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Uniting Arab economies

Arab countries need to link their economies in complementary frameworks if they want to have stronger business image across the world. As the regional economies boom, it is the right time to evaluate joint economic action and give priority to collective rather than individual country-based interests.

THE 18-member Arab Economic and Social Council (AESC), formed in late 2005, is all set to finalize a strategy for the full implementation of Greater Arab Free Trade Zone in October. The Arab League’s follow-up committee has recently reviewed ways to formulate the overall structure of Arab Free Trade Zone in order boost economic ties. It comes amid reports that showed that overall Arab intra-trade has increased following involvement of the six-nation Gulf Co-operation Council in free trade zone (FTZ) pacts and the implementation of the GCC Customs Union.

During 1998-2005, Arab intra-trade exports jumped from $14 billion to $41 billion, and imports increased from $13 billion to $37 billion. In comparison to total exports by member-nations, throughout 1998-2005 Arab intra-trade exports increased from 11.2 percent to 14.6 per cent, while Arab intra-trade imports, when compared to the total imports, increased from 3.6 percent to 8.1 percent. During the same period, intra-trade exports of food products increased from $1.82 billion to $7.22 billion and intra-trade exports of petrochemicals increased from $2.24 billion to $5.92 billion. The Arab League-sponsored study noted that the size of intra-trade is determined by a variety of factors, such as commercial conditions, transportation and customs.

It added that cross-border trade among member-nations is much smoother than the commerce between geographically distant countries. All these things hint at the acute necessity of a greater free trade zone in the region. After reviewing these developments, the Secretariat of the Arab League has prepared a framework for a new strategy for joint Arab economic action.

This strategy will be presented at the AESC meeting, and then it will go to the Arab summit for approval next March. Apart from the full implementation of the Gulf Arab Free Trade Zone (GAFTZ), the strategy also aims at establishing the Arab Union by 2015, and then the Arab Common Market in 2020. Although these objectives had always remained among major priorities since the establishment of the Arab League, they had not yet materialized in a practical sense. The Arab League had made several failed attempts over the past 50 years to achieve economic integration. There were the 1957 Agreement on Economic Unity, the 1964 formation of the Arab Common Market, and the 1981 Facilitation and Promotion of Inter-Arab Trade Agreement (the “Facilitation Agreement”).

Geopolitical tensions, differences and fluctuations in policies of Arab countries, a lack of strong commitment to enforce collective decisions and agreements were few of the reasons which undermined joint Arab actions in the past. However, Arab countries are no more unaware of the realities and the demands of the global economy. The removal of trade barriers, the growing importance of multinational companies and developing consensus against national projectionist policies are paving way for the development of the regional economic bloc.

In other words, most of the Arab countries now have started realizing the importance of GAFTZ and an Arab Common Market. When almost every Arab country is witnessing economic boom, it is the right time to join hands to boost further economic growth. Every sector of the economies of the region should strive for this. Arab customs union A greater free trade zone is also the basic requirement for the Arab Customs Union, which in turn would contribute to greater growth of all the regional economies. The dire need of a greater Arab Customs Union is also evident from the continuing success of the GCC economies, which already have a customs union. Let us take the UAE as an example. The country’s commerce with other GCC countries increased by 54 percent during 2000-2005, thanks to the regional customs union.

A recent study by the Dubai Chamber of Commerce and Industry (DCCI) revealed that the average annual growth of the UAE trade with GCC countries reached 6.1 percent after joining the Customs Union, while it was only 2.3 percent before. While the trade with GCC members comprised 6.3 percent of the UAE’s overall global trade, the imports had increased by 101 percent and exports rose by 128 percent. Boosting overall Arab trade requires therefore requires unified customs, simplified procedures, strict application of guidelines set by Arab Standardization Authority and a proper mechanism to solve the bottlenecks in the flow of goods along regional borders. Agricultural integration Recently, the Arab Agricultural Engineers Union (AAEU) convened its 16th technical conference to discuss “Agricultural Integration under the Establishment of Greater Arab Free Trade Zone.” “For 10 years, member-states reduced customs duties by 10 per cent, and in 2005 the duty free trade went into effect,” AAEU Secretary General Yahya Bakour said. The engineers discussed the effects of the free trade zone on agricultural investment in Arab countries, in addition to its role in increasing agricultural exports.

“The Arab Free Trade Zone is one step towards achieving a full customs union,” said Jordan’s Minister of Agriculture Akef Zu’bi. “Agriculture cannot be developed in Arab countries without integration and co-operation between them.” “Although Arab countries failed in achieving a comprehensive union, they have reached some agreements such as the free trade zone, which includes agricultural products,” said Jordanian Agricultural Engineers Union President Abdul Hadi Falahat. “We hope the time of hampering the flow of products traded between Arab countries will end. When we reach this, we will be on the right track.” In this era of large economic blocs, there is no room for small and fragmented markets, which remain on the standby to connect to the larger economic blocs through unequal relations with the economically advanced countries. It is high time Arab countries link their economies to each other in complementary frameworks, if they want to have a better business image. It is the right time to pause and evaluate joint Arab economic action, give priority to collective rather than individual country-based interests.

Amman,10 16 2006
The Star
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