Mid-East Economic Diplomacy: Expanding U.S. Trade Connections Keynote Address Delivered By Anne W.

Patterson Assistant Secretary for Near Eastern Affairs U.S. Department of State Egyptian Ready-Made Export Council Road Show Luncheon New York City January 15, 2014

I am pleased to be here today. Permit me to recognize our diplomatic colleagues, the Consul Generals of Egypt and Israel who are with us today, and to particularly welcome the Egyptian and Israeli business executives to the United States and to hear more about the work you are all doing together with the American fashion and apparel industry.

At the State Department, we are deeply engaged in managing U.S. foreign relations -- and Middle East issues often dominate our agenda. As you all know, Secretary of State John Kerry is working simultaneously and tirelessly to advance a Middle East peace agreement; to bring about a negotiated settlement of the Syrian civil war; to reach a comprehensive resolution that addresses the international communitys concerns about Irans nuclear program; and to support Egypts transition to democracy. None of these are easy matters, and they are indeed very challenging yet we all know that political talks do not take place in a vacuum. A countrys economic conditions deeply affect popular sentiment and, therefore, the ability of national leaders to take difficult decisions this is no less true for the United States and other large economies than it is in the developing world. While diplomatic engagement focuses on the actions of national leaders, American diplomats also
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focus on the ways in which economic affairs and the economic ties among nations affect policy options.

Over the past fifty years, in the Middle East and around the world, the United States has contributed enormously to health, water, agricultural, telecommunications and critical infrastructure projects. Our security assistance helps strengthen our partnerships to keep the peace and more recently to fight extremists. We support programs to strengthen democracy and universal rights for both men and women.

Israel and Egypt have been major beneficiaries of our foreign assistance programs. But what Israel and Egypt are doing here is a very important, and an often neglected, factor in building peace and economic stability -- the building of effective business ties.

The United States has also done much to support economic globalization, in which your industry has played a remarkable role. The flexibility of apparel manufacturers today to move globally among suppliers promotes high standards of efficiency and quality. You benefit and so do your customers, the consumers. As we look to the future, the enormous value that we all obtain from interlocking networks of investment and trade will draw partners like you in this room, and in our respective countries, closer together.

In other words, trade and business engagement between the United States and the Middle East helps strengthen the bonds created by political agreements and between people -- a virtuous cycle of investment, growth, profits and jobs in which everyone benefits.
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We are living in an era in which the resources available to governments are dwarfed by the vast sums required to build the infrastructure and spur the economic growth citizens expect from their governments. This is as true in the United States as it is for the countries of the Middle East -- we all recall how important job creation was as an issue in our 2012 elections. Today, across the Arab world governments are facing the frustrated expectations of large populations of unemployed young people, mostly young men. The families of many young people have invested their limited resources and their aspirations for better lives in education, but have often found that there are no jobs available to recent graduates.

One of my own priorities as Assistant Secretary for this region will be to make progress on economic and trade issues, which are critical to advancing stability and prosperity in the region.

The United States and Israel are very close friends and partners across a broad range of interests. Our strong government ties rest on very strong support from people in both our countries and, as Israel has developed economically over the years, by growing business ties. Our commitment to Israels security and our desire to prevent further regional conflicts are important reasons why the United States is deeply engaged in Middle East peacemaking.

For over 35 years, since the signing of the Camp David accords between Egypt and Israel, the United States, Israel and Egypt have been close partners in strengthening Middle East security and in a search for a final peace agreement. At the same time, the U.S. and Egypt have developed a strong partnership based on shared interests and values.
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The upheaval across the Arab world that began in 2011 changed the region permanently. Although the regions political volatility emerged from many political grievances, these revolutions were also sparked by a deep anger at what people believed were their bleak economic prospects. They began to demand that their governments take urgent and tangible action to support them. Although much about the Arab Spring was unique to the region, its worth noting that there were also significant demonstrations in both Israel and the United States in 2011 and 2012 based on concerns about jobs and economic issues. Empowered as never before by new technologies to understand the changes taking place in other countries, and now able to communicate and organize themselves using social media, young Arabs will never again be silenced. Across the region, nearly 60% of the population is under 25 and over a quarter of its working-age young people are unemployed. Egypt, the largest Arab country and an important cultural and intellectual leader of the region, is experiencing rapid population growth. Egypts 2011 revolution reflected, in part, a popular anger that had been building for years against a government that was unwilling or unable to address aspirations for better lives and for a greater say in the countrys decision making.

Egypt has been going through difficult times these last three years. As was made clear by President Obama and Secretary Kerry, the United States intends to continue our long-standing support for the Egyptian people -- and their desire to build a democratic government that both protects their universal rights and helps address their critical economic challenges.

The current government set forth a roadmap to complete Egypts transition to democracy and is currently moving forward on the first step in that transition by having Egyptians vote on the new draft constitution. We hope that this is a process that the Egyptian people can respect as authentic, and then build upon it. The roadmap anticipates parliamentary and presidential elections later this year. I have seen how important elections have become to Egyptians, who genuinely claim the dignity of popular sovereignty -- that after years of authoritarian rule, their voices will be heard.

The Egyptian people will be authors of their own destinies and choose their own leaders and we as friends, will do our best to support them, as President Obama recently promised. The success of Egypts transition will depend on the practices of the government to be elected this year. Egypt wants an open, pluralist political process that seeks broad support and tolerates peaceful dissent if it hopes to reignite growth and create jobs. Criminalizing political opponents or conducting politically-motivated trials can undermine peace and stability and security Egyptians seek. Meanwhile, Egypts friends in the international community will focus on what we can to create new jobs. We are doing this through several different strategies, including discussions with the international financial institutions, with Egypts friends in the Gulf region, through the restructuring of our bilateral assistance relationship, and by encouraging investment and trade in Egypt.

One important economic challenge facing many of the countries in the Middle East is instability, which exacts an economic toll. But, the regions economic potential is very impressive. It is widely known, for instance, that Israel has a highly
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flexible and innovative economy which has propelled it to a global standard. It is an economy well-positioned to expand after a final peace agreement opens vast new markets for its products and know-how. Each year in Israel there are 500+ venture financings and over more than 1000 angel financings. There is huge pent up demand among Israelis and among foreigners to participate in Israels StartUp Nation culture. We are also optimistic about Egypt, which enjoys a strategic location; a diverse economy; a large and young workforce; a large and growing market; many successful, internationally-oriented companies; and an impressive roster of U.S. and global companies confident in its longer term future.

I am repeatedly told by CEOs and executives of American companies working in Egypt that in spite of the political upheavals that have taken place in recent years, there has been very little disruption of critical business activities. Deliveries have largely continued on time and there has been very little labor unrest in this sector. Nearly all of these companies are looking for opportunities to expand operations in Egypt, but their Boards of Directors have been concerned that Egypt may be a risky bet in the near future. Many businesses, including some in your industry, have pulled back from Egypt during the last tumultuous year. Egypt will need to take steps to reassure investors, but again, Egypts political changes have not substantially affected deliveries.

The American fashion and apparel industry plays an extraordinary role in the global economy. We are well aware that U.S. garment purchasers can source their products in any number of venues but we understand that products produced in Egypts Qualifying Industrial Zones can compete on both price and quality. Although political leaders signed the Camp David accords, your industry is helping to secure those accords by combining superior Israeli and Egyptian materials. The
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T-shirts, jeans, sleepwear and other ready-to-wear clothes you produce are helping build business relationships and ties between Israel, Egypt and the United States. These are exactly the benefits that Congress anticipated when they authorized the QIZ program, in which you participate. The QIZ program accounted for nearly 50 per cent of Egypts exports to the U.S. last year. I was very surprised at that number, but it has been growing dramatically. It has directly created jobs and profits in all of our countries. The Egyptian government estimates the program has created nearly 300,000 jobs. We believe that the QIZ program expansion made last year -- permitting all current and future factories in the existing zones to export duty-free to the U.S. and extending the program to Minya and Beni Suef in Upper Egypt -- is creating even more jobs and expanded production capability. I intend to look at ways we can continue to expand this program and others that will successfully promote trade and investment between Egypt, other countries in the Near East, and the United States - because our experience to date has been so positive.

Looking to the future, there are things that the Egyptian government can do to prepare the groundwork for a deeper trade relationship across the region and with the United States. For example, it could move forward on the three components of the Middle East and North Africa Trade and Investment Partnership -- a trade facilitation agreement, investment principles, and information and communication technology principles.

For those of you who have deferred travel to Egypt in the past year, I will mention that the State Department has revised the language in our Travel Alert for Egypt, cited by some corporate risk insurers to block travel to Egypt in some of your industries. I encourage you to visit Egypt for both business and pleasure.

Specifically, I encourage the American companies here today to participate in the high-level trade mission planned by the U.S. Chamber of Commerces U.S. Egypt Business Council and the American Chamber of Commerce in Egypt planned for June. The last major U.S. trade delegation had unprecedented access to Egypts top leadership and helped promote the importance of the bilateral economic relationship as well as to highlight business opportunities there.

I know that some members of this delegation will be coming to Washington later this week, where you will also be welcomed at the State Department. I hope that you will tell people about the role that the QIZ program has had in promoting exports to the United States and in providing export opportunities and jobs in your countries. Ladies and Gentlemen, the people of the Middle East deserve our support and can meet global quality standards and ensure on-time deliveries. By expanding your sourcing of ready-to-wear clothes this industry can make important contributions to Middle East peace and security. Thank you very much.