Hold your breath

Al-Ahram Weekly, 4-10 March 2004

Hold your breath

The Agadir Agreement may finally mean serious Arab economic cooperation, writes Niveen Wahish

Arabs have been trying for decades to establish some sort of economic cooperation between them, but without much luck. 1998 saw the launch of the Pan-Arab Free Trade Area (PAFTA) with the ambitious hope of creating a free trade area between the 14 signatory countries by 2005. A new deal, the Agadir Agreement, has now drawn the spotlight away from PAFTA.

This establishes a free trade area between Egypt, Jordan, Tunisia and Morocco by 2005. What differentiates the Agadir Agreement from PAFTA is that fact that its four signatories have concluded Association agreements with the European Union. The EU itself has been behind this initiative since the Agadir Declaration was signed in 2001. In a statement released on the eve of the signing of the agreement, Chris Patten, EU external relations commissioner, said that "this agreement brings us closer to our objective of a Euro-Mediterranean regional free trade area by 2010." The creation of a Euro-Mediterranean free trade area by 2010 is one of the targets set by the Barcelona Declaration.

Patten attended the signing of the agreement on 25 February, alongside Amr Moussa, secretary-general of the Arab League, and the foreign ministers of Egypt, Jordan, Morocco and Tunisia. The agreement had been initialed by the four countries’ trade ministers last year.

The agreement, which creates a market of more than 100 million people between the four countries, has an edge over the PAFTA. "All signatory countries have a base to build on, namely their agreement with the EU and all the accompanying conditionality," pointed out Gamal Bayoumi, secretary-general of the Arab Investors’ Union. That conditionality includes the European rules of origin as well as the accompanying anti-dumping and anti-subsidy mechanisms. In the meantime, no such conditionality exists with PAFTA. The existing rules of origin with PAFTA are shallow, he explained, warning that this could mean that EU products will enter freely into Arab countries, while commodities from other Arab countries would be subject to customs.

"Arabs were more serious in their negotiations with the EU than they were with each other," said Bayoumi who also headed the Egyptian team to the Egypt-EU association agreement negotiations which ended in 1999. Nonetheless, Bayoumi believes that the Agadir Agreement does not conflict with PAFTA, but rather supports it, particularly as more Arab countries join in. The agreement has left the door open for other Arab countries to join. Bayoumi expects Lebanon to join shortly and possibly Algeria later as both these countries have already concluded their Association agreements with the EU.

The importance of having an Association agreement for signatory countries is that the common EU rules of origin they will adopt in their trade with the EU will enable these countries to manufacture jointly in what is called cumulation and then export the end product to the EU. This means that a manufacturer can use any raw material or component from the area in the manufacture of finished products, without running the risk of losing free trade status if it is exported within the area.

According to a Ministry of Foreign Trade source, the agreement is not only about boosting trade between the four signatory countries, but more importantly about exporting to the EU.

Bayoumi explained that the Agadir agreement member countries may cumulate industrially to export to the EU because they all have agreements with the EU and they will be adopting the EU rules of origin. This way Egyptian textile producers may export their intermediate products to Tunisia and Morocco where they will be manufactured into ready- made garments and then exported to the EU. This will attract investments and encourage manufacturers to set up to produce not just for local consumption, but with their eyes on the wider European market.

But Bayoumi had hoped the agreement would be more than just an FTA which liberalises trade in commodities only. "We need to liberalise trade in services, capital movement, right of establishment and we need to create a customs union."

"We are lifting barriers between each other, but we need to unify them verses third parties," added Bayoumi.

The EU commission is providing some four million euro within the framework of the programme for "helping the Association agreement signatories to develop free trade among themselves and with the EU," according to an EU statement. That sum will be used to provide technical assistance to Agadir member countries and its soon-to-be established secretariat. This programme aims at encouraging trade between developing countries, integration starting on a sub- regional basis and at introducing pan- European Mediterranean cumulation of origin.

Trade between the four signatory countries is now minimal. Egypt’s trade stands at $99 million with Tunis, $74 million with Morocco and $136 million with Jordan. And in all three cases the balance of trade is in favour of Egypt.

source: Al-Ahram Weekly