with the Gulf. President Clinton, Vice President Gore, and Secretary Daley have met with their counterparts from all Gulf countries. I can tell you personally that they have come away from these meetings convinced that the United States and the Gulf together can fashion a future that will be secure not just in terms of peace, but also in terms of mutual prosperity. Those of you at this conference share this vision. Those of us in the U.S. government look forward to working with you together to make it a reality.