CAIRO: Arab countries have a reputation of cooperating better with the outside world than amongst themselves. The statistics are telling on the trade front; intra-Arab trade accounts for some 8 percent of the total international trade of the Arab world. This illustrates both the challenge and the opportunity for closer commercial ties.
Enter the Arab League. Its efforts to encourage economic integration between its members began as early as 1957, when the Council of Arab Economic Unity was set up. The council, in turn, started work on the Arab Common Market in 1964, but only seven countries (Egypt, Iraq, Jordan, Libya, Mauritania, Syria and Yemen) joined the initiative, which at any rate fell short of its goal of establishing a trade bloc free from restrictions.
An attempt to revive the concept was made in 1997 with the signing of the Greater Arab Free Trade Area (GAFTA) agreement. The objective was to gradually reduce all customs duties over a 10 year period. The signatories, which include all Arab League members with the exception of Algeria, Djibouti, Comoros, Mauritania and Somalia, agreed to accelerate this reduction in 2000 and all tariffs were abolished on Jan. 1, 2005.
But the reduction of tariffs turned out to be theoretical to a large extent. A safeguard provision included in the GAFTA agreement that allowed countries to exclude certain products from tariff elimination fundamentally undermined trade liberalization. The number of products on these so-called negative lists escalated to thousands.
However, Abdel-Rahman Fawzy, head of the Trade Agreements Sector at the Ministry of Trade and Industry, tells The Daily Star Egypt that all negative lists were abolished with the elimination of tariffs in 2005, and that any remaining restrictions are due to non-tariff barriers and conflicts with bilateral trade agreements.
The inconsistency between GAFTA and other trade agreements is the lesser of the two issues, according to Fawzy. Egypt has bilateral trade agreements with Jordan, Tunisia, Morocco, Syria and Libya. The documents required for shipments made under these agreements sometimes differ from those required by GAFTA. Furthermore, the bilateral agreements themselves include negative lists. Although GAFTA is supposed to take precedence over bilateral agreements, Fawzy says that authorities in other countries continue to apply the provisions of the bilateral agreements and exporters sometimes use the wrong documents.
With regard to non-tariff barriers, these are particularly pronounced for agricultural goods and processed foods. Fawzy explains that many countries have put administrative hassles in place in an effort to protect their food industries. These bottlenecks may be, for example, under the guise of requests of information from exporters for statistical purposes. Certain countries also require exporters to obtain special licenses that are seldom approved, while others have stringent product standards that make trade costly or altogether impossible.
These actions frequently contradict both the spirit and letter of the GAFTA agreement, and they persist partly because the Arab League lacks any mechanism for dealing with violations.
But why do attempts to integrate Arab economies continue, perhaps halfheartedly at times, despite nearly 50 years of unsuccessful efforts?
Greater economic integration in the Arab world has consistently been … a yardstick for evaluating the achievements of Arab nationalism in the post-independence era, explain economists Hassan Al-Atrash and Tarik Yousef in a report published in 1999.
There is also a broader economic justification for increasing intra-Arab trade. Greater regional integration, the report continues, in a way that is compatible with multilateral liberalization, could contribute to growth not only by increasing trade and allowing regional producers to benefit from economies of scale, but also by encouraging foreign direct investment and the deepening of capital markets.
Saeed Abdulla, head of the Central Administration for Bilateral and Multilateral Agreements, describes the prospects for closer commercial ties. He believes that Arab countries invest too frequently in duplicate projects. All parties would benefit, according to Abdulla, if each country instead directs investment toward industries in which they have a comparative advantage, and related industries in various Arab countries would then rely on each other for supplies.
This is where the rules of origin become important. GAFTA currently requires domestic content to account for at least 40 percent of the total cost of a product in order to qualify for zero tariffs. The agreement also allows for cumulation of origin, whereby inputs from any other signatory are treated as a domestic input. However, Fawzy explains that a proper mechanism to implement these rules, similar to that of the Aghadir Agreement, needs to be put in place for GAFTA.
The Agadir Agreement was signed in 2004, by Egypt, Jordan, Tunisia and Morocco. It provides for the free trade of inputs between the four countries for manufactured goods that are destined for export to the European Union.