Morocco: Trade & liberalisation

Oxford Business Group | 7/21/2006

Morocco: Trade & Liberalisation

With the recent launch of a US-sponsored assistance programme, Morocco is eager to take full advantage of its free trade agreement (FTA) with the US.

Moroccan industrial sectors are motivated to take full advantage of the Moroccan FTA with the US. Ph. Archives.

The US Agency for International Development (USAID), in partnership with the Ministry of Commerce, Industry and Economic Upgrading (MICMANE), launched the Morocco New Business Opportunities (NBO) project on June 27 in Rabat.

NBO is a four-year, $9m programme designed to help export-oriented Moroccan firms take advantage of new opportunities for entry or expansion in the US market emerging from the Morocco-US FTA.

Expected to generate a turnover of $175m and create up to 10,000 jobs, the project is a key plank of the USAID-Moroccan government agreement signed in April 2004. It is intended to assist Moroccan firms in priority sectors build their capacity to develop and maintain long-term commercial partnerships with US companies, working mainly in the textile and leather industries.

In addition to working with firms, the project will provide support to business associations to help promote Moroccan industry to US counterparts. This will be done through their presence at US trade shows, promotion of Morocco in key US trade journals, and facilitation of trade and investment missions of US buyers and investors to Morocco.

We have launched this programme to help Moroccan firms penetrate the American market and identify the best American partners, said the US Ambassador to Rabat, Thomas Riley.

MICMANE and USAID agreed to work together to improve productivity in farming and the food-processing industry, develop non-farming companies and industries and improve the business environment, according to the ministry.

The free trade pact came into force in January 2006,covering industrial and agricultural goods, intellectual property, services, customs, employment, the environment and telecommunications. It provides for the elimination of tariffs on 95%of all bilateral trade between Morocco and the US. The remaining tariffs on these goods, mainly agricultural products from both countries, are to be gradually
abolished over a nine-year period. The agreement had been scheduled to take effect in July 2005 but was postponed due to disagreements over the protection of intellectual property.

The agreement signed on June 15, 2004, after seven rounds of bilateral negotiations that lasted 13 months, is the crowning of a succession of bilateral economic agreements between Rabat and Washington. These include the Non-Double Taxation Agreement (1977), the Bilateral Investment Treaty (1985), and the Trade and Investment Framework (1995). Entering these agreements allows Morocco to strengthen its position as a key ally of the US in the Middle East and North Africa, especially as Morocco has become the first country in the region to conclude such a pact.

President Bush has stated a goal of knitting together the various bilateral agreements into a larger Middle East free trade zone by 2013.

Bilateral trade figures for the January-May 2006 period point to a significant impact of the incoming FTA on a number of Moroccan export segments. Electrical machinery — the biggest export segment with 25.6% of the total — recorded a 10.9% increase in the first five months of 2006 over the same period in 2005, to $49.5m. The textile sector also seems to have benefited, with exports of woven apparel up 80.5% to $24.3m and knitted apparel up 94.7% to $14.9m — the development has allowed Morocco to reverse the trend, which had these two segments lose 15.2% and 35% respectively in the first five months of 2004 and 2005.

Moroccan textile producers are keen to make strides in the lucrative US market, as evidenced by their presence at Men’s Apparel Guild in California (MAGIC) show in February 2006 in Las Vegas. At the show, they exhibited sportswear, jeans, woven cloth and hosiery. The NBO programme should help them press on with their marketing effort.

Meanwhile, the food sector recorded mixed results, as preserved food jumped 98% to $16.4m, while prepared meat and fish dropped 17.2% to $8.7m and vegetables lost 52.2% to $1.5m. While the segment edible fruit and nuts was virtually nonexistent at $426,000 in the first five months of 2004, in the same period two years later it has become the ninth-biggest contributor to Morocco’s exports to the US, at $4.8m. Morocco boasts significant production capacities in this segment, with high value-added products such as nutmeg.

These highlights have offset the areas where Morocco’s exports to the US have suffered, with the $194m worth of total exports decreasing by 1.2% in the first five months of 2006 over the same period in 2005, following a 2.2% drop the previous year. However, when compared to the previous five-year average, exports to the US increased by 7.5%.

Among the bad performers, salt, sulphur, earth and stone lost 25.4% to $34.4m, while base metals exports decreased 17.3% to $3.7m. However, Morocco’s export strategy is not based on these products.

Meanwhile, US exports to Morocco in January-May 2006 increased 8.8% over the same period in 2005, and were up 32.2% over the previous five-year average. As the US economy has long become hardened to competition, and is very advanced in terms of liberalisation, it has a decisive edge in a free trade environment.

Indeed, as evidenced in March 2006 by a World Bank policy paper on the effects of trade liberalisation on growth, the gains Morocco’s economy stands to make through tariff liberalisation are constrained by its lack of factor flexibility. As Morocco has high labour regulation rigidity, with a rigidity of employment index of 60 — compared to 54 in Tunisia, 37 in Poland and 10 in Malaysia — and investors face delays and high costs in creating or closing down companies, and in accessing capital, industrial land and construction permits, Morocco still scores disappointingly in factor market flexibility, despite ongoing efforts to improve the business environment.

However, tariff liberalisation, as it is taking place in Morocco, will significantly increase the impact of future reforms of labour, land and on overall growth and welfare. As Morocco integrates into the world economy, the benefits it stands to yield from liberalisation at home are poised to increase.

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source: Morocco Times