KIME Mideast Studies
Korea Institute of the Mideast Economies
Economic Cooperation of Korea to the Middle East: Retrospect and Prospect
The globalization and information-communication industry have been extended rapidly all over the world, demolishing geographical borders of the countries since 1990s. Rising above ideology and the border among countries, undiscriminative free trade is spreading under the influence of WTO system. The International labor market has been also greatly varied owing to the changing pattern of international division of labor. The international labor migration had proceeded from the low wage countries to the high wage countries before 1990s. For this reason, recently multinational companies seek another way to escape tariff barriers and to invest directly in the low wage countries in the form of joint-venture. This way is the second-best policy to raise the productivity and the revenues. Moreover, the world economic system faces new tripola system consisting of US, EU and Japan after the Gulf War. Because of this, new era which is co-existing with globalization and regionalism , and the mixed society between open market and trade barrier appeared in the world.
As you see, the Middle East has variety of races, languages, religions and geographies. It also contains more than 20 countries which are connected with three continents of Asia, Africa and Europe. In addition, the Middle East coexists with Christianity, Islam and Judaism as a cradle of religion. The Middle East also has large oil resources which is a major driving force in the modern industry.
Korea has emerged as one of the most successful NICs (Newly Industrializing Countries) and an inspiration to other developing countries. It has pursued consistently an Outward-Looking Foreign Trade Policy since 1962 and became the 12th largest trading country in the world. Korea also became the 29th member of OECD, the second Asian Country on October 11, 1996.
Korea's remarkable economic success is often cited as a model of sound economic planning, efficient resources allocation, and effective cooperation between the government and business enterprises. Now Korea witnesses radical changes of both domestic and world economic situations. Therefore, Korea must find a way to solve various problems besetting its economy, which range from high cost of wage and lagging technological innovation. On the international side, Korea faces uncertainties stemming from globalization and international environmental changes. Thus Korea's economic cooperation with resources rich countries is inevitably needed. The way how Korean human resources can harmonize with the natural resources of the Middle East will be the most important factor to cooperate two regions together as a favourable partner.
In this respect, this paper intends to deal with Korea and the Middle East in the new world economic order; Korean economy in the challenging and globalization era; the Middle East and its potential for economic development; and retrospect and prospect of economic cooperation between Korea and Middle East. Considering a wide scope of the Middle East, my study puts its main emphasis on comprehensive issues rather than detailed regional subjects.
1. Changes of World Economic Order after the Gulf War
The present stage of world order after the end of the cold War displays no simple pattern. The United States is no longer hegemonic over the capitalist economy in the manner that it achieved in the 1940s, 1950s, and 1960s. But in some fields, particularly the military and the cultural, its dominance is greater in the 1990s than it has ever been. The collapse of Communism and the disintegration of alternative development strategies in the Third World has reunited the global political economy around the ideological principles of the United States. Meanwhile regionalism is in part a response to this situation. The United States, the European Union, and Japan might use the undoubted economic dominance that they enjoy in their regions to establish a political and security framework and a set of economic institutions which promote prosperity and development through trade, investment and aid. If such regionalist projects embrace open regionalism, they would still be compatible with the pursuit of policies at the global level through the G7 to stabilize the world economy and maintain economic growth(Andrew Gamble and Anthony Payne, 1996; 260-261).
Any way, the Gulf War may have marked the return of American unipower system, but it also demonstrated the need for the United States to exert its leadership as part of a coalition. The Gulf War was but one example of the types of threats the world will confront in the future. These issues will pose problems for the traditional pattern of U.S. hegemonic leadership, because they require collective leadership and policy coordination(Yoichi Funabashi, 1992; 68).
Although the Middle East crisis is a reminder that can't forget security issues, it is clear that the relative importance of security matters is dealing as compared with economic issues. The status of countries will be determined in the future much more by their economic capacities than by their military prowess. That dramatically enhances the role of Japan and an economically united Europe and sharply reduces the role of the Soviet Union. The other transformation is the change in the underlying economic capabilities that the payments at the time of the Gulf crisis also reflect. By the end of this decade, and maybe sooner, a truly Tripolar World Economic Structure will emerge, with sharing of burdens and responsibilities among a Unified Europe (EU), Japan, and the United States. America will no longer dominate. A United Europe will become the world's largest market and biggest creditor nation and a leader in many key technology. The Big Three of economics, therefore, will displace the Big Two of nuclear power(Challenge, 1990; 17). The most important thing is the appearance of the Bloc Economy that the Big Three ever had. European countries formed a single EU market, United States is now forming NAFTA with Canada and Mexico, and Japan, even though hard to organize it, is planning East Asia or Pacific Economic Community to cope with regional protectionism of the world trade. In the future, Regional Economy will play a great role in the world trade with the Big Three.
2. Challenging of Korean Economy in the World Economic System
The most challenging task that the Korean economy faces today is how to overcome the protectionism and economic regionalism that is now prevalent in the world economy. In this regard, the new Korean government puts much emphasis on establishing a basic orientation for foreign trade policies to correspond to ever changing international conditions. In the case of the Korean economy, which has a high degree of dependency on foreign transactions, it is almost impossible to separate domestic policy and foreign trade policy because these policies are so closely interrelated. Therefore, the direction that the international economic order takes, which is strongly influenced by the three economic superpowers, the U.S., Japan, and the European Union, will have a great deal of influence on the Korean Economy(The IPE program, 1995; 51).
Prof. Cae-One Kim urges that Korea's interest in the tripolar economic system led by the US, Japan and EU as follows. First of all, this system playes a major role in almost all areas of the world and Korean economy: from trade and capital movement, to finance and technology cooperation. Therefore, it is obvious that Korea's relationship within this system will have a great impact on its economic development. In Korea's experience, each economic bloc shows some different and unique characteristics in its relationship with Korea. For example, the U.S. is Korea's biggest trade partner, especially in export, but Japan is the country from which Korea imports the most. The EU, despite its important role in international trade, accounts for a very small portion of Korea's Trade. On the other hand, the U.S. and EU play a major role in the areas of capital and financial cooperation, and Japan in the area of technology cooperation(ibid.; 53-54). We can see at Table 2-1. that Korean trade has a high degree of dependency on the exports to U.S. and the imports to Japan.
The major actors are the three economic super powers. Their arbitrary and unilateral foreign economic policies sometimes cause confusion in the world economy and have a significant impact on Korea's foreign trade. Because Korea is heavily dependent on the U.S. and Japanese markets, their mutual relations and game plans are inevitably major concerns for Korea and other small economics(ibid.; 54-55).
Table 2-1. Major Trading Partners of ROK (% of total trade)
Source: EIU, 1994, EIU Country Profile; South Korea and North Korea 1994-95, P. 44.
3. Middle Eastern Economic Order after the Israel-PLO Peace Talk
The Middle East has been faced with its new era in accordance with the Peace Talk of the Middle East. Israel and Palestinians that have maintained hostilely relation over 45 years signed the bilateral Palestinian autonomy plan on Sept. 13, 1993. Iraq's status was weakened in the Middle East due to the peace talk between Israel and PLO. The US could secure the hegemony that enabled her to manage the other Arab states in a better position. Except Iraq after the peace talk between Egypt and Israel in 1978, the Middle East had no real country that could act as a spokesman of Palestinians. The background of Iraq's survival was Iraq's will to be a spokesman of the Arabs against Arab-Israeli conflict. This situation provided to Iraq an opportunity that could be supported by Jordan, Yemen, Libya and PLO during the Gulf War of 1991. On the contrary, the neighbour Arab countries, especially Egypt and GCC countries with the western allies turned away their face from PLO. PLO had suffered severely from economic difficulty with UN's economic sanctions against Iraq. This situation, however, was changed with the peace talk between Israel and PLO. In Palestinian issues, Egypt and Iraq are no longer direct partner to solve it, because PLO, an apple of discord of the Middle East, joined hands with Israel and got out of the reconciliation table directly. Iraq and Egypt had lost their specified duty as a spokesman of the Arabs and now are in the face of a new era for transformation that they can remain the leading nation among the Arabs(Seong Min Hong, 1994; 19-21).
In accordance with the Israel-PLO peace talk, economic order in the Middle East brought out various changes. After the Gulf War, PLO had been suffered from economic difficulties due to the UN' s economic sanctions against Iraq. PLO that is a key factor of the conflict in the Middle East selected Israel herself and turned her back to Iraq. Furthermore Israel is expecting to find new friends in the neighbour Arab countries.
These caused increased Iraq's isolation in the Middle East and the other side Israeli status rose. Iraq has been suffered from severe financial embarrassment aftermath economic sanctions. This prolonged situation caused that Iraq is eager to close her hand with US and try to solve the economic difficulties including economic rehabilitation. US was pressed with time table at the time of the Gulf war, however, Iraq is pressed with time table now. As for time affairs in the Middle East, US is in a better position rather than Iraq as time flies. Current issues of the Middle East is the removal of economic sanctions against Iraq in the international oil market. But its removal depends on US attitude that act as a UN's spokesman. US, therefore, takes advantage of any current available means in the negotiations with Iraq.
Certainly Iraqi situation on September 3, 1996 brought out the changes in the Middle Eastern economic order. Iraq was waiting the expectation to remove UN's economic sanctions after the Gulf War. Really UN agreed to remove it on May 29, 1996. Finally the removal act was approved by UN on July 18, 1996. Under the hopeful conditions, US attacked Iraq on September 3, 1996 on account of Iraqi repressing to Kurds. This situation was different from the impacts of the last Gulf War. All the Arab countries including Egypt and GCC countries supported Iraq under banner of the non-intervention in the domestic affairs. Besides, Iran and Turkey joined in this trend. Iraq was regained its proud and the Arabs began to unite around Iraq. Thus the economic order of the Middle East is proceeding unclearly till now. Adding this situations, Palestinians and Israelis clashed in Jerusalem on September, 1996. The peace process in the Middle East was threatened by the worst fighting between Palestinians and Israelis in 30 years. At first the summit was to be held in Cairo. But Egyptian president Hosni Mubarak refused to be host unless Netanyahu agreed in advance to some substantive concessions. Washington meetings that Arafat, Netanyahu and king Hussein of Jordan had attended with Clinton was a scriptless meeting. Therefore the issues how to sole this situation is the greatest concerns and tasks in the new economic order in the Middle East.
1. Korean Economy: Past and Present
The 1960s and 1970s marked Korea's great leap toward a semideveloped state, and the 1970s and 1980s saw the transition from semidevelopment to economic maturity in Korea. Can Korea continue to grow rapidly and follow Japan into the ranks of non-western advanced countries? Both Korean and foreign experts have tried to answer this question. Generally, foreigners tend to be more optimistic than Koreans about the future of the Korean economy(Byung-nak Song, 1990; 231). Dr. Cho Soon also argues that Korea can be optimistic about the abundant growth potential of the country. The many good scientists educated abroad can enhance the level of science and technology. There are many good, experienced administrators who can establish order and discipline. And above all, there are people who still work very hard. the Korean people are now, as ever before, demonstrating exuberant energy in their pursuit of economic gain. As long as these motives are guiding economic life, a significant slowdown in economic activity is unthinkable, and the growth of the economy is assured(Cho Soon, 1994; 196-197). Korea has attained the rapid economic growth except 1980 since 1960s. Table 3-1. shows Korea's major economic indicators over the past five decades.
Table 3-1. Korea's Major Economic Indicators over the Past Five Decades
Source: The Korea Economic Weekly, August 21, 1995.
Globalization characterizes today's world economy to the extent that private firms are increasingly carrying out their business on a global scale. Intensifying competition in international markets, globalization no longer confines the economic activities of private firms within national boundaries. Consequently, globalization highlights two trends in the international division of labor: in one, the performance of firms within an industry is increasingly identified with the performance of the nation; in the other, there is a strong interaction effect between the investment strategies and technological sophistication of the firms and changing trade patterns(Honggue Lee, 1996; 4-5). As you see Table 3-2. Korean Firms' Overseas Investment has increased and extended with the open-door policy. The area of foreign investment has broadened steadily all over the world. But it still leaves a problem that Korea's Foreign investment is concentrated with South East Asia and America.
Table 3-2 Korean Firms' Overseas Investment
Source: The Korea Economic Weekly, December 11, 1995.
In short, Korea has achieved its high rate of growth by adopting an export-led growth strategy, which has allowed the country to make fullest possible use of its substantial endowment of human resources and to compensate for the shortage of poorly endowed natural resources. The export-led growth strategy was implemented by an energetic government in collaboration(Cho Soon, 1994; 178). In Korea the stage of extensive growth is over, the country needs a much more liberal approach with respect to international trade and investment. Korea is now exposed to international competition, and the only good way to survive in it is to complete with other countries, playing by international rules of the game.
From the international perspective, all Asian newly industrializing economies, including Korea, are in transition. Korea's competitive advantage in labor-intensive manufactured goods is being eroded by rising wage rates, a diminishing rate of improvement in productivity, and increasing difficulties in achieving technological breakthrough. The technical gap with advanced countries is not being narrowed, while the gap with later-developing countries-notably, the countries of the Association of Southeast Asian Nations-is being closed. There is no room for complacency, and the best to confront the future is to take risks by internationalization(ibid.; 190).
In the rapidly changing world economic order, institutional reforms are indispensable to response the challenges of the new world economic circumstances such as WTO and OECD. The old institutions in the early stage of economic development do not function effectively to meet the challenges ahead. Along with it, the training of international specialists is indispensable. Korea pursues an open economy and efforts in search of internationalization. When we can accommodate globalization into our indigenous culture, Korea will take a step forward in re-taking off and entering into the international society.
2. The Motives and Success of Korean Industrialization
Korea has completed three decade of rapid industrialization based on the export of manufactures, a course to which it was impelled in the 1960s by the meagreness of its natural resources. Above all, the motives of Korea's rapid economic growth stemmed from the will of which Korean government that was eager for industrialization. It was embodied by Saemaul Movement in the early 1960s. Now Korea has moved from a stage where its advantage lay in cheap manual labour to one where that advantage lies rather in relatively cheap skilled labour and line management. Its exports are no longer dominated by textiles and clothing, but include ships, motor vehicles, integrated circuits and consumer electronics. Table 3-3 shows recent Korea's industrialized export products.
Table 3-3. Ranking of Korea's 10 Major Export Commodity Groups ($ million, %)
Source: The Korea Economic Weekly, March 11, 1996.
Korea now seeks increasingly to develop its own technology and to sell under its own brand names. Its growing wealth is shared more equally than in many other rapidly developing countries, its farming is firmly based on the owner occupation of small holdings and it has coped impressively with its dependence on energy imports. The fall in export volume experienced in 1989 illustrates the difficulties to the transition Korea is making to knowledge-based, high-productivity export sector. Exports remained too sensitive to price considerations to weather the combined effects of a rising currency and soaring wages(EIU, 1995; 14).
Korea's remarkable economic success of the last quarter century is often cited as a model of sound economic planning, efficient resources allocation, and effective cooperation between government and business. The rapid development was led by export-oriented industrial expansion and was achieved in spite of poor natural resource endowments. Korean economic growth characterizes many factors, including investment and rapid capital growth, expansion of industrial productivity, and the development of human resources and labour productivity. Other contributing factor is the favourable worldwide conditions prevailing during the 1960s. It contains Korea's political stability, the commitment of government for economic development - by the launching of the First Five-Year Economic Development Plan, 1962-66 -, the outward-looking strategy of industrialization, the vitality and entrepreneurship of leaders, the grassroots support and participation in rural transformation, and the close government-business interplay in Korean Economic development. In the course of Korea's economic development, education by the Confucian cultural basis played great role to enhance the quality of the labor(Seong Min Hong, 1992; 22-23).
Korea has emerged as on of the most successful NICs (Newly Industrializing Countries) and an inspiration to other developing countries. The success of this approach is clearly shown by the fact that from 1962 to 1989 Korea's Gross National Product grew, in real terms, by an average annual rate of 8.5 percent, reaching $210 billion in the latter year, compared with $2.3 billion at the start of the First Five-Year Development Plan. During the same period, per capita GNP increased from $87 to $4,968 in the current prices. During the past two-and a-half decades, there has been a marked quality change in the nation's industrial structure in response to fast-paced economic development1). Korea also witnesses radical changes of the world economic environment and domestic situations. Therefore Korea must find way to solve various problems besetting its economy, which range from mounting inflationary pressure, high cost of wage and services to lagging technological innovation, and expanding economic infrastructures(ibid.; 23-24). On the international side, Korea faces uncertainties stemming from such international environment as WTO and OECD.
3. The Foreign Trade Policy and Liberalization of Korea
Since 1962 the Korean government has consistently pursued an Outward-Looking Foreign Trade Policy, and, as a result, trade volume expanded more than 258 times between 1962 and 1989, with her export-import volume totaling $123.8 billion in 1989, which raised Korea to the rank of the 12th largest trading country in the world. As a consequence, the ratio of foreign trade to GNP rose nearly threefold from 20.9% in 1962 to 74.5% in 1989. During the same period, the Korea's export growth rate averaged 31.0% annually, and its import growth rate was 20.1%(ibid.; 24-25). 1989 saw the beginning of a short transitional period, in which Korea adapted to the loss of markets for labour-intensive manufactures. Although a current-account surplus of $5.1bn was earned and foreign debt was further reduced, exports succumbed to the twin pressures of currency appreciation and high wage increases.
In 1982, for the first time since World War Ⅱ, Korea registered a trade surplus with respect to the United States that amounted to about $0.3 billion. It caused the United States to request a more substantial import liberalization from government that was conducive for Ministry of Finance and Mistry of Trade and industry undertaking the Five-Year Tariff Programme (1984-88) and Long-Term Import Liberalization Schedule (1984-88), respectively. The rapidly rising trade surplus caused the direct and fierce intervention of U.S. government. The Korean government decided to solve the current-account surplus problem by completely liberalizing the imports of manufactures, for example, by increasing the number of AA items and lowering the rates of tariff as scheduled, making special concessional tariff cuts, eliminating the Surveillance List, and revising Special Laws that used to restrict imports even for items on the list of automatic approval. The external pressures on Korea to open up its domestic market completely provide a new growth potential if the government gives positive responses to these pressures. In the absence of systematic responses, there is the danger of chaotic destruction of Korea's service and agricultural sectors(Wontack Hong, 1994; 458-465).
1. The Middle East after the Gulf War
The important thing in the Middle East is a peace settlement including Arab-Israeli peace. Although the Middle East has her own dynamics and characteristics, the region is extremely vulnerable to political situations by the Arab-Israeli conflict. For example, the Arab-Israeli conflict was manipulated by Iraqi Saddam Husein during the Gulf War. Hence the Arab-Israeli conflict is a principal barrier to economic development in the region. This barrier prevents the capitalist countries from investing in the Middle East.
The Gulf War, and the response to it, were historic watersheds in intra-Arab, the Gulf, and international politics. They coincided with, and were made possible by, an even greater historic watershed, namely the end of the cold war and the collapse of the socialist bloc. As with other historic events, the Gulf War and its aftermath led to much talk about New World Order. Yet the outlines of this new order are not clear. But it is quite clear that the challenge to Gulf security is different from that of the past. The Middle East faces a new challenge to develope her economy and keep friendly relation with Arab and non-Arab countries(Seong Min Hong, 1994 20-25).
After the Gulf War, many experts predicted new order of GCC Axis. This order, however, is not clear till now. If the new order of US-EU-GCC Axis is embodied by the west, Iraq, Lybia and other radical Arab countries will stimulate neighbour Arab countries with the issue of Arab unity. Moreover Iran, non-Arab country will support Iraq to persue joint interest among the OPEC member countries, and its impact will bring out more complex problems. Iraq, Iran and Libya are the radical countries urging high-price policy inside OPEC. These countries will cooperate economically as far as oil concerned. Even though the former USSR lost her power, these countries will ask for cooperation USSR. It is a reason that new GCC Axis's order was not realized easily in the Middle East. Table 4-1. shows the economic zone of the Middle East and merchandise trade of 1992.
The circumstances of the Middle East, however, was changed according to the process of Israel-PLO peace talk. Signing of the Israel-PLO peace talk, Iraq's isolation accelerated in the Arab world as well as in the world. At the same time, Iran caught a new opportunity easily to cooperate Arab oil producing countries in the Gulf region. When the peace talk proceeds favorably, it seems that Israeli status will rise up considerably and new economic order will develop more complex. A new economic order in the Middle East, therefore, will be differentiated in accordance with the speed of negotiations between Israel and PLO.
Table 4-1. Middle East Economic Zone
Note: Levant includes Egypt. Maghreb includes Libya.
Source: Patrick Clawson, 1994. Journal of International Affairs, Summer.
There are now four economic blocs - GCC, ACC, AMU and ECO - in the Middle East. Considering the economic cooperation in the Middle East, these four economic blocs have to search for a new line of economic cooperation. In the process of it, US's influence acts greatly as a main partner. Recent situations like US's attack to Iraq and PLO-Israeli clash are hard to set up the line of the Middle Eastern economic Order. The four economic blocs in the Middle East will act according to the national interest. Now it it difficult to predict their ongoing cooperation issues. The new economic order of the Middle East, however, will develop in the form of a comprehensive cooperation including non-Arab countries in coincide with the political and economic interest.
2. Economic Situations for the Development
The potential for economic development in this region, if there would be peaceful time, will be more higher than the last decade. Peace in the Middle East may provide the momentum for economic development. The potential for such development lies in the area's natural resources and plentiful manpower. Manpower is not confined to Israel - one and half million Egyptian teachers, engineers, scientists and managers are presently employed in the Gulf states, and numerous Palestinians are studying at universities in neighboring Arab countries. Potential markets exist and both foreign and local capital are available. Many observers perceive the potential of this region for large-scale economic growth and development. At present, however, they are deterred from embarking upon concrete ventures by political uncertainty and military risks(Gideon Fishelson, 1989: 5).
The arms race in the Middle East has undoubtedly aggravated economic conditions in some countries. It has intensified strains on human resources, and is reflected in huge budgetary deficits, as well as increased rates of taxation in some countries, which adversely affect productivity and resource allocation. Table 4-2. which includes ten third world countries as well as Israel, presents the ranking first of the growth rates of these countries, then the share of defense expenditures in total public expenditures, and third, the share of defense expenditures in GNP. The main point is to understand who pays the price for it, when, and how. In reality, the population and especially the middle and poor classes had severe difficulties. The standard of living declined during the 1970s and 1980s, reflecting the rising inflation, the low level of public expenditures on social welfare and the tendency of these expenditures to decrease, while at the same time military expenditures increased beginning in 1975. The budget share devoted to education and social welfare surged from 1988, but this is misleading. In fact, spending on education and welfare declined as a share of GNP, as did the national budget. This decrease is certainly the direct result of the crisis, but this is not unusual since military expenditures are always a priority, even when in competition with investment, and even more so with social welfare spending(Rizkallah Hilan, 1993; 64-67).
The end of the Iraq-Kuwait crisis will not end the arms race in the Gulf; in fact, the crisis itself will be a major determinant in procurement decisions. (Charles F. Doran and Stephen W. Buck, 1991: 82). The potential for growth and development under conditions of peace and cooperation would be possible if political stability and peace is realized in this region. Within ten years of peace, the GNP of Israel could be about 22% higher than in the absence of peace. Similar developments could have taken place in the Arab states bordering upon Israel: Egypt, Syria, Jordan and Lebanon.
Table 4-2. National Security Expenditures (Defense) and Average Growth Rates per Annum (in long and medium periods)
Note: b is figures for Syrian GDP in 1984.
Source: The World Bank, World Development Report 1989.
3. Resources and its Developmental Potential
1) Importance of Gulf Oil
For more than four decades, the Gulf region has witnessed superpower competition, regional riverly, conflict, and chronic political instability. The region holds most of the world's oil and a considerable part of its natural gas reserves. The Gulf oil resources have been an especially significant factor in inter-Arab rivalry as those Arab countries with few resources and large populations have sought to control them. If the 1980s were the decade of political and economic transition, the 1990s will be the decade of consolidation and fundamental change(Shireen T. Hunter, 1992: 155).
The combined population of the Middle East Six - Iran, Iraq, Kuwait, Qatar, Saudi Arabia and the UAE - was just under 100 million people in 1992, or less than 2% of the world's population. Their combined land mass of some 4.35 million square kilometers is about half the size of Brazil, or 3% of the world's land. These six countries' share of the world's hydrocarbon resources, however, is entirely disproportionate to their physical size and population. Their combined proven oil reserves represent about 65% of the world's total; for natural gas reserves their share is about 30%. Crude oil from the ME6 represents about 30% of world production and account for nearly 40% of IEA Member countries' crude oil imports. The ME6 have a smaller role in refined product markets and, despite their large natural gas reserves, a minor role to date in natural gas trade(OECD, 1995; 25).
The ME6 have enormous energy resources. These countries currently produce about 28% of the world's crude oil and account for about 42% of the world's crude oil trade; and herein lie their strength and weakness. Their governments are dependent on oil, which provides the majority of their export earnings and of each government's revenue. The decline in oil prices during the last decade translated into reduced government income. Whereas the ME6 were accumulating financial assets during the late 1970s and early 1980s, the last decade has seen them draw down their assets and start to borrow. In the cases of Iran, Iraq, Kuwait and Saudi Arabia, which hold 55% of the world's proven oil reserves, their foreign assets have substantially declined and their debt has substantially increased. It is noteworthy that the UAE is the only ME6 country with large proven crude oil reserves to which this description does not apply2)(ibid.; 22).
2) Food Security and Agricultural potential
The Arab economy was rocked to its very foundations during the sixties and seventies when the Arab countries stepped up their imports of staple food products, notably wheat, a vital strategic crop. The situation worsened in the seventies, with the Arab countries forced to import half of their wheat consumption demands. This trends extended to a wide range of food-stuffs, such as sugar, vegetable oils, meat and daily products. Nor did the agricultural development programs launched during the sixties and seventies succeed in closing or even narrowing the food gap. Indeed, the gap has become so wide that it now constitutes one of the major challengers facing the Arab food security has come to acquire an increasingly political character on the level of international relations, particularly with regard to wheat, where the world market is an oligopoly controlled by three main exporters : the United States, Canada and Australia. This means that the Arab food problem is no longer purely economic in character but has become a political problem of the first order (Ismail-Sabri Abdalla, et al. 1983; 71).
With population growth, arable land presently cultivated amounts to only a small fraction of the total land mass of the region and much of this is set aside for nonfood crops. Figure 4-1. indicates the extent of arable land under cultivation in the sixteen countries, its proportion of total land, and the amount of cultivated land per capita. The extent of land in crops varies considerably in the region, from 27.9 million and 20.3 million hectares in Turkey, Lebanon, Pakistan, Syria and Tunisia occupies more than a quarter of the total land, but in Algeria, Egypt, Sudan, Libya and Saudi Arabia it amounts to 3% or less(Marvin G. Weibaum; 8-9).
Conservation and new technologies in the reclamation of oases are feasible, and improved irrigation methods can release high-quality water for expanded use. Hydroponics may have a role to play in cultivation of high-value crops, and the partial substitution of desalinized water for underground sources is well underway. The prosperous countries, along with the oil-exporting states of the Gulf, also have the option of ensuring future availability of food by underwriting agricultural projects in other Middle East countries, notably those in Class A. Through the Gulf, the oil industry has dramatically reduced the already meagre contribution of agriculture and fisheries to the GDP(Avi Plascov, 1982; 62). The long-term prospects for food security cannot be made without rural development in all its dimensions such as education, health and life styles in general. It is necessary that long-term investment urgently needs to modernize the agriculture in the Middle East.
Figure 4-1. Classifications of Middle East Countries by Agricultural Productivity and Development Potential
Sources: Marvin G. Weinbaum, 1982, Food, Development, and Politics in the Middle East, P. 11.
3) Need of the Development of Water Resources
The Middle East is the most water-poor region of the globe, with the world's lowest per capita consumption of water. The problem attendant to water scarcity is particularly acute in the Middle East, as the region has one of the fastest growing populations. In addition, there are a number of rivers in this region that traverse international boundaries established during the 20th century, and that have become a focus of interstate tensions(Miriam R. Lowi, 1995; 124).
There has been a need for basin-wide agreement since the mid-1960s, when upstream use of the Euphrates flow began to put pressure on downstream consumption practices. There have been several unsuccessful attempts at promoting a tripartite accord, but in every instance, the tense political relations in the basin have impeded cooperative outcomes. Syria and Turkey have a simmering territorial dispute concerning Alexandretta(the Hatay province) that dates back to the Mandate period. In recent years, the two countries have been at odds over the Kurdish insurgency movement. futhermore, the Ba'athi rulers in Syria and Iraq have been engaged in a highly acrimonious, personalistic conflict since 1968. On a number of occasions, tensions have been so acute(including the transfer of troops to border zones) that third parties have intervened. And while the crisis were defused and warfare averted, no agreement has ever been signed and the water dispute remains unresolved(ibid.; 137-138).
In the aftermath of 1990-91 Gulf War, a Middle East peace process was initiated at a conference in Madrid in the fall of 1991. The intention was that the multilateral meetings3) would support and complement the bilateral meetings and that progress at the technical level in the working groups would inspire the political negotiations, and vice versa. Indeed, no progress has been made at reaching a tripartite agreement on water sharing, despite the fact that 1980, all three riparians agreed to establish a technical commission to facilitate the exchange of information. In 1984, Iraq agreed with Turkey to accept a minimum flow of 500 cubic meters per second from the Euphrates River, but Syria refused to negotiate a protocol that, among other things, guaranteed Syria 500 cubic meters per second as well, although no reference was made to the earlier agreement with Iraq. Then, in 1993, Syria and Turkey reaffirmed their commitment to the protocol and announced that the allocations therin would become operational that same Year(ibid.; 138-140).
Any how, it is important to bear in mind just how little water is in Israel, Jordan and the West Bank. This, coupled with the rising demands of states and peoples in arid and semi-arid regions, with high population growth rates and considerable dependence on agriculture, illuminates the extent to which margins are narrow in the development and utilization of water resources. Table 4-3 shows per capita surface water availability in the Jordan and Euphrates basins in 1993.
4. Economic Cooperations within the Middle Eastern Countries
At present, the Middle East has four economic cooperation organizations. Three of them consisting GCC, ACC and AMU is Arab cooperation bloc and the other, ECO is non-Arab economic bloc as follows. Firstly the Gulf Cooperation Council (GCC) was established in 1981 and its members are Saudi Arabia, Kuwait, UAE, Bahrein, Oman and Qatar. Secondly Arab Cooperation Council (ACC) was established in 1989 and its members are Jordan, Iraq, Egypt and Yemen. Thirdly Arab Maghreb Union (AMU) was established in 1989 and its members are Morocco, Lybia, Algeria, Tunisia and Moritania. lastly non Arab bloc, Economic Cooperation Organization(ECO) started, at first, in the name of Regional Cooperation for Development (RCD) that is composed of Turkey, Pakistan and Iran in 1967. RCD is the first organization of economic cooperation in the Middle East. But its activities never have been realized. To reopen its activities, the foreign ministers meeting at Teheran agreed to change the name ECO instead of RCD in 1985. Now ECO's member countries are Turkey, Iran, Pakistan and some Islamic countries such as Azerbaijan, Uzbec, Trukmen from CIS(Seong Min Hong, 1992; 368-422).
Table 4-3. Per Capita Surface Water Availability in the Jordan and Euphrates basins, 1993
Note; This table is Miriam R. Lowi's compiled sources. According it, total water availability in the West Bank and Gaza Strip is 650 to 700 million cubic meters(mcm) per annum, but the Palestinian population has effective access to no more than 200 mcm of it.
Source; Miriam R. Lowi, 1995, Journal of International Affairs, Summer
Since these economic Blocs have a political characteristics, economic cooperatin is greatly influenced by the political impacts. For example, ACC countries such as Jordan and Yemen, supported Iraq at the Gulf War. Egypt is the only country among ACC countris, which lined up the side of multinational army on account of political interest. Libya, as a AMU country and Iran, as a non-Arab state also supported Iraq at that time against the west. This situation shows the disruption of the Arab countries in the Middle East. After the Gulf War, this tendency has changed flexibly with the Arab-Israeli peace talk in this region. Now the economic cooperatin bloc in the Middle East is a political body rather than economic body. Therefore economic cooperation within the Middle East is very flexible with the political situations.
Table 4-4. shows the value of Arab trade as a proportion of the total international trade for 12 Arab economies in 1990. As in EU, because of domestic market size the proportion of regional trade is highest for the smaller countries with more restricted industrial bases and only limited possibilities for import substitution. It is these countries, rather than the larger states, that have the most to gain from economic integration. This is clearly the case with Bahrain, Jordan, and Lebanon, which have the most highly integrated regional trading links. The figure for Lebanon is probably a substantial underestimate since official figures do not include the extensive illicit smuggling into Syria. Also excluded are the trade flows between Israel and the 10 percent of Lebanese territory Israel occupies; this zone is almost entirely supplied from Israel(Rodney Wilson, 1994; 281).
Table 4-4. Intra-Arab Trade as Proportion of Total International Trade, 1990 (Unit: %)
Source: Rodney Wilson, 1994, Middle East Journal, Vol. 48, Spring.
Egypt, Libya and Saudi Arabia appears to be the least regionally integrated countries. In the case of the latter two states, regional trade is insignificant in comparison to oil trade with the outside world. Libya could, of course, serve as a bridge between the western and eastern Arab worlds, but is instead regarded by most other Arab government as being on the fringes in every sense of the word, including in terms of its politics. As already indicated, Egypt's trade with other Arab states is also hindered by the country's separation from its eastern neighbors by Israel and the poor communications infrastructure linking it with Jordan and Saudi Arabia. Its protected industries overlap those of other Arab countries rather than being complementary. Competition from other producers within the region would be unwelcome to Egypt if it resulted in state sector industries losing domestic market share, and perhaps collapsing, with unfortunate consequences for employment(ibid.; 281).
Korea opened the way to the first investment in the Middle East by participating Samwhan Co.'s high way construction in Saudi Arabia in 1973. By the end of the 1980s, the construction sector became an important part of the economic cooperation with the Middle Eastern nations, and the amount of Middle Eastern trade was also increased largely. Although, as we examined in the chapter Ⅱ, Korea has highly depended on US, Europe and Japan as the main trading partner, The Middle East still remains on of the profitable constructing market. The Table 5-1. shows that the Middle Eastern contracts are reached 2,040 among the total number of 3,286 in 1995 and kept over 80 % in the total amount of the contracts. However, these trends has been changed according to the political situation of the the Middle East. Korea has been heavily concentrating on the construction and commodity trading sectors.
Table 5-1. Korea's Construction Contract and its Trend (Unit: 1,000$)
Source: Haeoaegunsul. 1995-1996. THe International Contractors Association of Korea.
In this respect, this paper suggests that this is the time for developing a wider-ranged economic cooperation which combines the Korean technological manpower and the Middle Eastern natural resources. As a example of such kind of cooperation, Korean SSangyong Company and Saudi Aramco promised to establish a refinery factory at Onsan in Korea as a form of joint-venture in 1991. In the future, this kind of cooperation will be a desirable model of combining natural resources and technology and be helpful for both countries' economic development.
Nowadays, the most important matter in the Middle East is the political stability, including Arab-Israeli peace settlement. If it is achieved, the tour industry which connects all the Middle Eastern countries, such as Egypt, Jordan, Syria, Turkey and Israel will develope. Also it could bring the common management of water resources for the agricultural development which still remains as a controversial issue. In this contents, we should consider the economic cooperation within the general terms of the Middle Eastern nations including both the Arab and non-Arab countries like Israel, Turkey, and Iran. As we can see in the Table 5-2., the trading with non-Arab states has been increased, but it is also severly influenced by the political situations of this region.
Under the new world economic order, Korea is expected actively to share the responsibility for maintaining world economic stability and prosperity. In particular, Korea is expected to play an important role in preserving a global economic environment. For this goal, Korea should accelerate both domestic and international liberalization. At the same time, Korea as a pioneer country has an obligation to provide positive contributions for follower nations of the developing world through active economic cooperation. Korea's recent establishment of the Economic Development Cooperation Fund for the purpose of assisting developing nations is an important first step in this direction. For the time being, however, Korea has more to offer in the area of technical assistance through use of its abundant human resources. The most recent first-hand experiences of managing developmental efforts at both the macroeconomic and project level can be used in assisting follower nations. In this regard, Korea's technical assistance programs might very well be interlinked with programs at various multilateral institutions( Il Sakong, 1993; 210-211).
Table 5-2. Trends of Korea's Export/Import to non-Arab Middle Eastern Countries (Unit: $1,000, %)
Note: The customs basis. RI. is the ratio of increase.
Source: KOTIS, 1996.
The Middle East can be a new target for Korea's market diversification policy. Korea's past experiences provide an ample supply of knowledge and ideas on various approaches to contemporary economic and social developments for the less developed areas in this region. Korea will be benefited from helping the Middle East. Moreover, Korea's continued cooperation with them could extend collaboration to range of other issues. In particular, Korea will be able to contribute to facilitating the diffusion of development experiences by actively participating in it
To realize the effective economic cooperation, it is needed more specified studies about the Middle Eastern society. The term of Middle East contains about 20 countries consisting of Arab and non-Arab nations which have different cultural backgrounds. In the cases of Saudi Arabia and Iran share the same religion, Islam, but they take different stands in the religious dogma. Therefore, it is necessary to prepare a special multi plan which is focusing on special characteristics of the different nations, such as Arab vs. non-Arab; rich vs. poor; Islam vs. non-Islam; and large absorptive capacity vs. small absorptive capacity. In other words, the more specified Middle Eastern studies are required for the better understands of this region. Also, for the most effective economic cooperation we have to invest in training the specialists for each different nations and fields.
Historically, the cultural relation between the East and the West was connected by Silk Road. In ancient times Sea road, Land road and Desert road played a crucial role in its contacts. The development of ocean industry after the Middle Ages brought a great change in commercial activities between the east and the west. Instead of coal, wide use of oil changed the pattern of world economy speedily and largely since the World War Ⅱ. The commercial exchanges became faster and wider than ever had all over the world with the development of air transportation. Leaving the only way to transfer commercial exchanges by railroads as Land Road in speed and scale, the era of information- communication industry began.
Now it seems that world history took a complete turn. In ancient times, the great role of businessman, the adventurer enabled contacts between the East and the West through Silk Road. The world cultural exchange has been led by the activities of businessman, the adventurer still now. Because of this reason, international businessmen can be called frontiers of cultural exchange in these days. The world is getting smaller and smaller, and becoming one international network society by those people. Waiting for the new age of land transportation ,such as using railroads, Koreans expect to meet the Middle Eastern people who acted as the middlemen between the East and the West during the age of Silk Road.
Korea has a highly skilled human resources and the Middle East has a plentiful natural resources. These two resources have to be combined by man made resources that needs a huge capital. The capital investment, however, is the greatest stumbling block to interfere the cooperation. The economic cooperation between Korea and the Middle East must bring the focus on this point. The cooperation of joint-venture that can use the capital effectively is a favourable means. To combine with three resources effectively, Korea has to prepare a plan to enter into the Free Trade Zone in the Middle East.
Korea has advanced into the Middle East actively since 1970s and gained experiences in the region. This lesson leaves us a good chance for cooperators. The Korean economy has a high dependency that its trade and investment is severely concentrated on US, Europe and Japan. The Middle East, however, is a good partner to cooperate owing to its petroleum and potential. Now Korea is the 8th crude oil consumption and 5th oil imports country in the world. Besides economic cooperation, oil industry in the Middle East is important to our economy. The economic cooperation between Korea and the Middle East is very important in the dimension of combining human with resources.
To Korea, the Middle East cannot emphasize too important. The Middle East has large oil reserves and was the former great agricultural region. Only six countries in the Gulf have proven oil reserves represent about 65% of the world's total. Thus, an exact approach of the Middle East has to place the focus on the petroleum and agriculture. But the heavy military expense and shortage of water hindered the Middle East from developing its industry. These issues are very crucial affairs that have possibilities to draw the security problem and social stability in this region. These also contain keen political interests including Israel, Turkey and the other neighbor Arab countries. When the peace process proceed in the Middle East, the potential of the economic development would be very bright in the region.
As above mentioned, the priority order of Korea's economic cooperation to the Middle East should focus on the oil industry, development of agriculture and water resources. Owing to low price of crude oil and decreasing oil revenues, oil producing countries in the region wish to invest down-stream area. Hence they can secure and extend their consumption market. We can see good examples of the cooperation that Korea and Saudi promised to establish a refinery factory at Onsan in Korea as a form of joint-venture and Korea's Dong-a Company has been performed the waterway project in Libya. For the better effective cooperation, Korea has to take suitable steps to combine its skills with the appropriate step of growth. Understanding about the Islamic culture and training of the Middle Eastern specialists are to be preconditions. Along with it, Korea has to invest actively in R&D area. Korea must re-enter into the Middle East market as like 1970s. Everywhere we go, we cannot gain high revenue without investment and active frontiers.
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