Free trade or trade-free area?
Globalisation may finally force the Arab countries to turn the 50-year-old dream of an integrated Arab economy to reality. Mona El Fiqi investigates
Representatives of the private sector from 22 Arab countries have come to an agreement that an integrated Arab economy is the only option for the Arab countries to survive in the face of intensified global competition. An unusually urgent meeting of members of the Arab Federation for Chambers of Commerce, Industry and Agriculture (AFCCIA) was held in Alexandria last week, and concluded that more concrete action should be taken to boost Arab economic cooperation, particularly under the framework of the Arab Free Trade Area Agreement.
The agreement outlining the Arab Free Trade Area was signed in 1998 by 14 Arab countries representing 80 per cent of the total inter-Arab trade volume. This entity is the first step towards the establishment of an integrated Arab economy, which is scheduled to be completed in 2005.
The inauguration ceremony of a two-day conference was attended by such prominent official figures as Prime Minister Atef Ebeid, the Arab League's Secretary-General Amr Moussa, and Hassan Khedr, the minister of supply and internal trade.
Since the Arab countries have to meet their commitments with the World Trade Organisation (WTO) and are obliged to open their markets completely within the next several years, the establishment of an Arab economic bloc is seen by some as an inevitable step that will facilitate the difficult transition.
Geographic proximity and cultural similarities give the Arab countries a strong potential for economic cooperation, but attempts at close economic integration have many obstacles to overcome.
The endless bureaucratic procedures that choke off the free flow of individuals and goods between Arab countries stand on the top of the list of factors obstructing Arab economic cooperation. As anecdotal evidence, Ali Habour, the chairman of the Algerian Chamber of Trade and Industry, related how although he was formally invited to attend the Arab Federation Conference in Alexandria, he still could barely navigate the intransigent Egyptian bureaucracy to obtain his visa.
Mohamed Farid Khamis, chairman of the industry, energy, and transportation committee in the Shura Council, said that although he has investments in different foreign countries such as the USA, India, China and four European countries, he did not bother investing in fellow Arab countries. Khamis explained that this is because those non-Arab countries have institutionalised the protection of investors' interests, providing facilities and incentives to allow investors a relatively free hand. Unfortunately, Khamis added, no such systematic removal of hindrances to investment has taken place in the Arab world.
Moreover, the paucity of fast, reliable transportation between Arab countries is another problem for entrepreneurs. "Due to the lack of daily direct air flights between Algeria and Egypt, I had to go through France on the way to Egypt, which is preposterous", said Habour.
The similarity of the agricultural and manufactured goods produced by the Arab countries also makes mutually beneficial inter- Arab trade more difficult. Habour said "It would be better if each Arab country be specialised in one or two sectors," in the fashion of the Central American Common Market and other trading blocs that tried to blend import substitution industrialisation with free trade.
"This extraordinary meeting is a good step towards solving these obstacles and setting a serious strategy to achieve an Arab economic bloc that would be able to compete and negotiate with the world," said Khaled Abu Ismail, AFCCIA chairman.
Current figures show the sorry state of inter-Arab trade, on the decline, and Arab economies at large, which have been largely stagnant. Hassan Khedr, minister of supply and internal trade said that the Arab trade volume dropped from $752 billion in 2000 to $712 billion in 2002, cumulative Arab foreign debt reached $792 billion in 2002 and the inter-Arab trade volume represents 11 per cent of the total Arab trade volume.
"The state of Arab economy is deteriorating enough that the activation of an integrated Arab economy is the only approach that would help the Arab economy to catch up" said Amr Moussa, secretary-general of the Arab League.
There already has been some progress made in increasing economic cooperation. Egyptian Prime Minister Atef Ebeid said that the Arab countries have already begun establishing some regional projects such as a power network among seven Arab countries and a new gas pipeline between Egypt and Jordan. Despite the looming barriers ahead, Ebeid expressed his confidence in the Arab world's ability to tightly integrate economically.
Since Arab members expressed a real wish to take more serious actions, the first step according to Khedr is a preferred trading status should be given to fellow Arab countries. To set an example, Egypt is ready to import many food products from other Arab countries instead of foreign countries. Non-Arab countries currently represent 90 per cent of Egypt's imports of food commodities.
The meeting's final recommendations were to strengthen the private sector role in development and loosen bureaucratic restrictions on trans-national mergers and cooperation. Moreover, the representatives agreed to continue efforts to liberalise the movement of capital, labour and goods among Arab countries.
