New trade rules to transform Arab economy

by Dania Saadi

Some people call it AFTA while others refer to it as GAFTA, and now the agreement will probably be known as PAFTA. But these acronyms share a common denominator -ð an effort to create an Arab free trade zone by 2005.
The series of understandings which first began in the 1980s with the Arab Free Trade Agreement are all a bid to ultimately create a united Arab economy ð- with some 14 countries enjoying the liberalization of the industrial and agricultural sectors. In the last Arab summit, which took place in Beirut earlier this year, Arab leaders agreed to include a wide range of new issues on the Arab economic agenda, such as the liberalization of services.

Now officials from the public and private sectors are preparing for 2005 and are working to resolve a list of obstacles that have slowed down the economic integration process.
?By the end of this year, we hope to conclude the detailed identification of the country of origin rules and remove all exemptions on tariffs cuts,? said Muatasem Suleiman, director of the Finance, Trade and Investment Department at the Social Economic Council in the Cairo-based Arab League.
The country of origin rules, which define the origin of raw materials that go into making a product, are important because they allow Arab goods to enjoy tariff-free access in the Arab trade zone.

The Arab countries who have started to implement tariff reductions on industrial goods, which are expected to reach zero by 2005, have agreed on a general formula to provide preferential treatment for Arab goods that have a 40 % value-added component.
?We need country of origin rules to prohibit foreign (non-Arab) goods from benefiting from preferential treatment inside the Arab free trade area,? explained Suleiman. The rules also define the power of regional blocs.
The European Union, which started off with a coal and steel coalition in 1950s, has developed into a global bloc selling its rules and standards to former Soviet-bloc countries. ?We need to have our own country of origin rules that serve our interests and adopting European Union rules does not necessarily work for us,? said Suleiman.
For instance, officials overseeing the Arab free trade area have chosen a different set of rules for coffee beans. In the European Union, just roasting an imported bean inside the union gives it EU origin, but in the Arab world, the bean should be imported from an Arab country.
?The EU does not grow beans so it makes sense to just demand a simple roasting process,? Suleiman explained. ?However, in the Arab world, we need to protect Yemen?s bean production. If we were to use the EU rule, our markets could be swamped, let?s say by Brazilian beans, at the expense of our industry.?

But agreeing on country of origin rules for products that are to enjoy tariff-free access inside the Arab free trade zone does not appear to be the only contentious issue. When the 14 countries agreed to drop their tariffs to zero, they chartered a wide-ranging list of exemptions to allow certain sensitive industries to acclimatize to free market access.
?By September of this year all exemptions should be dropped and countries will not be allowed to introduce new ones without a detailed explanation,? said Suleiman. ?Anyway the exemptions granted to Arab countries were temporary and were not allowed to exceed 15 % of total inter-Arab trade volume? on the ground, only 6 % of total inter-Arab trade was subject to exemptions.?
He argued that the World Trade Organization, which allows for the creation of regional blocs, allows exemptions for up to 20 % of total inter-trade within regional blocs. ?For instance, the exemptions granted to Egypt on textiles within the Arab free trade area have already been secured from the WTO,? he added. He also brushed off official figures that put inter-Arab trade as low as 7 %.
?This figure does not include Arab trade with (sanctions-hit) Iraq,? said Suleiman. ?If we are to take into consideration trade with Iraq, which is at least $ 2 bn, the figure would jump to over 10 %. This figure will also increase if we are to exclude oil products.?

Despite all criticism, the Arab free trade area has scored points in a number of countries, according to Suleiman. ?Oman?s trade volume with the Arab world has increased by 75 % over the last three years due to the agreement,? he said. ?Can you believe that Oman is exporting fish to Tunisia, a marine-rich country??
The steps being taken for an eventual free trade area may be helping, but there still exists lingering problems within Arab countries, which would probably remain until 2005. ?Problems of standards and technical barriers will remain until the transitional period is over and we enter the free trade area in 2005,? said Suleiman. ?They will disappear completely with the creation of an Arab customs union.?